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Development and Construction Finance

Financing of development land and construction has becoming an in increasingly specialised field. Post GFC and now COVID-19 the landscape has changed significantly with lender appetite for projects changing on a daily basis with many lenders choosing to deal with ‘existing or repeat customers only’. Commercial One maintains deep relationships with the full spectrum of Bank, Non-Bank and Private Lenders and we take a view there is a lender for most scenarios.

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