Is your property development on hold because the bank won’t approve your construction loan? Don’t be discouraged, it needn’t be the end of the road for your project. There are many other options available to developers today.
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Arranging construction loans with traditional lenders can be a slow and frustrating process at the best of times. Especially in the current climate of economic uncertainty. Banks have become more risk averse than ever, tightening their lending criteria just as demand for property stock soars on the back of a national housing crisis.
Property developers are bypassing the banks
Today, savvy property developers are discovering a wide range of flexible non-bank lenders active in the construction loan market. They’re exploring new avenues to get their build started sooner, with less equity and no presales.
“The retreat of the banks from the development finance space is nothing new,” says Matt Royal, Director of Development Finance Partners (DFP). With decades of experience in the property sector under his belt, he’s seen it all before and says it’s a normal part of the market cycle.
“When conditions aren’t favourable in the property development industry, you can expect the banks to cut back on lending, drop their loan-to-valuation ratios, increase presales and push developers to contribute more equity,’’ says Matt. “The good news is, there are always lenders ready to back viable projects requiring less equity, no presales and faster approval timeframes.”
Housing boom ahead
Recently, the federal government committed to ensuring 1 million new homes are built across the country, and want this achieved by the end of the decade. Australia’s residential property sector is set for a massive boom. Several exciting initiatives are currently on the table to help boost the supply of housing. These include the release of more Commonwealth land and faster zoning changes, planning approvals and land releases by local, state and territory governments.
However, to achieve this ambitious goal, access to finance will be essential to prevent any bottlenecks that crimp project pipelines.
Turning plans into reality
DFP help property developers by connecting them with capital partners. Unlike bankers, the DFP team are all experts in commercial, industrial, and residential real estate. Their specialist knowledge helps them provide innovative and tailored finance solutions.
Since 2011, they’ve helped property developers secure over $3 billion in funding. This includes everything from:
- Construction loans
- Land bank finance
- Residual stock
- Equity lines of credit; and
- Restructurings
DFP ensure the successful completion of large and boutique projects in both metro and regional areas throughout Australia. They also offer unique products specifically designed for property developers, such as:
- Zero-presales
- Construction loans; and
- Low-doc finance
All of which require less verification and paperwork.
Increased return on investment
Matt says, “non-bank construction lenders are less bureaucratic, and more commercially focused than the big financial institutions. They have the specialised skills and experience needed to provide fast approvals and advances. Non-bank interest rates and fees may be higher than what the banks offer, but the increased flexibility results in faster turnover and significantly better ROI for property developers.’’
Tailored solutions
After over a decade in the business, DFP has built strong working relationships with dozens of banks, non-bank lenders and private investors. They know who is in the market for what type of project on any given day. Their close-knit team understand the criteria each lender focuses on when reaching investment decisions.
“For us, it’s about tailoring a finance solution to suit each borrower and lender,’’ says Matt. “It’s very different to the cookie-cutter approach of the big banks.’’
The Solaris Civic Precinct, Forster, NSW
For example, one client, Coyne Developments, were working on a multi-story, mixed-use development. They’d used equity to fund the start of construction, but the arranged private finance for the balance of the project fell through.
Their challenges relied heavily on DFP’s deep knowledge and skill to secure construction funding.
DFP broke all the moving parts down into simple components, making it possible for lenders to see the underlying construction risk was low. Funding was secured in good time to keep the project moving forward.
No need to accept a ‘no’
If you’ve approached the bank for a construction loan and are not willing to accept a ‘no’, speak to a non-bank lender. Companies like DFP can identify each funding option, and tailor your proposal to maximise your chance of securing the best possible terms. Beyond structuring finance for developers, DFP also provide a complete end-to-end solution for clients, including expertise in property law and strategic advice, as well as assistance with project management.