Background
Development Finance Partners (DFP) was approached by a developer seeking townhouse development funding in Doncaster, VIC to complete three townhouse projects. Initially, the developer had secured financing through a major bank. However, unexpected inclement weather caused delays and escalated construction costs. As a result, the developer urgently needed additional funds, but the bank was unwilling to provide them.
The Project
The project focused on the construction and funding of the remaining costs needed to complete three townhouse developments. In total, $3,442,000 was required. This funding had an Loan-to-Value Ratio (LVR) of 61% of the gross realisation value (GRV) upon completion and 73% of the total development costs. The loan term was set at 10 months.
Challenge
The primary challenge was securing additional funding swiftly to cover unexpected construction costs and delays caused by the weather. The developer's initial financier, a major bank, declined to extend further credit. This left the developer in a precarious position, where timely financial intervention was essential to avoid even more costly delays.
DFP's Strategic Solution
DFP quickly engaged with the developer, leveraging its vast network to negotiate favorable terms with a preferred capital partner. The solution was to structure a facility that provided the necessary funding to complete the project. Specifically, this facility included the following:
- Funding for the remaining construction costs.
- Payout of the existing loan from the major bank.
- Coverage of additional ancillary costs.
- Capitalised interest and costs, ensuring that the LVR remained at 61% of the project's on-completion value.
Importantly, DFP’s solution did not require any additional equity contributions from the developer, thereby minimising their financial burden.
Results and Benefits
Through DFP’s strategic intervention, the developer successfully secured $3,442,000 in additional funding, enabling the timely completion of the three-townhouse development. The benefits included:
- The successful negotiation and securing of $3.44M in funding.
- Maintenance of a favourable LVR, ensuring project viability and financial stability.
- Completion of the project without requiring any extra equity from the developer.
- Avoidance of further delays and cost overruns, thus preserving the project's profitability.
Conclusion
This case study demonstrates DFP's ability to deliver tailored financial solutions, especially in critical situations. Through strategic negotiation and strong financial partnerships, DFP provided a much-needed financial lifeline to the Doncaster townhouse development. This success highlights DFP's role as a trusted partner in the development finance sector, helping developers overcome unforeseen challenges and complete their projects efficiently.