14 Lot Civil Project

Client Details

Client was a developer looking to purchase a land for a subdivision civil development project prior to selling the lots.

Scenario

This borrower wanted to purchase a 7,400m2 vacant land in the suburbs & get the developer approval for the subdivision into 12 x 400m2 lots. The developer wanted funding to secure the purchase & associated costs (stamp duty, conveyancing, etc), costs of obtaining developer approval (town planner fees, architect fees, engineer fees, etc) & the costs of the civil works for the subdivision.

Why Client Approached Us

The developer was adamant he did not want any upfront costs. To reduce costs to the developer, we managed to waive the line fee, application fee & monthly fee, with the interest & legal fees capitalized into the loan. The only upfront cost was a $7,000 commitment fee to cover the cost of the valuation.

Project Numbers (as estimated at application)

• Borrowing Amount: $1,905,000
• Purchase price: $700,000 + GST
• Professional Fees (Town planning, engineering, etc): $80,000
• Civil works: $600,000
• Miscellaneous: $455,000
• Loan term: 18 months
• Sale: 12 lots at $350,000 each totalling $4,200,000 GRV
• Estimated return on GRV: $2,288,000

Issues

The issues with this deal were

1. Client wanted to borrow 100% of the project costs
2. Interest to be capitalised
3. Client was reluctant to put up security if not required (this was not required)

Resolution

We looked at the merit of the project and the client. We gathered all the costs of the projects and ensured the client’s estimations were reasonable and justifiable. We gathered the data and workshopped it with our industry partners. Given at the time many lenders had additional funding available due to the slow-down within small to mid scale developments, we were able to secure funding swiftly and at a low cost to the client. Essentially, we were able to make lenders compete against each other to fund this project.

We were able to secure 100% finance on this project as we showed a strong GRV of $3,810,000 for this project. Working with clients to fund high ROI projects is something we specialise in. Being a development, we did not have to show any income to service the loan.

TIP: Often first time developers overestimate sales and underestimate costs. This can have a huge impact of the lending solution. If in doubt, it is always best to underestimate the GRV and overestimate the costs to find a lending solution until a valuation with a reputable company has been performed.

On-going Care

We would work the the client to ensure he had the cash flow required to cover all the costs when required, submitting all the paperwork & such to the financier. 

Outcome

The financial was happy to accept 100% of the project funds without any security from the borrower!

Key take-home points of this deal

1. There are a number of lenders that specialise in development finance. These lenders understand the intricacies of developments are are often more suited to mid-large scale developments.
2. A strong GRV or strong pre-sales will mean that some lenders will fund the entirety of the project
3. You do not always need cash to contribute towards a development. You can put up an asset through either a first or second mortgage.