Typical Construction Finance Scenarios
Bank Construction Finance
- Finance to lesser of 55% Loan to Value (LVR) or 70% Loan to Cost (LCR) (both ex GST)
- 100%+ debt coverage with qualifying pre-sales or leases
- Extensive relevant track record of both developer and builder
- Full due diligence of developer and builder financials
- Bank panel valuation
- Low interest rates and fees (4.5% - 7% pa. all in)
Non-Bank Construction Finance
- Finance to lesser of 65% LVR or 80% LCR
- 70% debt coverage with qualifying pre-sales or leases
- Track record of similar projects by developer and builder
- Quicker turn-around times
- Panel valuation
- Increased interest rates and fees (7% - 10% pa.. all in)
Private Lending Construction Finance
- Flexible solutions based packages with quick turn-around
- Base financing to lesser of 65% LVR or 80% LCR
- Mezzanine financing to lesser of 80% LVR or 90% LCR
- Flexibility on qualifying presales and preleases
- Track record of similar projects
- Panel valuation
- High interest rates and fees (8% - 12%+ pa. all in)
Development Site Financing
- Location and scenario specific
- Dependent on factors including permit status, income profile, site market depth and end product demand profile
- Bank finance up to 50% LVR
- Non-bank and Private Lending up to 65% LVR
- Appetite and price varies between Banks, Non-banks and Private Lenders
Mezzanine Finance and Preferred Equity
- Provided by Private Lenders and High Net Worth investors
- Financing to be utilised along side Developer Equity and Bank Finance
- Structures vary and generally require a ‘de-risked’ project in terms of permit, projected revenues and cost base
- Mezzanine Finance attracts a coupon interest rate and requires a second mortgage with consent of the senior lender
- Preferred Equity attracts a coupon interest rate and generally an agreed share of project profits
- Advantages include;
- Increased developer equity IRR
- Equity release or shortfall coverage
- Management of equity position across multiple projects