One of our long-term clients – one of Brisbane’s most well-known residential developers – approached us seeking funding options for a speculative high-end luxury home with an end value of about $10 million.
The site had already been secured over a year prior, and with that in hand, they needed a funding solution for the construction.
Given the state of the construction sector, with labour/material supply and cost volatility, they needed an experienced team to deliver a solution that meant the project would stack up and be able to start ASAP.
The Challenge
One of the challenges we encountered with this project was getting a valuation completed – simply because it was a residential property (albeit an extremely expensive one!).
Although we almost ALWAYS instruct valuers for property developments and commercial/industrial properties (i.e. it’s extremely rare that we’ll let a bank/lender order the valuation), it’s a pretty different game with houses – several of the valuation firms refused to take instructions from the client or us for “mortgage security purposes”, citing restrictions under their professional indemnity insurance. We were told they would only take directions straight from the bank/lender.
Although we always prefer to see the valuation ourselves before we present a deal to a lender, unfortunately, in this scenario, we had to take a bit of a risk and allow the proposed lender to order their own valuation.
Strong relationships with banks & lenders are also crucial in getting any challenging deal over the line, and – with this project being highly-speculative (i.e. buy it and hope a buyer will turn up later) and the inherently very limited buyer pool at the $10 million level.
We had to get a potential lender comfortable with the project and its success down the track – we had to convince them to fund the project without it being pre-sold.
The Solutions Presented
Taking stock of the situation, we table two options, (1) bank funding that would come at relatively cheap pricing, (2) non-bank funding that would have a higher cost but advance more debt to the client, allowing them to tip in less equity.
The Outcome
Ultimately, the client decided that bank funding was the best solution for them.
This doesn’t mean that either solution was right or wrong or that either was better or worse. The choice between bank vs non-bank usually comes down to personal priorities – what’s most important to you – which is different for everyone.
With access to over 300 lenders, we have a very wide range of potential funding solutions for our clients, no matter what type of project they have.
*Image of home sourced from a stock photo site.
