Is debt really a commodity? What developers risk when price becomes the only metric

In a market constrained by affordability issues, it is hardly surprising that developers’ attention has shifted towards price. Developers and investors are under pressure from higher interest rates, rising construction costs and tighter margins, and debt pricing has become an increasingly dominant factor in funding decisions. Against that backdrop, it is tempting to view debt as a commodity, where capital is capital and the rational choice is to secure it at the lowest possible cost.

That assumption, however, risks overlooking something fundamental. Commercial property debt is not simply money. It is a contractual relationship that shapes how a project is funded, managed and supported over its lifetime. Treating debt as interchangeable can mask material differences between lenders, particularly now when schemes seldom proceed exactly as planned.

The danger of assuming all debt is the same

At term sheet stage, many facilities can look broadly similar. Loan-to-value, interest rate and headline fees may align closely, giving the impression that the underlying product is effectively the same. The reality only becomes apparent once documentation is negotiated and the project is underway.

Debt is defined not just by price but by covenants, conditions, discretions and remedies. These determine how a lender behaves when assumptions change, how much flexibility exists within the documents, and how risk is allocated between the parties. When debt is treated as interchangeable, these distinctions are often given insufficient weight.

Why a lender’s funding model matters

One of the most commonly underestimated variables is the source of a lender’s capital. Some lenders deploy funds from a committed pool or balance sheet, with clear authority to make decisions and approve variations. Others rely on capital assembled on a deal-by-deal basis or from multiple third-party participants sitting behind the scenes.

From a commercial perspective, this distinction is critical. The funding documents affect who has the power to agree amendments, extensions or additional funding, and how quickly decisions can be made. A lender may be willing in principle to support a borrower but unable to do so in practice because approvals sit outside its direct control. Informal assurances given during negotiations can quickly unravel if they were never backed by fund-level authority or reflected clearly in the documentation.

When execution risk outweighs headline savings

This is often where the perceived value of a cheaper lender begins to erode. A facility that looks competitive on paper may introduce execution risk if drawdowns are delayed, variations require multiple layers of consent, or the lender’s discretion is more limited than anticipated.

These risks rarely feature in pricing comparisons, yet they can have significant consequences. Delays to funding, uncertainty around approvals or an inability to respond quickly to change can place pressure on a project at precisely the wrong moment.

The limits of “commercial” flexibility

A related issue is the way flexibility is marketed in parts of the lending market. Lenders may present themselves as commercial and pragmatic, but their ability to act is frequently constrained by internal credit processes, investment mandates or third-party capital providers.

When a development programme shifts, planning is delayed or cost overruns arise, those constraints become visible. What matters at that point is not how flexible a lender appeared at the outset but what the facility agreement actually permits and who has authority to approve change.

Why the legal framework matters when things go wrong

The legal framework governing a loan determines how risk is managed when a scheme does not proceed as expected. Covenant breaches, defaults and enforcement rights are not abstract concepts but the mechanisms through which pressure is applied.

A lender that lacks the ability to make timely decisions or support a borrower through change can inadvertently accelerate problems, even where both parties would prefer a consensual outcome. These dynamics are often overlooked when debt is assessed purely on price.

Rethinking value in commercial property debt

This is not to suggest that cheaper lenders are inherently problematic or that higher-priced debt is always better. The point is more nuanced. The cost of debt is only one component of value. Certainty of funding, reliability of decision-making and an experienced, pragmatic lender team often prove far more important over the life of a project.

In a market where pressure is pushing borrowers towards the lowest available rate, there is a risk that these considerations are sidelined. Yet it is precisely in more challenging conditions that the legal architecture of a funding arrangement matters most. Debt is not a commodity. It is a structured legal relationship, and its true value lies in whether it can deliver when it matters.