Background
A well-established real estate investment firm with decades of success in the Australian market approached Development Finance Partners (DFP) to secure financing for their latest project in North Western Melbourne. Specialising in residential investments, this firm has built a strong reputation for delivering exceptional returns and expertly managing complex real estate developments.
The Project
This project involved the transformation of a 10-hectare parcel of land into a residential subdivision, with plans for approximately 200 residential allotments. To continue funding development activities and unlock capital for future phases, the client sought refinancing that would release equity from their landholding.
The Challenge
The client initially contracted the property in mid-2021, with settlement planned for early 2024. Throughout the holding period, the client invested in rezoning activities, leading to a significant increase in the land’s value. However, their existing lender applied a conservative valuation, resulting in a lower-than-expected Loan-to-Value Ratio (LVR). The client required a refinancing solution that better reflected the increased value of the property while releasing equity to support ongoing development.
DFP's Strategic Solution
Having successfully worked with the client in the past on a nearby project, DFP had a deep understanding of the client’s objectives and financial needs. The client required a solution that would not only refinance their current debt but also unlock the equity needed to fund further development stages. DFP set out to craft a bespoke financing solution that would address both requirements while keeping costs minimal and ensuring flexibility throughout the process.
To meet these goals, DFP leveraged its broad network of private lenders across Australia, focusing on those with a strong appetite for residential land projects in desirable locations such as North Western Melbourne. DFP conducted a detailed market assessment and engaged lenders that had shown a keen interest in similar asset classes, ultimately structuring a highly tailored financial solution.
Key elements of DFP’s strategic solution included:
- $13.5 million refinance facility with a 65% LVR: This allowed the client to refinance their debt at an accurate valuation based on the property's enhanced value.
- Equity release: A significant portion of the refinance was used to release equity, providing the client with additional capital to continue funding the project without the need for new equity injections.
- 12-month interest roll-up and capitalised fees: By structuring the facility with a 12-month interest roll-up, DFP enabled the client to minimise upfront cash flow demands and reduce the need for further equity contributions during this period. Capitalising fees into the loan further reduced the client’s financial burden during critical development phases.
- Flexible terms: The financing solution was designed to provide the client with flexibility, ensuring they had the necessary resources available as the project moved through key stages like final planning approvals and construction commencement.
Through this bespoke financing strategy, DFP not only resolved the immediate refinancing needs but also positioned the client for long-term success, creating the foundation for future construction financing.
Results and Benefits
A strategic refinancing and equity release provided by DFP delivered a range of benefits, both immediate and long-term. By securing the $13.5 million facility, the client was able to confidently move forward with their project, assured of the necessary funds to cover current and future expenses.
Key results and benefits included:
- Ongoing development funding: The refinancing provided the capital needed to continue covering costs associated with planning, approvals, and other critical development activities.
- Maximised equity utilisation: By unlocking significant equity through the refinance, the client was able to capitalise on the property’s increased value without injecting additional funds, allowing them to keep their existing cash reserves intact.
- Improved cash flow: The 12-month interest roll-up and capitalised fees meant that the client did not need to make interest payments or cover fees during the early stages, ensuring smooth cash flow management.
- Positioned for future success: With the financial structure in place, the client is now well-positioned to move forward with future construction financing, ensuring that they can continue developing the 200-lot subdivision as planned.
- Strengthened lender relationships: Through DFP’s network and strategic approach, the client was able to form strong connections with lenders who understand their project and are eager to support its continued development.
Overall, this strategic refinancing solution allowed the client to:
- Maintain project momentum without requiring further equity contributions.
- Access capital quickly to fund ongoing development activities.
- Position themselves for the next phase of development, including securing future construction financing.
Conclusion
This case demonstrates the value of partnering with experienced financial advisers like DFP, who can craft creative and effective solutions in an increasingly complex real estate market. With the refinancing in place, the client is progressing through final planning approvals, setting the stage for the development of a flourishing residential estate.
Client Testimonial
"Working with Development Finance Partners (DFP) has been an exceptional experience. Their expertise and strategic approach were instrumental in securing the $13.5 million refinancing and equity release we needed for our residential development project in North Western Melbourne. DFP’s ability to navigate the complexities of the market and structure a solution that truly reflected the value of our property was impressive. Their professionalism and commitment to our success have been unwavering, and this transaction has only strengthened our confidence in DFP. We highly recommend DFP to any developer seeking innovative and effective financial strategies."