Development Finance Partners (DFP) was engaged by its developer client to procure funding for a 70-lot residential land subdivision in South Western Sydney, NSW.
The key issues in sourcing funds
The major issues were:
- Settlement of the land was required prior to completion of the tender process and engagement of the head civil contractor.
- The client was seeking a 90% loan to total project cost.
- Proposed pre sales were on builders’ terms, subject to 5% deposits only.
- The funding terms were being negotiated against the uncertainty of the Covid 19 pandemic; and
- Valuation firms and market commentators were in general marking down property values in line with ongoing difficult economic conditions.
DFP's role:
DFP entered into an advisory arrangement with the client to map out the key terms, milestones and risk mitigation strategy, as a basis of negotiations with its Capital Partner, a multinational finance and property organisation.
Based on those outcomes DFP prepared a detailed credit submission to the Capital Partner, outlining the development proposal, project feasibility, client background and proposed funding structure, as a prelude to initiating an ongoing consultation process between the client, their consultants and the Capital Partner.
A successful finance approval ensued, modelled on a combination of Senior Debt and Mezzanine Finance, geared to 90% of project cost and linked to agreed sales targets.
Financial close has recently taken place and subdivision works are underway.
Finance Terms
Type: Combination of Senior Debt / Mezzanine Finance
Loan amount: $22,800,000
LVR: 90% of total development cost
Term: 18 Months