Development Opportunity & Joint Venture
Our client is an experienced development & project manager who had negotiated a JV with a landowner that had an inner-Brisbane site ripe for development. Having achieved a DA for eight townhouses, our client ideally wanted to start construction without any pre-sales in place. This approach would allow them to confidently give the builder a start date, thereby securing the build price and getting the builder on-site ASAP—mitigating the risk of further cost escalations, which is widely considered the greatest risk for any project in the SEQ region at the moment.
Furthermore, in a market where projects are being shelved left, right, and centre, starting without pre-sales provides purchasers with significantly greater confidence to enter into an off-the-plan contract.
Pre-Sale Strategy: A Balanced Approach
An interesting pre-sale strategy emerged from these highly experienced individuals—one worth considering for others in the industry. Typically, in a hot market, developers avoid pre-sales to achieve higher sale prices toward the back-end or even post-completion (the old “see, feel, and touch” method). However, in this case, the developers were not focused on squeezing every last drop of profit. Instead, they were satisfied with their feasibility and would be happy if buyers signed up early in construction, as this would reduce overall project risk.
This balanced-risk approach—being willing to take a degree of risk but eager to mitigate it as soon as possible—may not yield maximum short-term profit but improves the likelihood of remaining competitive in the long term. The idea of “leaving something in the deal for the purchaser” (where the developer foregoes some profit to allow the buyer to gain some upside) is also something that Graya discussed in an interview with STAC [make this a hyperlink when posting as a blog]. This is a concept worth considering for others in the industry.
The Debt Deal: Financing Without Pre-Sales
Nil pre-sales have traditionally been the domain of private lenders—often the leading reason why developers opt for private finance instead of bank funding.
In this case, while the developer’s existing bank was eager to finance the project, they required a few pre-sales. However, given that there were only eight townhouses, priced affordably at around $1.6 million in a prime inner-Brisbane suburb, another major bank—convinced by STAC and the developer—determined that it was a safe bet to rely on the “build it and they’ll come” approach.
Although the developer did not require maximum gearing, the bank was willing to offer financing as high as:
- 80% of Total Development Cost (TDC) or
- 65% of Gross Realisable Value (GRV),
- with nil pre-sales required.
What’s the Catch?
You might be wondering—what’s the catch? To be fair, there were a couple of key factors that contributed to securing this deal:
- Experienced Sponsors – The sponsors (excluding the landowner) had significant experience in similar projects.
- Strong Guarantors – The financial positions of the guarantors provided the bank with comfort.
It’s worth noting that there are no set hurdles for financial backing—negotiation plays a significant role. However, if this were a first-time developer with an asset and liability statement showing nothing beyond the development site, then this type of deal would likely be out of reach.
That said, never assume what is or isn’t possible—that’s exactly where our expertise comes in. We work to uncover the best possible financing solutions for each unique project.
