The question nobody asks at the term sheet stage
Walk into any real estate mandate conversation and you will hear two numbers discussed within the first ten minutes: the quantum of debt required, and the interest rate on offer. Both matter. Neither is the most important question in the room.
The most important question is: does this structure hold up when the project hits friction?
Every large development hits friction. A slab that slips by six weeks. A regulatory approval that takes three months instead of one. A pre-sales campaign that stalls at 60% absorption while the market finds its footing. None of these are project failures. They become financing failures when the debt structure wasn't designed to absorb them.
What structure actually means
Structure is not a single variable. It is the interaction of several:
- Draw schedule — are disbursements tied to construction milestones or to a calendar? Calendar-linked draws force the developer to pull capital before the project needs it and pay interest cost that hasn't yet been earned.
- Covenant design — are the DSCR thresholds and coverage ratios appropriate for a construction-phase project, or are they borrowed from a stabilised-asset playbook?
- Tenure alignment — does the debt mature before the project delivers? If so, the developer is refinancing under pressure, not from strength.
- Collateral architecture — what has been ringfenced, and does that leave enough headroom for the construction-finance tranche that follows?
The cost of getting one wrong
A project at 70% completion with strong pre-sales and a lender calling for renewal is not a distressed asset. It is a structuring problem that has become a financial problem. The asset has value. The debt has run out of runway.
This is where FINKOI's practice begins — not in finding cheaper capital, but in designing structures that keep the project on its feet from groundbreaking to occupation certificate.
"The developers who navigate cycles well are the ones who negotiated the right structure, not just the right rate."
Starting the conversation differently
The next time you are looking at a term sheet, add a third number to the two you already track: the total cost of the structure over the project lifecycle — including the opportunity cost of covenants that restrict your decisions, the interest cost of draws you didn't need yet, and the refinancing risk of tenure that doesn't match your delivery timeline.
That number tells a different story than the headline rate. And it is usually the one that matters.
This is the first post in our Fundamentals of Real Estate Finance series. Future posts in this series will cover construction finance draw structures, LTV optimisation, and the mechanics of last-mile funding.