This article was originally published by The Urban Developer on 25 May 2022. It is reproduced here in full without amendment.
Simple construction loans can be arranged by mortgage brokers, but structuring complex property development deals requires expertise in commercial property finance, property law and strategic advice.
An example is the Solaris Civic Precinct, a multi-storey, mixed-use development that drew heavily on the deep specialist knowledge and skills of Development Finance Partners (DFP) to secure construction funding.
The 12,000sq m precinct is in Forster on the mid-north coast of NSW. This multifaceted development comprises four residential towers up to 10 storeys, as well as community facilities including a new public library, a visitor information centre, gardens, retail and commercial space, and several hundred above and below-ground car spaces and associated roadworks.
Situated on land owned by the council, it is a development agreement between the local council and the developer, Coyne Developments.
DFP first became involved in the project when it was already well under way. Coyne Developments had used equity to fund the start of construction, but private finance they had arranged for the balance of the project had fallen away due to Covid pressures, meaning DFP needed to move quickly to structure a new solution and ensure the builder didn’t lose momentum on site.
However, the deal had several difficult aspects that needed to be addressed first, senior credit manager for DFP Bob Hunter said.
“For one thing, the builder was a director and co-sponsor of the developer,’’ Hunter said.
“Because their relationship was not at arm’s length, we were required to do a lot of due diligence around the construction company before approaching any lenders.
“And the regional location was also a significant challenge. Many lenders won’t consider residential high-rise projects outside metropolitan areas, so our options for financiers were somewhat restricted.’’
But perhaps the biggest challenge for DFP was the nature of the security available to potential lenders, which consisted of a series of strata lots to be transferred from the council in stages.
“There was a lot of intricate legal work required to document and protect everyone’s interests,’’ Hunter said.
“We had to carve out each particular piece of land and title, both for the buildings which had already been built and for those yet to come.
“This was made more difficult by the many shared common areas, such as basements, car parks and lifts.’’
Coyne Developments chief executive Coyne Graham said he was impressed by DFP’s professional approach, and by how they were able to grasp all the details of the complex transaction then present it to lenders in a financier-friendly way.
“The Solaris Precinct is a big project with many moving parts to it, but DFP broke it down into its simple components, which made it possible for lenders to see that the underlying construction risk was actually very low,’’ Graham said.
“Thanks to their ability to explain it in bankers’ terms, we were able to secure funding in good time and keep the project moving forward.
And furthermore, we now have a great new finance partner who is not just opportunistically chasing high margins but is someone we can rely on to support our pipeline of future projects.’’
DFP are proud of having brought a successful conclusion to such a challenging deal, especially against a backdrop of the Covid pandemic and associated lockdowns, which meant face-to-face meetings, site inspections and the like were often not possible, Hunter said.
“Not to blow our own trumpet, but there are few other firms out there with the resources needed to pull this transaction off,’’ he said.
“The build is now complete, and negotiations will soon begin on finance for the next stage of the Solaris Precinct, which is a vertical retirement village.
“We look forward to working together with the developer and the lender on that.’’
To discuss your next project and find a suitable finance solution for your development get in touch with DFP today.