We support experienced property developers at STAC Capital in securing funding for good projects, even if their balance sheet is a bit light. We recently had the opportunity to help one such group with a four-townhouse development in Tugun on the Gold Coast.
Having previously completed several successful projects, we had built a strong relationship with them and had seen how well they ran their projects.
The Challenge
They had identified a site that they saw had great potential. But with their equity tied up in two other projects, they lacked available equity to secure it.
STAC Capital’s Approach
Knowing their track record with previous projects, the most important factor – character and trust – was a big tick.
After reviewing the feasibility and being impressed with the location and proposed product, we decided to provide the developers with an offer for us to put our own capital in as equity so that they could secure the site.
Deal Structure
We structured the deal so that STAC Capital (via an SPV syndicate) would contribute 80% of the required equity, with the client only needing to contribute 20%.
Note that this was for the equity portion, after an efficient debt facility was arranged by STAC. Based upon debt being at 80% of TDC, the developer’s equity contribution was only 20% of the 20% equity contribution, i.e. only 4% of TDC.
The Preferential Equity funding saw a profit-share arrangement on a 50-50 basis, structured as 40% profit and 15% coupon. On one hand this would hold the developer accountable to timeframes and feasibility. Still, by reducing the profit share component, it would reward them for achieving a greater result than the base-case feasibility.
Result
Thanks to STAC Capital’s equity contribution, the developer could confidently bid on the site at auction to secure the project, adding to their pipeline.
Although giving up 50% of the profits may seem expensive, when considering the very low amount of equity contribution, the Return on Equity is far greater than under a normal debt structure.
At STAC Capital, we’re driven by the opportunity to be an integral part of our client’s journey and goals, even where that extends to us personally backing high-quality projects by great sponsors.
