Preferential Equity vs Joint Venture Funding
- Visie Properties were seeking a Joint Venture on their 31 apartment project in Lutwyche Qld, with a view to efficiently spread their capital across their pipeline of projects in high-demand areas of Brisbane, maximising their activity in the current strong market.
- The ‘Zephyr’ project is located in one of Brisbane’s designated high-growth inner-north areas, with an affordable price-point, on a quiet street yet walking distance to a range of amenities including the new Busway Station and Shopping Centre. These factors make it an attractive project to not only buyers, but also to any potential Joint Venture partners.
- Development Finance Partners (DFP) was engaged by Visie to provide a JV funding solution to meet the client’s requirements.
- Upon assessing the merits of the project and the developer, DFP recommended to Visie that giving away up to half of the project profits to a JV partner may not be the most efficient solution for them.
- A Preferential Equity solution was proposed, which would see Visie’s Return on Equity being significantly greater than under a JV arrangement, whilst ensuring that Visie retains full control of their project.
- Development Finance Partners quickly secured an offer for Preferential Equity in conjunction with Major Bank Senior Debt, which Visie accepted. The Pref Equity investor did not require any further pre-sales than the Bank’s hurdle.
- Compared to a JV agreement, using DFP’s Pref Equity, Visie’s share of profit is forecast to be 56% greater, whilst their RoE is forecast to be significantly improved from 91% to 160%.
- Zephyr is currently completing pre-sales with construction due to commence in May.
What the client says:
“If you’re prepared to fund a lot of the extra expenses to get yourself to that point it’s sensational, because you get a lot more profit at the back end”.
“It’s definitely something we’d consider again”.
Warren Swanston, Visie Properties
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