Case Study: North Kellyville, NSW
Senior Debt loan $4.5m for site settlement and civil works for the completion of 11 residential allotments at 65% of the Gross Realisation Valuation in North Kellyville, NSW.
The subject project comprises 11 exclusive, ready to build residential land lots where the purchaser is able to choose their own builder and design their own home in North Kellyville, NSW.
The development on completion will deliver, large lot sizes ranging from 410m2 to 516m2 and provide the following;
- Level building blocks;
- No power sub-station in the Estate;
- NBN ready; and
- Gas ready to be connected.
Location of Project
North Kellyville, NSW
The group in its current form was established over a decade ago by three brothers when they identified a niche in the market of land releases in NSW after noticing a number of fragmented precincts.
Initially working on another site in North Kellyville in 2006, the sponsors, whose backgrounds are in legal, marketing and project management, worked with the state government and local authorities to navigate the whole rezoning and replanning process which enabled a number of parcels of land to become deliverable. The group was then formed to manage the process of overlaying plans for infrastructure followed by the allocation and delivery of key services e.g. water, sewer and gas and electrical.
Through dealing with all the stakeholders’ issues and local government/council the group provided a model that tied the stakeholders together to deliver parcels that would not otherwise have been able to be delivered including engineering designs, road networks, sewer, water, power.
The group now focuses on discovering issues within the existing north western Sydney Hills District region that are not allowing land to be made deliverable and aggregating and forming the structure for sites with the local authorities and refer to a client/developer as well as developing their own lots as well.
The Brief: Site Settlement & Construction Finance Approval
The client had previously secured contracts on two adjoining sites and achieved DA approval when they approached DFP for construction funding. The brief was to settle both the sites individually and on separate dates two weeks apart followed by construction funding to complete the civil works to deliver 11 residential land allotments.
Following our initial assessment, together with the client, we worked through the project feasibility, firmed up costings and equity and confirmed internal margins. Upon assessment of the project feasibility and discussions with the client, a formal service agreement was entered into with the client and DFP, and shortly thereafter DFP secured finance terms to undertake the project.
The Issues: Achieve Project Funding and Settlement of Adjoining Sites on Separate Dates
Given the tightening of all Major Banks in the development space over the last 3 – 4 years, the developer found it problematic to obtain finance for a land deal due to the current lack of appetite particularly in an already well built out area with a number of similar projects nearby.
The main funding issues to overcome included:
– Valuation, initial feedback indicated that values in the area for land developments had fallen significantly in recent months and that this may significantly reduce the project return and viability.
– The site being an amalgamation of two adjoining lots owned by different vendors with differing settlement dates. As the development approval was over the amalgamated site a lender would not take the risk of two separate settlements with different vendors for the construction finance limit. This was because the LVR in the interim between settlement of the first site and the second would have been well in excess of 100% and there could have been a risk of an issue with the second settlement. This might mean the funders security would not have been appropriate to complete the development and exit the loan.
The Solution: Short Term Settlement Finance Followed by Refinance with a Construction Facility
DFP was engaged to provide a funding solution for the residential subdivision project in North Kellyville, NSW.
DFP obtained four funding options with a range of LVR’s, price points and required presales which we then presented to the client and worked through each funding solution to find the one that suited the client and the project the best.
Following this process, the client added some value to their site by completing a portion of the civil works and obtained 3 presales initially which increased to 4 as the marketing campaign continued.
Once these had been achieved and the value was added to the project, we progressed with the most appropriate lending solution and had the valuation completed which came in very favourably providing further equity to the position.
The issue of the non-simultaneous settlements arose later in the process and with the construction financer not being able to settle until the second site settled, DFP sought and arranged finance to settle the first lot in three days. Once the second site was ready for settlement, the construction financier settled on this site, refinanced the first lot and made the construction finance available to commence civil works.
The end result was an arranged and settled 10-month site acquisition and construction facility for $4.5m, representing 65% of the project gross realisation value and 80% of costs.
The Results DFP Delivered:
- Loan Amount – $4.537 GRV $6.93, LVR 65%
- Term – 10 months
- Presales – approved with no presales required however the clients marketing process and 4 presold lots helped in proving market acceptance and a strong valuation outcome.
The client is now very happy that the construction funding is in place and work has commenced immediately following settlement.
WHAT THE CLIENT SAYS
“We’d noticed DFP over the years in the marketplace. They seemed to be doing good things so we felt it might be beneficial to our business to explore them as an option for finance. It wasn’t necessarily driven by a need to not deal with the banks. It was obviously going to be a challenge dealing with the banks, but it wasn’t the driving force behind why we decided to work with them. We had noticed what they were doing and were interested in how they operated.
What stood out for us when we started working with them is that their collective team have a very good understanding of the space, there’s no doubt about it. They understand structured finance, the equity markets, the capital markets and general banking markets moods well. They are able to operate within a specific set of lanes with a foot in all camps.
Their communication throughout the process was really valued. They didn’t achieve what they initially anticipated that they could, they quickly communicated that though. There had been a change in the marketplace from the original conversation we had to the initial engagement. They were right on the front foot to let us know. They were really upfront and didn’t want us to start working with them until they were clear. The first round of funding offers came back, not as anticipated. However, during the process they ended up resolving it in the manner that they had proposed. They didn’t over promise or under deliver, they managed the situation.
When they make a commitment to you they hook in and do not let go and have done everything in their power to get it done. They are very professional in the process and have an orderly and clever team. We would recommend them to other developers and have done.”
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