Helping a Builder/Developer get construction underway quickly and preserve equity

Helping a Builder/Developer get construction underway quickly and preserve equity

 Project Background

Knockdown of existing residence and construction of 3 single level dwellings

Location of Project

Mawson A.C.T

Development Details

The development is to comprise of 3 Boutique single level residences.

The Developer

The development group was established in 2012 based in the A.C.T. Since 2012 the clients have delivered over 50 turn key bespoke developments ranging from single-level homes to three level boutique apartments.

The Brief: Rapid Construction Finance Approval

May 2017 – Developer sought finance to assist with the purchase of the site and construction finance for the 3 residences. All 3 sites were pre-sold, however the client wanted to move quickly with finance approvals and rather than have long drawn out discussions with major banks, the client approached DFP to consider the proposal.
Following the initial discussion around the project DFP worked through the project feasibility together with the client to firm up build costings, and confirm internal margins as they also would deliver the build via their external building company, which entered into a formal build contract with the developer.
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 & Retain Cash Reserves

Given the tightening of all Major Banks in the development space in and around late 2016, the developer found it problematic to finance the construction component of the build given they were also the builder. They also had 5% deposits in lieu of 10% deposits required by most financiers.
The client whilst having sufficient equity wanted to retain cash reserves for another pipeline project and offered an unencumbered site as additional security.

The Solution: Underwritten Land Bank Finance

DFP via it’s associate Director Bronko Kozel, ascertained appetite from a DFP underwriter to secure a land bank finance proposal. DFP also positioned the 2nd stage being the construction funding with the underwriter.
Based on the detailed analysis from DFP and understanding of the transaction DFP secured support from its underwriter to fund the transaction for both the land purchase and the construction component based on 5% pre-sales to 50% of the total debt.
DFP also facilitated a cash-out facility against another asset held by the clients to provide sufficient funds to equitise the development project.

The Results DFP Delivered:

• Finance – Secured, Terms Agreed Late June, Settled Mid July 2017
• Loan Amount Tranche 1- $1,314 GRV $2,227 LVR 60%
• Loan Amount Tranche 2- $ 525 As is $800 LVR 65%
• Construction Finance – Secured, Terms agreed Late April 2017 Settled Mid June 2017
• Term – 12 months

The client is now very happy that the construction funding is in place and work has commenced immediately following settlement.

What the Client Says

After working with the major banks to obtain finance for my project, I was becoming frustrated and started looking for alternatives. I made an enquiry with DFP and found them very responsive and helpful. Bronko sat down with me and worked through a feasibility as an owner builder and  demonstrated to me how non-bank funding was a worthwhile option.  I needed to act quickly to make sure I had speed to market, however I was also under time pressures to settle the land.  DFP were extremely efficient, turning things around quickly and getting the deal settled on time.  It was so important that I found a partner who would act quickly after being delayed by banks.  I would recommend DFP to anyone who wants pragmatic, commercial solutions that can be delivered efficiently.