Senior & mezzanine facilities totalling $13.6m for site refinance and construction of 34 apartments at 67.5% of the Net Realisation Valuation - Cheltenham, Victoria

Project Background

Finance sought for the development and construction of a residential apartment project consisting of 34 residential dwellings over four levels above a basement carpark.

About the Developer

The Group is a vertically integrated, full service property development and construction group based in Melbourne. Until recent times, the Group has operated for most part in the background on the delivery of a large pipeline of projects. The company continues to construct and develop sites and will continue to do so for a number of years to come.

At present, the developer holds in excess of 20 projects which are either ready for construction or in pre-development phase. The Group is located in Victoria and employs approximately 20 staff.

The Group strategy focuses on building and developing quality developments within Melbourne’s inner to middle ring south-eastern suburbs. Specifically, the Group will look to deliver between 6-12 projects each year predominately on mixed-use residential projects, with all aspects of the development life-cycle to be managed in-house, ranging from site acquisition, planning, sales and marketing, project funding, construction, project management and settlements.

The Brief

Refinance the existing loan over the site as part of a full construction finance facility.

Following the initial discussion around the project, DFP worked through the project feasibility with the client to firm up build costings and confirm internal margins as they also would deliver the build via their building entity. Upon assessment of the project feasibility and discussions with the client a formal service agreement was entered into with the client and DFP and shortly thereafter DFP secured finance terms to undertake the project.

Key Challenges

Achieve project funding

Given the tightening of all major banks in the development space over the last 3 – 4 years, the developer found it problematic to finance the construction component of the build, given they were also the builder, particularly with a higher LVR required.

The Solution

First & second mortgage construction facility 

  • DFP was engaged to provide a funding solution for the construction project in Cheltenham, Melbourne.
  • DFP arranged 15-month site refinance and a construction facility for $13.6m, representing 67.5% of the projects net realisation value with a first and second mortgage facility.
  • DFP ascertained appetite from a preferred DFP underwriter to secure site refinance and construction finance approval following which a valuation was undertaken on an ‘as is’ and ‘as if complete’ basis.
  • Based on the detailed analysis from DFP and understanding of the transaction DFP secured support from its underwriter to fund the transaction with a first and second mortgage facility for both the land refinance and the construction component to achieve the higher leverage. 
The Results

DFP delivered:

  • Finance – Secured, terms approved and settled less than a month later
  • Loan Amount – First mortgage - $13.01m & Second mortgage - $560K, Net Realisation $20.11m - LVR 67.5%
  • Term – 15 months
What the Client says
At the end of the day, it’s fair to say DFP have very good connectivity to private capital, we knew that’s what we needed for this deal. The market is increasingly exhibiting lower level of pre-sales, as they are harder to achieve. DFP’s network of investors and capital providers, provides for competitive funding solutions where pre-sales are challenging, despite the projects being well-located and shows good project fundamentals.
They brought to the table the right financier that was willing to meet with us and understand our business going forward. They took the time to fly from Sydney to Melbourne to spend time with us, understand the business, tour the site, and have dinner. They had a strong desire to be a long-term partner for us. They were well positioned to look at future projects given our pipeline of projects.
They’ve been able to provide certainty of funding, no pre-sale coverage and flexibility in allowing the developer to expend minimal equity to start construction.
I would recommend them to others.

- Rick Impala, Director, Real Estate Finance, Pitard Group

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