If you've spoken to more than one commercial lender about funding a property development, you may have noticed something confusing. Two lenders can look at exactly the same project yet assess it using completely different financial metrics.
One lender talks about Profit on Total Development Cost (TDC). Another focuses on Net Gross Realised Value (Net GRV).
At first glance, it's tempting to assume one method must be better than the other, or that there's some secret trick to convincing a lender to use the calculation that gives you the best outcome.
In reality, that's usually the wrong question.
These aren't competing strategies that developers get to choose between. They're simply different lending methodologies used by different commercial lenders.
Understanding how they work won't necessarily change the outcome of your application, but it will help you understand why lenders sometimes view the very same deal differently.
Different Lenders, Different Rules
Unlike residential lending, where most banks follow broadly similar assessment criteria, commercial property finance allows for a lot more flexibility. Every lender has developed its own way of measuring risk, and every credit department has its own policies about what makes a development worthy of funding.
That means two lenders may agree on your experience, like your project, accept your construction costs and believe your end values are realistic, yet still assess the feasibility using different financial ratios. It's not because one lender is right and the other is wrong. They've simply built different measuring sticks into their lending process.
The two most common approaches are:
Neither method is inherently better. They're simply different ways of measuring the strength of a development feasibility.
The important thing to understand is that you don't get to choose which method your lender uses. Each lender already has its preferred assessment criteria.
What Is Profit on Total Development Cost?
Profit on Total Development Cost is probably the easier of the two calculations to understand because it starts with the question most developers naturally ask:
"If I spend this much money, how much profit will I make?"
The calculation compares your projected profit against everything it costs to complete the project. These costs include:
This calculation tells the lender how much profit you're generating relative to the money being invested into the project. For example, if your development costs $2 million to complete and produces a $400,000 profit, your Profit on Cost would be 20%.
From a lender's perspective, this provides a useful indication of how much profit exists to absorb the inevitable surprises that seem determined to appear during almost every development. Because let's be honest - if you've completed enough projects, you already know that budgets and reality don't always remain on speaking terms.
What Is Net GRV?
Net GRV approaches the same project from the opposite direction.
Instead of asking how much profit you're making compared to your costs, it asks how much profit you're generating from the value of the finished project.
GRV stands for Gross Realised Value, which is simply the total value of everything you're selling once construction is complete. However, many commercial lenders actually use Net GRV, meaning GST is deducted from the projected revenue before the calculation is performed.
The formula becomes:
Profit ÷ Net Gross Realised Value
Instead of asking, "How much profit are you making on your costs?", this approach asks, "How much of your finished sales value is actually profit?" It's still measuring profitability. It's simply measuring it from a different angle.
Think of it as standing on the other side of a valley. You're looking at the same landscape - just from a different viewpoint.
Why Do Different Lenders Use Different Methods?
Every commercial lender manages risk differently.
Some institutions have developed lending models around Profit on Cost because they believe it provides a clearer picture of construction risk.
Others prefer Net GRV because they see it as a better measure of how much buffer exists within the completed project.
Neither approach is necessarily more conservative in every situation. They're simply measuring the same project from different perspectives.
This is why developers are often surprised when two lenders ask for different feasibility calculations, even though they're assessing exactly the same deal.
So... Which One Is Better?
This is usually the point where developers lean forward expecting a definitive answer.
The truth is, neither. Gotcha! You thought I was going to say "it depends!"
There's no prize for having your project assessed under one methodology rather than the other because you generally don't get to choose. Each commercial lender already has established credit policies that dictate how they assess development finance applications.
Trying to convince a lender to swap methodologies is a little like asking the AFL to use rugby rules for one particular match. The system is already in place before you arrive.
Instead, the real question becomes understanding which lenders are likely to be a good fit for your particular project, and that's where experienced commercial finance brokers earn their keep.
Will One Method Let You Borrow More?
Interestingly, although the calculations are different, the amount a lender is prepared to advance often ends up being remarkably similar.
So the answer is: usually not by a significant amount.
Although the calculations are different, the actual lending outcomes are often surprisingly similar.
Commercial lenders don't rely on just one ratio when deciding whether to fund a project. They're also considering:
Because there are multiple layers to every credit assessment, the final amount a lender is prepared to advance often ends up being relatively similar regardless of whether they're measuring Profit on Cost or Net GRV.
In other words, no lender is approving or declining a multimillion-dollar development based on a single formula sitting in one cell of your feasibility spreadsheet. The calculation is simply one piece of a much larger lending decision.
When Can It Make a Difference?
There are occasions where one methodology may produce a slightly stronger outcome than the other.
Generally speaking, the more profitable a project becomes, the more attractive a Net GRV assessment can appear. A larger profit creates more breathing room within the completed sales value, giving the lender a little more comfort that the project can withstand unexpected challenges.
Conversely, projects with tighter margins may appear stronger under a Profit on Cost assessment, depending on how the lender's internal policies are structured.
This doesn't mean developers should try to manipulate which calculation is used. Rather, it highlights why different lenders can sometimes reach slightly different conclusions about the same project.
It's simply the result of different assessment models.
The Real Lesson
Developers sometimes become fixated on the formulas, wondering whether they should optimise their feasibility for Profit on Cost or Net GRV.
In reality, they're asking the wrong question.
The goal isn't to build a feasibility that looks good under one particular calculation. The goal is to build a genuinely strong development.
If your acquisition price is sensible, your construction costs are realistic, your end values are conservative, you've allowed adequate contingencies and the project produces healthy profits, it will usually stack up regardless of which methodology the lender applies.
The formulas simply describe the project. They don't create a good one.
At the end of the day, commercial lenders aren't really funding spreadsheets, they're funding developments. A solid project with realistic assumptions will always be easier to finance than one that relies on clever maths to make the numbers work.
And that's probably the most important calculation of all. And keep in mind that sometimes the best lender for one project won't be the best lender for the next.
Bottom line, the stronger the fundamentals of the project, the more likely it is that multiple lenders will see merit in supporting it, regardless of their methodology.
One lender talks about Profit on Total Development Cost (TDC). Another focuses on Net Gross Realised Value (Net GRV).
At first glance, it's tempting to assume one method must be better than the other, or that there's some secret trick to convincing a lender to use the calculation that gives you the best outcome.
In reality, that's usually the wrong question.
These aren't competing strategies that developers get to choose between. They're simply different lending methodologies used by different commercial lenders.
Understanding how they work won't necessarily change the outcome of your application, but it will help you understand why lenders sometimes view the very same deal differently.
Different Lenders, Different Rules
Unlike residential lending, where most banks follow broadly similar assessment criteria, commercial property finance allows for a lot more flexibility. Every lender has developed its own way of measuring risk, and every credit department has its own policies about what makes a development worthy of funding.
That means two lenders may agree on your experience, like your project, accept your construction costs and believe your end values are realistic, yet still assess the feasibility using different financial ratios. It's not because one lender is right and the other is wrong. They've simply built different measuring sticks into their lending process.
The two most common approaches are:
- Profit on Total Development Cost (TDC)
- Profit on Net Gross Realised Value (Net GRV)
Neither method is inherently better. They're simply different ways of measuring the strength of a development feasibility.
The important thing to understand is that you don't get to choose which method your lender uses. Each lender already has its preferred assessment criteria.
What Is Profit on Total Development Cost?
Profit on Total Development Cost is probably the easier of the two calculations to understand because it starts with the question most developers naturally ask:
"If I spend this much money, how much profit will I make?"
The calculation compares your projected profit against everything it costs to complete the project. These costs include:
- Purchase price
- Stamp duty
- Consultant fees
- Construction costs
- Holding costs
- Finance costs
- Marketing
- Selling expenses
- Contingencies
- GST where applicable
This calculation tells the lender how much profit you're generating relative to the money being invested into the project. For example, if your development costs $2 million to complete and produces a $400,000 profit, your Profit on Cost would be 20%.
From a lender's perspective, this provides a useful indication of how much profit exists to absorb the inevitable surprises that seem determined to appear during almost every development. Because let's be honest - if you've completed enough projects, you already know that budgets and reality don't always remain on speaking terms.
What Is Net GRV?
Net GRV approaches the same project from the opposite direction.
Instead of asking how much profit you're making compared to your costs, it asks how much profit you're generating from the value of the finished project.
GRV stands for Gross Realised Value, which is simply the total value of everything you're selling once construction is complete. However, many commercial lenders actually use Net GRV, meaning GST is deducted from the projected revenue before the calculation is performed.
The formula becomes:
Profit ÷ Net Gross Realised Value
Instead of asking, "How much profit are you making on your costs?", this approach asks, "How much of your finished sales value is actually profit?" It's still measuring profitability. It's simply measuring it from a different angle.
Think of it as standing on the other side of a valley. You're looking at the same landscape - just from a different viewpoint.
Why Do Different Lenders Use Different Methods?
Every commercial lender manages risk differently.
Some institutions have developed lending models around Profit on Cost because they believe it provides a clearer picture of construction risk.
Others prefer Net GRV because they see it as a better measure of how much buffer exists within the completed project.
Neither approach is necessarily more conservative in every situation. They're simply measuring the same project from different perspectives.
This is why developers are often surprised when two lenders ask for different feasibility calculations, even though they're assessing exactly the same deal.
So... Which One Is Better?
This is usually the point where developers lean forward expecting a definitive answer.
The truth is, neither. Gotcha! You thought I was going to say "it depends!"
There's no prize for having your project assessed under one methodology rather than the other because you generally don't get to choose. Each commercial lender already has established credit policies that dictate how they assess development finance applications.
Trying to convince a lender to swap methodologies is a little like asking the AFL to use rugby rules for one particular match. The system is already in place before you arrive.
Instead, the real question becomes understanding which lenders are likely to be a good fit for your particular project, and that's where experienced commercial finance brokers earn their keep.
Will One Method Let You Borrow More?
Interestingly, although the calculations are different, the amount a lender is prepared to advance often ends up being remarkably similar.
So the answer is: usually not by a significant amount.
Although the calculations are different, the actual lending outcomes are often surprisingly similar.
Commercial lenders don't rely on just one ratio when deciding whether to fund a project. They're also considering:
- Loan-to-value ratios
- Equity contribution
- Presales (where applicable)
- Experience of the developer
- Project risk
- Market conditions
- Exit strategy
Because there are multiple layers to every credit assessment, the final amount a lender is prepared to advance often ends up being relatively similar regardless of whether they're measuring Profit on Cost or Net GRV.
In other words, no lender is approving or declining a multimillion-dollar development based on a single formula sitting in one cell of your feasibility spreadsheet. The calculation is simply one piece of a much larger lending decision.
When Can It Make a Difference?
There are occasions where one methodology may produce a slightly stronger outcome than the other.
Generally speaking, the more profitable a project becomes, the more attractive a Net GRV assessment can appear. A larger profit creates more breathing room within the completed sales value, giving the lender a little more comfort that the project can withstand unexpected challenges.
Conversely, projects with tighter margins may appear stronger under a Profit on Cost assessment, depending on how the lender's internal policies are structured.
This doesn't mean developers should try to manipulate which calculation is used. Rather, it highlights why different lenders can sometimes reach slightly different conclusions about the same project.
It's simply the result of different assessment models.
The Real Lesson
Developers sometimes become fixated on the formulas, wondering whether they should optimise their feasibility for Profit on Cost or Net GRV.
In reality, they're asking the wrong question.
The goal isn't to build a feasibility that looks good under one particular calculation. The goal is to build a genuinely strong development.
If your acquisition price is sensible, your construction costs are realistic, your end values are conservative, you've allowed adequate contingencies and the project produces healthy profits, it will usually stack up regardless of which methodology the lender applies.
The formulas simply describe the project. They don't create a good one.
At the end of the day, commercial lenders aren't really funding spreadsheets, they're funding developments. A solid project with realistic assumptions will always be easier to finance than one that relies on clever maths to make the numbers work.
And that's probably the most important calculation of all. And keep in mind that sometimes the best lender for one project won't be the best lender for the next.
Bottom line, the stronger the fundamentals of the project, the more likely it is that multiple lenders will see merit in supporting it, regardless of their methodology.
