Case Study | Zero Presales – North Kellyville, NSW
DFP secured a Senior Debt construction loan of $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 comprised 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.
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 firm up costings and equity and confirm 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.
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 as 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 meaning the funders security would not have been appropriate to complete the development and exit the loan.
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.
- Loan Amount – $4.537 GRV $6.93, LVR 65%
- Term – 10 months
- Presales – approved with no presales required however the client’s 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.
For expert advice:
Level 3, 31 Alfred St
Sydney NSW 2000
P / 02 8916 6246
Level 30/35 Collins Street,
Melbourne VIC 3000
P/ 03 8692 0082
Level 18, 175 Eagle Street
Brisbane QLD 4001
P / 07 3041 4136
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