Case Study | DFP Secures $7.7M Loan for Luxury Villas with Zero Presales. Bogangar NSW

Background 

Development Finance Partners (DFP) were approached by a long-term client for an ambitious project in Bogangar, NSW. The project involved constructing seven high-end, two-level boutique villas. These villas were envisioned to be luxurious residences, each designed with top-tier materials and craftsmanship to appeal to a discerning market segment. The client, having a history of successful projects, trusted DFP to secure the necessary funding under challenging conditions to ensure the development's success.

The Project

The project's financial scope involved securing a $7.77 million construction and development facility, structured over a 15-month term. The client, aiming to maximise returns, strategically chose to avoid presales—a common practice in the industry. Instead, the client intended to leverage the rising market values anticipated as the project neared completion. By postponing sales until the villas were fully constructed, the client could attract buyers willing to pay a premium for finished, luxury properties, thereby maximising potential profit.

Challenge

Securing a construction loan with zero presales was a significant challenge due to the heightened financial risks involved. Typically, lenders require presales to mitigate the risk of not recouping their investment, especially in large-scale developments. The absence of presales shifts more financial risk onto the lender, as there are no upfront commitments from buyers. Moreover, the client’s requirements were stringent—they needed an 80% Loan-to-Development Cost (LTC) and a 65% Loan-to-Gross Realisation Value (LGRV). These ratios are on the higher side, adding further complexity to securing the necessary financing. DFP faced the challenge of convincing lenders to back this project under these terms, while also ensuring the client's financial strategy remained intact.

DFP's Strategic Solution

Drawing on its deep network of capital partners, DFP crafted a strategic financial solution that met the client’s challenging requirements. By leveraging its reputation and established relationships, DFP was able to negotiate terms that are typically difficult to secure. The result was a construction facility that not only met the desired 80% LTC and 65% LGRV but also eliminated the need for presales—a rare and highly beneficial arrangement. This solution afforded the client significant flexibility, enabling them to hold off on sales until the villas were completed and could command higher prices in the market. This strategic alignment ensured that the luxury and unique positioning of the villas would be fully realized and reflected in their market value.

Results and Benefits

A strategic finance solution provided several benefits:

• High Loan-to-Cost Ratio: By securing an 80% LTC, the client was able to cover a substantial portion of the development costs through the loan, reducing the need for additional equity or secondary financing.
• Zero Presales Requirement: This allowed the client to avoid the pressure of securing buyers before construction was complete. As a result, they could market fully finished, high-quality villas that would appeal to buyers looking for a move-in-ready luxury experience, thereby driving up the final sales prices.
• Enhanced Financial Flexibility: The arrangement allowed the client to maintain liquidity and financial stability throughout the development process. Without the immediate need for sales revenue, the client could focus on completing the villas to the highest standard, further enhancing their market value.

Conclusion

The success of the Bogangar development project is a testament to DFP's deep expertise in the property finance sector and its ability to tailor solutions to meet unique client needs. Through strategic negotiation and leveraging long-standing relationships with capital partners, DFP secured a construction facility that not only met the client's high expectations but also provided them with the financial tools necessary to maximise their project's profitability. The zero-presales condition, a rarity in the industry, underscores DFP's commitment to aligning financial solutions with client strategies. This case study highlights DFP's role as a critical partner in navigating complex financial landscapes, ensuring that clients achieve both their development and financial objectives.