Great nuggets of wisdom you hear on private telephone conversations:

"The elite developers I work with, and that we finance through senior & mezz debt — the IRR on their own money should be close to or around 100%. And some of these guys are achieving that for years."

Some people mention that 20% mezzanine debt finance is ridiculously high, but what they don't understand about construction finance is the way elite developers have their capital working in high-risk, early phases of the project.

Once the project gets development approvals...

...and it becomes "shovel ready" (construction term used to indicate everything is ready to go apart from finance), it is the blend of senior and mezzanine debt that comes in financing the project.

Elite developers will even go a step further and do an "equity withdrawal"...

...pulling out almost all of their capital by selling their position to preferred equity investors, as the project becomes more de-risked. Examples include:

• further into the build process
• more inventory records pre-sales

By this stage, it looks as if passive investors are making great returns of 10-20% per annum (this is usually families like us).

But the truth is developers are already out of that project with an "equity withdrawal" and using their capital in higher-risk situations once again.