Construction Lending

Before you send a proposal, you should know who these providers are and their criteria. The tax structure set up for the development (i.e., The Special Purpose Vehicle (SPV) and debt security/lending recourse to that structure).

• Number of lots/dwellings, single, group or multi dwellings are the type and size of the development.
• The location of the development (suburb/postcode).
• Personal profile (your experience as a developer).
• Are you developing to hold and rent or developing to sell (trading or holding activity)?

Presales evidence by contracts if developing to sell

CASE STUDIES

Construction in Sydney Central Business District

The company:

The investor is a leading property developer in Sydney, with a portfolio of successful projects in residential, commercial, and industrial sector. The company has identified a potential prime development opportunity for a mixed-use property in the Sydney CBD.

Project Overview:

A 20-story mixed-use building is being proposed, with commercial and retail space on the lower levels and residential apartments on the upper levels. The company secured the site with an estimated project cost of around AUD 100 million. They engaged architects, engineers, and contractors for the project and got the planning approvals from the local council.

Financing:

The company approached Sherwood Finance to secure funding for the project. After considering various options and negotiating with several banks. This includes a senior debt facility from one of the big four banks, and a mezzanine facility from a specialist lender. The mezzanine funding is secured against the project’s future revenue streams from pre-sales of the residential apartments.

Challenges:

There are risks associated with the project, such as construction delays, cost overruns, market downturns, and changes in regulatory requirements.

Solution:

To mitigate these risks, Sherwood Finance recommended other professionals to manage the project, including a project manager and quantity surveyor. The company had established a contingency fund to cover any unexpected costs or delays. They secured pre-sales for 60% of the residential apartments, which provides revenue certainty for the project.

Outcome:

With Sherwood Finance in place the company begun the construction process. They are confident that with its experienced team and contingency to do business again in future.

Construction in regional New south Wales

Company Details

A property development firm catering to residential and commercial projects in the urban parts of the city. The company had taken up several high-value construction projects in the NSW and planned to expand its operations. However, the size and scale of these projects required a significant amount of capital, bringing forth the need for property development finance.

What did the client want?

To address their financing requirements, they wanted a bespoke property development loan. The loan was tailored to the specific needs of property developers by accounting for the financial risks and challenges associated with property development. This included bridging finance, senior debt, mezzanine finance, and other finance types.

What did we do?

With implementing property development finance, the company could manage cash flows while gaining access to the capital required for developing properties. With an effective and well-aligned repayment structure, the company could ease their financial burden while building credibility among its clients and stakeholders, enabling the company to expand its operations.

The results

1. Funding for development projects: The funding provided them significant with access to funding required for developing properties. They could access the funds upfront for pre-construction preparation expenses, ensuring that their projects progressed and remain on track to meet the timelines.
2. Flexibility: The customised nature of the finance allowed the company to tailor the repayment structure to match the project’s critical milestones. The payment structure was tiered and aligned with the completion of specific building stages, reducing the company’s cash flow burden.
3. Competitive interest rates: With the loan provided at competitive interest rates, the company had access to a cost-effective source of finance. This allowed them to pass on the savings to their clients, making the price point more competitive.
4. Higher leverage: The property development finance allowed the company to leverage their existing assets to access higher funds for their development projects. The loan was secured against existing properties and was based on the overall value of the planned construction projects.

Purchasing land for civil construction in Victoria.

• Property details

A large piece of land 35 km Northwest of the central business district in a residential development zone in Victoria. The site came with plans and permits for shovel ready civil construction for 157 blocks resulting in many houses and land packages.

• What did the client want?

They were comparing offers from other lenders. They contacted us seeking reduced upfront costs by offering a higher LTV.

• Key points

The loan to valuation ratio (LTV) exceeds a certain level, so the lender may increase charges.

• Difficulties along the way

The added risk of a non-income producing situation and the real estate location. Many lenders were sceptical.

• What did we do?

We arranged a meeting with one of our most reliable lenders for land subdivisions.

• The end results

After credit assessment, we offered reasonable terms with a higher LTV subject to presale conditions being met.12 months on, civil construction begun.

• LTV: 65%
• Rate: 5% variable rate (interest only)
• Term: 2 years

Industrial construction development.

• Property details

An industrial zoned piece of vacant land nearby Liverpool, New South Wales.

• What did the client want?

The corporate borrowers from interstate were full of energy and wanted local banking contacts with competitive terms.

• Key points

The lenders needed assurance of proven industry accomplishments as they applied for a considerable loan amount.

• Difficulties along the way

Many lenders we engaged expressed concerns about the total amount outstanding with other financial institutions.

• What did we do?

After arranging a meeting with a state director from a significant local lender, we offered finance at competitive terms.

• The end results

A competitive LVR (Loan to Value Ratio) and interest rate satisfied interstate corporate clients.

• LVR: gross 70%
• Rate: 4% (interest only)
• Term: 5 years

Construction financing in Hawthorn Melbourne.

• Property details

Two fully detached dwellings side by side were under contract. After demolition, the site was ideal for building multiple townhouses.

• Key points

One of the biggest problems can be presales for many developers, especially for more significant residential developments. Most lenders will want a certain number of presales to reduce their risk. But funding can vary from one lender to another.

• What did the client want?

Twelve months from the settlement, they received the development approval. The clients were actively seeking presales to meet their financial conditions. The unforeseen Victorian lockdown prevented mobility, and as a result, the client could not meet their presale obligations.

• Difficulties along the way

Because they did not meet the presale conditions, we resorted to our network of lenders. We sourced a suitable financier that accepted the current number of presales.

• The end results

We worked with the lender and got the project off the ground. The loan attracted a higher interest rate and associated costs because of the lack of presales. But the client was pleased with our success.

Incomplete construction site in Brisbane.

• Property details

A prominent freehold incomplete construction site at a major intersection north of Brisbane was incomplete because of a shortage of funding from the builder.

• Key details

Many lenders will not consider applications for incomplete construction sites because of added risks.

• What did the client want?

A group of experienced investors saw the opportunity to take over and complete the construction work. Still, they needed access to the right lender.

• Difficulty along the way

The vendors’ insolvency meant working under strict time constraints to complete the transaction.

• What did we do?

We arranged for a colleague to inspect and forward a detailed report before submitting a formal loan application to our lender.

• The end results

We achieved an ideal result for our clients within an unusual lending scenario.