Developers go bust - that's not abnormal. Being unprepared is.

A Sydney developer collapsed into administration a few weeks ago owing lenders more than $3 billion, and for a few days it felt like private credit itself was on trial. Commentators asked whether the asset class had been oversold, whether the yields were ever real, whether $200 billion had been quietly built on sand.

I'd put the question differently. Developers going out of business isn't news. It's one of the oldest, most reliable features of the property cycle there is. What matters, and what actually separates the lenders investors should worry about from the ones they shouldn't, is whether that failure was something the lender had planned for or something that caught them by surprise.

An old problem, not a new one

I've spent most of my career on the construction side of these deals before I spent it on the lending side, and I can't think of a single multi-year period in that time when a developer somewhere wasn't going under. Rising build costs, a softening pre-sales market, a rate cycle turning at the wrong moment, a builder's program slipping by a few months and compounding from there: these are not exotic risks. They are the ordinary weather of property and construction, and anyone who has stood on a site knows it.

That's precisely why the industry doesn't rely on borrowers never failing. It relies on lenders being built to survive it when they do. Conflating the two - treating a developer's failure as proof that private credit as an asset class is broke -, gets the causation backwards. A developer failing tells you something about that developer, and about the conditions of that cycle. It tells you nothing at all about whether the fund that lent against it was ready.

What 30 years on site actually teaches you

I spent decades before Woodbridge on the construction side of these deals, as a builder and developer, not a lender, and that vantage point shapes how I read risk more than anything I learned later in credit. A finance-only view of a construction loan sees a drawdown schedule and a set of milestones. A construction view sees a progress claim that's really an invoice with an incentive attached, because the builder submitting it is usually the same party who benefits if it's approved a little early. It sees retention money withheld specifically because a project's last five per cent - defects, snagging, final council sign-off - is disproportionately where things go wrong. It sees a subcontractor going under mid-job as a cashflow event that can ripple through an entire program long before it shows up in a lender's monthly report, because the head contractor often keeps paying to keep the site moving and only tells the financier once the gap is too big to absorb quietly.

None of that is visible from a spreadsheet. It's visible from having stood in the site office when a variation claim lands, or from having managed the exact moment a builder's cash position gets tight enough that quality starts slipping before anyone says so out loud. That's the difference between assessing construction risk and assessing a construction loan: one treats the build as a black box between drawdowns, the other treats it as the thing actually being financed. It's also, not coincidentally, why the specific asks in Woodbridge's own lending model - independent valuation, drawdowns tied to genuine construction-stage sign-off - aren't abstract governance preferences. They're the exact protections I insist on as a builder-turned-lender, because I've seen what happens without them from the other side of the table.

What 'ready' actually looks like

Being ready isn't a slogan, it's a series of specific, checkable things. It starts well before a loan is written: is the security ranking real, first mortgage rather than something that looks senior on a term sheet but isn't in practice? Is the valuation independent of the person who wants the loan approved, and does it reflect the asset as it actually stands, part-built and mid-construction, rather than as it will look on completion if everything goes to plan? At Woodbridge the answer is always yes: every loan is backed by a fully independent, third-party valuation, never marked internally, because a manager grading its own homework hasn't really been tested at all.

It continues after drawdown, in the parts of a loan's life that rarely make it into a pitch deck. Are drawdowns released against an independent project manager's sign-off at each construction stage, or does the money move on the strength of the builder's own claim that a stage is complete? Is someone with construction experience - not just a credit analyst - actually looking at the site each month, not just the numbers? Because a spreadsheet can look perfectly healthy for months after a project has quietly gone wrong on the ground, and the gap between the two is exactly where the money gets lost.

And it shows up hardest in a downturn, in whether the fund's own promises to its investors were ever realistic. A liquidity term that assumes investors can be repaid on notice, against a loan book that's mostly illiquid construction finance, isn't a governance detail. It's a mismatch that sits quietly until the first time it's tested, and then it isn't quiet at all. It's why our funds run a full valuation and liquidity stress-test every month, against a genuine downturn scenario, not just when one arrives. We always have, because a liquidity promise is only worth as much as the last time it was actually tested.

None of this is a guarantee against loss. Construction finance carries real risk, and any lender who tells you otherwise is one to be worried about. But there's a difference between risk that's been priced, secured and monitored, and risk that's been assumed away because the fund never expected to need the answer.

The question worth asking

So when the next developer goes under - and there will be a next one - the useful question for advisers and investors isn't "how did private credit let this happen". It's a more specific one: "was the lender behind this loan prepared for exactly this outcome, or surprised by it?"

That's not a question about yield. It's a question about whether the valuation was independent, whether the drawdowns were properly monitored, whether the security actually ranked where it was supposed to, and whether the liquidity promised to investors ever matched the liquidity of what was actually being lent against. Ask that question of every manager, every time, and the asset class stops looking like a mystery and starts looking like what it actually is: an industry where failure is normal, and where the only real differentiator is whether anyone was ready for it.