Basalt Ridge Developments Ltd: What do you do with this opportunity?

// DRILLS / ISSUE 08 / BASALT RIDGE

IN HIGHBANK ISSUE 08 · SEASON 1 · FILE 8 · 6 MIN READTHE SENIOR READ — MICHAEL

Basalt Ridge Developments

THE COURTSHIP

PROPERTY · NEW-TO-BANK · DIFFICULTY 3/5

// THE ASK

FacilityUS$8.5m senior debt

Project24 townhouses, Christchurch

Loan to cost55% of total cost

Presales40% (policy asks 60%)

Decision by“Two other banks circling”

You have ten minutes. What do you do?

Read the file

// ONE FILE, THREE CHAIRS

// THE LENDING CHAIR · ISSUE 08

Basalt Ridge Developments

You are here

// THE DEVELOPER'S CHAIR

The Other Two Banks

Read from this chair →

// A BUYER'S CHAIR

Off the Plan

Read from this chair →

// THE SETUP

Basalt Ridge Developments builds mid-scale townhouse projects in Christchurch — six completed projects over eight years, all with a second-tier lender whose pricing the founder-developer now describes as "a tax on not being known." His deck is polished: claimed average ROE of 28% across the six projects, photographs, testimonials from buyers. He wants US$8.5m of senior debt for a 24-townhouse project on land already settled — 55% of total development cost, with presales at 40% against your bank's standing 60% policy line.

The timing has a second layer. Your bank's property team carries a growth target this quarter, and new-to-bank development relationships are on the list. The relationship manager wants this one: "established developer, real track record, we finally get a look." The developer, for his part, mentions twice that two other banks have the deck.

The suburb's median price is down 4% over six months. The build contingency in his feasibility is 3.5%. The settlement statements behind the claimed 28% ROE are not in the deck.

You have the feasibility. You have ten minutes. What do you do?

// PROJECT SNAPSHOT

SOURCE: DEVELOPER FEASIBILITY · UNVERIFIED · COMPOSITE CASE — FICTIONAL

LOAN TO COST

55%

senior debt / total cost

PRESALES

40%

▼ vs 60% policy

CLAIMED TRACK ROE

28%

▲ in the deck, unverified

SUBURB PRICES

−4%

▼ median, six months

CONTINGENCY

3.5%

▼ of build cost

Read it against the bank's own development policy, in the file: presales covering at least 60% of peak debt before the first drawdown, and a contingency sized by the bank's surveyor rather than the developer. Loan to cost is senior debt as a share of total development cost; a QS is the independent quantity surveyor who certifies what the build has left to cost.

// THE FILE

THE FEASIBILITY · US$ · 24 UNITS

The developer's feasibility, as submitted, with the bank's arithmetic beside it. A composite project; it belongs to no real site.

DEVELOPMENT BUDGET

The development budget by line, and its total.
Land (settled)	US$3.60m
Construction	US$9.60m
Contingency	US$0.34m
Design, consents and fees	US$1.10m
Finance costs and fees	US$0.82m
Total development cost	US$15.46m

FUNDING

How the development cost is funded.
Senior debt (requested)	US$8.50m
Developer's equity, land included	US$6.96m
Total	US$15.46m

SALES

Presales, the unsold units at the assumed price, and the gross development value.
Presold — 4 of 24	US$3.40m
Unsold — 20 at US$0.76m assumed	US$15.20m
Gross development value	US$18.60m

RATIOS FROM THE FEASIBILITY

The ratios a development lender reads, computed from the tables above.
Senior debt ÷ total cost	55.0%
Senior debt ÷ gross development value	45.7%
Presales ÷ senior debt	40.0%
Contingency ÷ build cost	3.5%
Margin on cost	20.3%

THE TRACK RECORD, AS THE DECK STATES IT

The developer's six completed projects, the claimed return on each, and the evidence provided.
PROJECT	DONE	CLAIMED ROE	EVIDENCE
Project 1 — 6 townhouses	2018	24%	Deck only
Project 2 — 8 townhouses	2019	31%	Deck only
Project 3 — 10 townhouses	2021	35%	Deck only
Project 4 — 12 townhouses	2022	29%	Deck only
Project 5 — 9 townhouses	2024	22%	Deck only
Project 6 — 14 townhouses	2025	27%	Deck only

THE FACILITY AND THE MARKET

Senior construction loanNew to the bank. The six earlier projects were funded by a second-tier lender. Two other banks have the deck.: —; US$8.5m
PresalesDeposits paid at signing, the balance at settlement.: 4 of 24 townhouses · US$3.4m; Policy line: 60% of the debt
The marketMeasured on the suburb's settled sales.: Suburb median −4% in six months; —

THE REST OF THE FILE · SECURITY · CONDITIONS · BUDGET

As the file stood when the request arrived, in September 2026: the developer's feasibility and deck, four signed presale contracts, the builder's tender, the site's settlement statement and a title search. What a bank has on file beyond the feasibility — enough to write a full credit paper on. A composite borrower: none of it belongs to a real company.

OWNERSHIP, PEOPLE, THE SITE

100% The developer — Formed the company in 2017; its only director

Founder-developer and managing director.: He came to development from residential building and has run all six projects. He handles the sales agent, the builder and the lenders himself.
Project manager.: Employed since 2021; ran the sites of Projects 4 to 6. The company's only other full-time employee.
Sales agent.: A residential agency, paid on commission. It signed the four presales.
External accountant.: A chartered accounting practice prepares the company's annual accounts and tax returns.

The company works from a leased office and, as the application states, owns no property but the site. The site, in Christchurch, cost US$3.60m and settled in March 2026; it is registered to Basalt Ridge Developments Ltd. Resource consent for 24 townhouses and building consent are both granted. Nothing has been built.

FACILITIES AND PRICING

Senior construction loan — requested: US$8.50m at its peak; 55.0% of total costNot yet offered. The feasibility assumes 9.0% interest, capitalised, and a 1.0% establishment fee20 months: the 16-month build, then titles and settlements. Drawn monthly once the equity is in; repaid from settlements
Lending from this bank: None — new to the bank
Lending elsewhere: None outstanding, as the application statesProject 6's facility with the second-tier lender was repaid from its settlements in 2025. The site was bought without borrowing

SECURITY

First mortgage over the site: Offered in the application. The title search shows the site registered to the company, with no mortgage on it.
General security agreement: Over all present and after-acquired property of Basalt Ridge Developments Ltd; offered in the application. No other security interest is registered against the company.
Guarantees: None offered.

CONDITIONS AND REPORTING

No term sheet has been issued. The file is the request as it arrived.
The bank's standard development documentation asks, before every drawdown, for the quantity surveyor's progress certificate and cost-to-complete statement, and for a sales schedule: contracts signed and cancelled, and deposits held.
Once a year: the borrower's financial statements, within 120 days of its year-end.
No record against any of it: the developer has never borrowed from this bank.

THE FOUR PRESALE CONTRACTS

Unit 1 — end, three bedroomsSigned April 2026.: PRICEUS$0.88m; DEPOSITUS$88k · 10%; BUYER'S FINANCENo condition
Unit 6 — end, three bedroomsSigned May 2026; the finance condition was satisfied in June. The buyer's approval letter is not in the file.: PRICEUS$0.86m; DEPOSITUS$86k · 10%; BUYER'S FINANCECondition met
Unit 13 — end, three bedroomsSigned July 2026, with a 5% deposit agreed at signing; the finance condition was satisfied in August. The approval letter is not in the file.: PRICEUS$0.84m; DEPOSITUS$42k · 5%; BUYER'S FINANCECondition met
Unit 24 — end, three bedroomsSigned August 2026.: PRICEUS$0.82m; DEPOSITUS$82k · 10%; BUYER'S FINANCENo condition
Four contracts, all unconditionalPresold value against the debt requested: 40%.: PRICEUS$3.40m; DEPOSITUS$298k; BUYER'S FINANCE—

All four are on the developer's standard contract. Each deposit is held in the developer's solicitor's trust account until settlement. Either party may cancel, with the deposit refunded in full, if title has not issued by 30 September 2028.

VALUE: THE DEVELOPER'S PRICE LIST, AND NO VALUATION

End units, three bedrooms8 in the scheme; the other 4 are presold: UNSOLD4; LIST PRICEUS$0.86m; TOTALUS$3.44m
Three-bedroom units: UNSOLD12; LIST PRICEUS$0.77m; TOTALUS$9.24m
Two-bedroom units: UNSOLD4; LIST PRICEUS$0.63m; TOTALUS$2.52m
Unsold, as the feasibility prices them: UNSOLD20; LIST PRICEUS$0.76m average; TOTALUS$15.20m

The price list is the developer's. The file holds no independent valuation, of the townhouses or of the land, which cost US$3.60m in March 2026; no valuer has been instructed. Its market evidence is the suburb's median, down 4% in six months on settled sales.

THE BUILDING CONTRACT

BuilderA third-party head contractor, not related to the developer. It built Projects 4 to 6, as the deck states.: AS TENDEREDHead contractor
StatusThe developer intends to sign once finance is in place.: AS TENDEREDTendered, not signed
PriceA lump sum for the whole build: the budget's construction line.: AS TENDEREDUS$9.60m
Fixed or notThe tender carries a cost-escalation clause: rises in materials and labour after signing pass to the developer.: AS TENDEREDNot fixed
RetentionsHalf released at practical completion, half at the end of a twelve-month defects period.: AS TENDERED5% of each claim
ProgrammeSite start to practical completion. Titles and settlements follow; the loan term asked for is 20 months.: AS TENDERED16 months

THE FUNDING, IN THE ORDER IT GOES IN

Land equityThe site, paid for in cash.: AMOUNTUS$3.60m; OF COST23.3%; WHENIn
Cash equityUS$0.64m already spent on design, engineering and the two consents; US$2.72m still to go in. Its source, as the application states it: the company's retained proceeds from Project 6. No bank statement is in the file.: AMOUNTUS$3.36m; OF COST21.7%; WHENBefore any debt
Senior debtDrawn monthly after the equity, with interest capitalised.: AMOUNTUS$8.50m; OF COST55.0%; WHENRequested
Total development cost: AMOUNTUS$15.46m; OF COST100.0%; WHEN—

THE TRACK RECORD: WHAT THE DECK SUPPLIES

Project 1 — 6 townhouses: DONE2018; CLAIMED ROE24%; IN THE DECKPhotographs
Project 2 — 8 townhouses: DONE2019; CLAIMED ROE31%; IN THE DECKPhotographs
Project 3 — 10 townhouses: DONE2021; CLAIMED ROE35%; IN THE DECKPhotographs · buyer testimonials
Project 4 — 12 townhouses: DONE2022; CLAIMED ROE29%; IN THE DECKPhotographs · buyer testimonials
Project 5 — 9 townhouses: DONE2024; CLAIMED ROE22%; IN THE DECKPhotographs · buyer testimonials
Project 6 — 14 townhouses: DONE2025; CLAIMED ROE27%; IN THE DECKPhotographs · buyer testimonials
6 projects · 59 townhouses: DONE2018–2025; CLAIMED ROE28% average; IN THE DECKDeck only

All six were funded by the second-tier lender. For none of them does the file hold a settlement statement, a final cost report, accounts covering the project, or the lender's facility letter.

THE BANK'S STANDING TERMS FOR DEVELOPMENT LENDING

PresalesPresold value — signed contracts, deposits paid — measured against the facility's peak debt, and met before the first drawdown.: STANDING TERMAt least 60% of peak debt
EquityThe developer's whole contribution is spent on the project before the bank lends.: STANDING TERMIn first
Quantity surveyorReviews the budget and the building contract before approval, then inspects the site and certifies each progress claim before it is paid. The developer bears its fees.: STANDING TERMAppointed by the bank
Cost to completeThe undrawn loan plus any unspent equity must cover the surveyor's cost to complete. A shortfall is paid in by the developer before the drawdown.: STANDING TERMTested at every drawdown
ContingencySized for the build by the surveyor, and released only against certified claims.: STANDING TERMAs the surveyor assesses
ValuationAddressed to the bank: the land as it is, and the project as if complete.: STANDING TERMIndependent, before approval
Building contractWith a builder the surveyor accepts, and a side deed that lets the bank step in if the developer defaults.: STANDING TERMSigned before the first drawdown
Deposits and settlementsDeposits stay in a solicitor's trust account until settlement; the net proceeds of every settlement go to the loan until it is repaid.: STANDING TERMHeld, then applied
GuaranteesFrom the shareholders of the borrowing company, with a statement of their assets and liabilities.: STANDING TERMOrdinarily taken

The development section of the bank's credit policy, as it stood in September 2026. Every development facility starts from these terms; none has yet been put to this developer, because no term sheet has been issued.

THE COST PLAN: SPENT, AND STILL TO SPEND

Land (settled): SPENTUS$3.60m; STILL TO SPENDNil — settled in March 2026
Construction: SPENTNil; STILL TO SPENDUS$9.60m — the builder's tender, not signed
Contingency: SPENTNil; STILL TO SPENDUS$0.34m — 3.5% of construction
Design, consents and fees: SPENTUS$0.64m; STILL TO SPENDUS$0.46m — legal, project management, the surveyor's and valuer's fees, and sales commissions at settlement
Finance costs and fees: SPENTNil; STILL TO SPENDUS$0.82m — interest at an assumed 9.0% on an average US$4.9m drawn across 20 months, and a US$85k establishment fee
Total development cost: SPENTUS$4.24m; STILL TO SPENDUS$11.22m — the developer's US$2.72m first, then the US$8.50m of senior debt

WHAT IS STILL NOT IN THE FILE

A real file would also hold these. A paper that says which of them it needs before approving, and why, is reading the file properly.

The settlement statements and final cost reports for the six earlier projects, and the company's financial statements for the years they cover.
An independent valuation addressed to the bank: the land as it is, and the townhouses as if complete.
A quantity surveyor's review of the budget and the builder's tender.
The developer's own statement of assets and liabilities: where the rest of the cash equity comes from, and what else he has guaranteed.
The builder's accounts and current workload.
The second-tier lender's facility letters for the six projects, and a reference on how they ran.

DOWNLOAD THE FILE · XLSX

With the rest of the file above, this one is complete enough for a full credit paper. Write one, and the first three sent in are read free, the way the senior reads here are written — how the pilot works.

// YOUR JUDGMENT

What do you do with this opportunity?

[A]Win the deal — term sheet at the requested structure; the growth target exists for a reason[B]Compete with structure: 60% presales as condition precedent, QS-certified cost-to-complete, 10% contingency, personal guarantees[C]Offer the relationship, not this deal: start with a smaller project — or this one at materially lower leverage[D]Pass — outside appetite for a first-time counterparty at this point in the cycle

This drill needs JavaScript: the options above cannot be selected without it, and the senior banker's reading stays hidden. Turn JavaScript on and reload the page to take the drill.

// THE READING

Read the courtship before the project, and read it in both directions. A new-to-bank file arrives dressed for the interview: without settlement statements, the 28% ROE is a claim shaped for exactly this room — marketing with a decimal point rather than a track record. That is no accusation; every developer's first deck to a new bank looks like this. But it defines what the bank actually knows, which is that six projects were completed and the rest is unverified. Then read the other direction honestly. Your bank has a growth target, the relationship manager has this quarter, and the developer mentioned the two circling banks twice. Every party in this file has an incentive to say yes quickly, and none of those incentives improves the project by one dollar. When the room wants a deal this much, the incentive structure belongs in the file.

The project itself, on its own numbers: presales at 40% against a 60% policy, in a suburb repricing downward, with a 3.5% contingency that an overrun of 5% on the build would more than spend. The two ways out of a development loan are that the presales settle, or that completed stock sells at feasibility value. Way one is 20 points short of policy. Way two is weakening at 4% per half. And the contingency — the number that absorbs the difference between a plan and a build — is thin precisely where this cycle bites, in cost escalation and delay. The project is optimistic rather than bad, and the optimism sits exactly in the lines whose presentation the developer controls.

B is the tempting answer — win it with structure: a presales condition precedent, QS certification, 10% contingency, personal guarantees. Every element is professionally correct, and the ensemble misses the point of first deals. A term sheet carrying every protection the manual offers, presented to a counterparty the bank has never seen perform under stress, does one of two things: it loses to the circling banks — in which case it was theatre — or it wins, and the bank now holds a fully-levered position with a stranger, protected by paper it has never tested against this sponsor's behaviour. Structure is a substitute for knowledge, and it substitutes badly at the beginning of relationships. That is what B misunderstands: the problem is not that the deal lacks covenants. It is that the relationship lacks history.

The senior banker's read is C: offer the relationship, and re-sequence the deal. Two honest shapes — a smaller project first, sized so that both parties can afford to be wrong about each other; or this project at leverage low enough that the developer's own equity carries his optimism, with the bank funding what the verified numbers support. Say it plainly: "We want to be your bank for the next six projects, and we price the first one so we get there." A developer whose track record is real hears sequencing as seriousness — his 28% says he can afford patience. A developer who needs a stranger's full ask, this month, at 40% presales into a softening suburb, has told you which kind of file this was, and the circling banks are welcome to the courtship. The first deal teaches the counterparty what the bank will tolerate, and that lesson compounds for as long as the relationship lasts.

THE NUMBERS THE READING USED

Senior debt against total costFUNDING ÷ BUDGET: 55%; US$8.5m of a US$15.46m project: the bank would fund most of the money going into the ground.
Presales against the debtSALES: 40% — US$3.4m; Twenty points short of the 60% policy line: the second way out is mostly unsold.
Contingency against build costBUDGET: 3.5% — US$0.34m; Less than an overrun of 5% on the build would cost, on a build in a falling suburb — and the bank's policy has its surveyor size the contingency, not the developer.
The claimed track recordTRACK RECORD: 28% average return, six projects; Not one settlement statement behind it. The number that would make the deck persuasive is the one the file cannot verify.
Margin on cost, and what a further fall doesSALES ÷ BUDGET: about 20%, 12% if unsold prices fall another 8%; The developer's equity carries the first loss. The senior read funds what the verified numbers support — a smaller first project, or this one at much lower leverage.

Every figure above is in the file appendix before the question — open THE FILE and redo it.

The first deal teaches a borrower what the bank will tolerate.

// THE SAME FILE, FROM TWO OTHER CHAIRS

The same file, read by the two people with the most riding on it. Each has one decision to make, and neither has the bank's lever.

// THE DEVELOPER'S CHAIR

The Other Two Banks

The bank wants your next six projects, and not this one as asked. Two other banks have your deck. The site is waiting.

Read from this chair →

// A BUYER'S CHAIR

Off the Plan

You signed off the plan and paid the deposit. The build waits for presales, and your contract is one of them.

Read from this chair →

// HOW READERS ANSWER

The senior banker's read is [C].

Early days. The distribution appears here once enough readers have answered.

The tempting answer is B. The senior banker chose C. The reading explains why structure substitutes badly for history at the start of a relationship, and what a bank that wants the next six projects offers on the first.