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 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.
Type: Combination of Senior Debt / Mezzanine Finance
Loan amount: $22,800,000
LVR: 90% of total development cost
Term: 18 Months