Background
The client is an experienced residential builder with a proven capability delivering high-value residential projects and an established relationship with Development Finance Partners.
Following the successful delivery of a previous project with DFP, the client was progressing their next opportunity in Newcastle's premium coastal market.
Project Overview
The project involved the acquisition of vacant land in Bar Beach, Newcastle, followed by the construction of a high-end luxury residence with an on-completion value of $3.7 million.
The developer's strategy was to fund the land acquisition and subsequent construction under a single facility, allowing the purchase to settle before building approval was obtained and construction to commence once approvals were in place.
Key Metrics
Loan Amount: $2.66 million
Location: Newcastle, NSW
Project Type: Luxury Residential Construction
LVR Against Completion Value: 76.2%
Loan to Cost: 80.5%
GRV: $3.7 million
Presales: Nil
The Challenge
The primary challenge was securing a construction facility that would allow the land acquisition to settle before building approval was in place.
The funding structure also needed to provide sufficient leverage across both the acquisition and construction stages while accommodating the lender's assessment of the build costs.
With the lender adopting a higher construction cost than initially proposed, the available funding towards the land purchase was reduced. DFP therefore needed to identify a flexible lender and structure capable of supporting the project's overall funding requirements without delaying settlement or the planned construction program.
DFP's Strategic Solution
Development Finance Partners canvassed multiple lenders to identify a competitive construction finance solution aligned with the client's project strategy and timing requirements.
DFP secured a first registered mortgage construction facility that enabled the client to settle the land acquisition before building approval was obtained, with approvals to be progressed immediately following settlement.
Through lender engagement and negotiation, DFP also secured approval without a Quantity Surveyor requirement and achieved 80.5% LTC, above the lender's typical 80% threshold.
The final $2.66 million facility provided a flexible and competitively priced funding structure capable of supporting the project from acquisition through to construction.
Results and Benefits
DFP successfully secured a $2.66 million construction facility, enabling the client to settle the property and progress the development as planned.
The structure achieved 80.5% LTC without presales and allowed funding to proceed before building approval was in place, providing greater flexibility around the project's timing.
Removing the QS requirement also simplified the funding process, while the adopted construction cost supported larger progress payments throughout the build, improving cash flow and supporting the builder's margin across the construction period.
Conclusion and Advice
Construction finance requirements do not always align neatly with project approvals and acquisition timeframes.
For developers acquiring land ahead of final building approval, early engagement with the lender market can help identify funding structures capable of supporting both settlement and the subsequent construction phase.
The right construction finance structure should consider not only leverage and pricing, but also approval requirements, drawdowns and how the facility will operate throughout project delivery.
What This Means for Developers
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Construction finance can be structured to support land settlement before building approval is in place.
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Higher LTC construction funding can reduce the amount of developer equity required across acquisition and construction.
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Some construction finance facilities can proceed without a Quantity Surveyor requirement.
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Early lender engagement can create greater flexibility when acquisition and construction timelines do not align.
Whatever the size of your development plan, DFP have a wealth of experience and strong relationships to help you succeed. Contact us to explore your tailored finance options.
