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