Today, non-bank lenders provide a lifeline to the commercial property developer. They are flexible, specialised, quick and adaptable.
Multi-staged, mixed-use industrial and retail developments aren’t a walk in the park. Developers working on these projects face several big challenges which make them extremely difficult to manage. Navigating regulatory environments, including zoning, building codes and environmental regulations is one hurdle. Also, working closely with local authority and external stakeholders can be a lengthy process at the best of times.
Secondly, these developments have extremely complex financing structures. Commercial property developers know that raising finance for new retail, office or industrial projects can be a tough job. And in today’s economic climate, it’s more challenging than ever.
Key finance challenges for commercial developments
These developments can face significant finance challenges for developers. Some of which include:
1. Upfront capital investment
This can be a hurdle, particularly when traditional lenders are hesitant to finance these projects.
2. Complex financing structures
These projects often need finance from multiple sources. Structuring these arrangements is time-consuming and requires expert commercial finance knowledge.
3. High-risk
Many traditional lenders view these projects as overly high risk due to their complexity, as well as market fluctuations. This can result in higher interest rates and stricter lending requirements, which sometimes makes traditional finance impossible.
4. Construction risk
The more stages involved, the higher the risk. Delays, costs and other issues can impact a project’s cash flow and put the entire development at risk.
5. Limited finance opportunities
It can be hard for developers to secure finance for commercial development, particularly in regions where there is less demand.
The overall problem
Unfortunately, most traditional lenders don’t have the skills and expertise needed to assess the potential of such developments. While some employees may recognise that commercial developments are a crucial aspect of our economy, providing space for businesses to operate and grow, their organsations rigid lending criteria often deems these projects too ‘high risk.’ Applications are dropped into the rejection pile, never to be seen again.
The good news? Yes, there are challenges. But there are also solutions.
Capital is always available for sound commercial property developments
Commercial property deals have many moving parts and require a lending solution that is professionally structured to ensure successful outcomes.
It’s for this reason that developers are turning to non-bank lenders. People realise they need to collaborate with financiers that have specialised knowledge and experience, in order to bring clarity to even the most challenging projects.
Non-bank lenders do they heavy lifting for their clients, and navigate complex finance needs with the right advice and options. Take Development Finance Partners, (DFP), as an example. Our team are experts in commercial and residential real estate, and have decades of experience in helping developers’ source innovative finance solutions. Having an understanding for different scenarios helps us tailor flexible funding packages for each specific needs.
Case Study | a successful outcome for challenging commercial project in regional NSW.
Recently, we helped bring to fruition a multi-storey, mixed-use development on a 12,000 sqm. precinct in Forster, NSW.
In this scenario, the developer’s finance was unexpectedly withdrawn by their original financier. And this was while the project was already well underway. DFP moved quickly to structure a new solution, making sure the build didn’t lose momentum. This led to a successful, on time completion.
Knowledge, advise and experience is key
The development sector is currently experiencing increased funding pressure as banks tighten their lending criteria against:
- Inflated construction costs
- High inflation and interest rates
- A mixed picture for sales outcomes across different regions and sectors.
Today, non-bank lenders provide a lifeline to the commercial property developer. They are flexible, specialised, quick and adaptable. What’s more, they are able to take on a higher level of risk. Developers can now have confidence that there are lenders out there who piece together each part of the puzzle with various loan types that work for the specific project.
About DFP
Our team have an average of over 25 years’ experience in property, and work closely with developers who need not just finance, but strategic advice and expertise in areas such as drafting feasibility studies, cash flow planning, property law and QS.
We know how to turn loss-making sites into fundable projects, and we can lead the way on workout strategies for troubled commercial developments. We can also act as your independent advocate if negotiating with current capital partners, builders and other third parties. With over $3 billion in funding solutions settled nationwide, we pride ourselves on ensuring the best possible outcomes for commercial developers needing support.