Ever heard the saying “the thing about common sense, is it’s not that common”? Also on this deal – a bank doing a 60% LVR for site finance – that’s definitely pushing boundaries. Particularly for a site that was flood-affected by the “rain bomb” that hit SE Qld.
So how did we negotiate that? Well, there’s a bit of a story to this – and one where we’re going to have to refrain from naming names…
Our very successful developer client had purchased a large inner-Brisbane site. With other sites having been put under contract, they were seeking reimbursement of some of that outlay, to put towards the other purchases.
At first, pre-“rain bomb”, we negotiated a 50% LVR from one of the major banks – stand-alone, with the strength of the borrower, their pipeline and the asset itself all being key factors.
But after the “rain bomb”, a local banker was sent out to check on sites that may have been affected. We didn’t have any problem at all with that happening – after all, we knew that although this did get flooded in its current state, it would be a completely different story post-completion of the subdivision.
But having seen evidence that flooding was on this site, without bothering to do any real due diligence, nor contact us and/or the client to gain a greater understanding of the impact and strategy of the project, credit decided that the indicative terms sheet would be withdrawn.
Our issues with this were two-fold:
- Credit made this decision without making any contact with either us or the developer – both of whom were well aware of the site’s flooding risk (even before the flood event); and
- There were extremely clear DA conditions about site fill to lift the proposed lots well above the flood level – facts which were clearly disclosed in the valuation provided to the bank prior to issuance of terms.
Re-assessing group/pipeline strategy together with the client, we decided to approach another bank that had funding against another project of this client – which happened to be well progressed with well above 100% debt cover from pre-sales.
With that comfort, we pushed them to a 60% LVR on this site – which still required a fair bit of push.
More importantly, that bank had local credit managers making the call. Knowing how strong that suburb is – and actually bothering to read the DA conditions – they could clearly see that there was absolutely no risk in this site.
Although it was unfortunate that we had to change tack – which is something we’ve had to do on extremely few occasions – the thing about strategy, whether it’s property projects or in business, is that it should always be seen as dynamic. Have your plan, but be prepared to change it if the need arises.
At STAC, we don’t shy away from challenges. Sometimes strategies have to change, which we deal with. Achieving ultimate outcomes is what we’re always focused on.
If that’s what you want on your side, call us.
