Case Study: Funding a genuine 100% of TDC on $30m project

by | 3 Nov 2021 | Case Study, Property, Property Development, Residential

Our client is a highly-experienced property developer with a strong track record in delivering medium scale residential projects.

The Challenge

Their equity was invested in another project that was about to commence construction and would be delivered in 12 months, however, they wanted to replenish their pipeline and take advantage of favourable market conditions.

Acquisition of another DA-approved development site was contracted with 30 days DD, for which they wanted to start construction mid-way through the current project, maximising their returns given the rising market with minimal or no equity requirement given their captive capital.

The Solution

During the DD period, we were able to source an offer from a fund manager for funding a genuine 100% of TDC, including significant pre-construction costs (PM fees, consultants, presale commissions, stamp duty), without any profit share arrangements. The terms of the junior debt also allowed the developer time and flexibility to amend the DA to better suit the market.

Furthermore, a project staging structure was negotiated which allows the developer to repay the junior lender from stage 1 sales, in turn creating sufficient equity in stage 2 so that only standard senior debt will then be required, thus maximising profit over the whole project for the developer.

Compared to traditional profit share arrangements the proposed structure resulted in significantly greater profit for the client which will be further enhanced in the current rising market.

The Further Challenge!

Post DD but prior to settlement, construction quotes came in significantly higher than previously provided, placing pressure on the feasibility of the project.

While not unexpected given the current challenges in the building industry, this created a real challenge with the fund manager’s confidence to proceed to settlement.

Working collaboratively with the subordinated debt provider and valuer, we modelled the feasibility on the revised build price to work out what the GRV would have to increase to in order to ensure the project could be sufficiently financed under the current offer with no further funds from the fund manager.

Ultimately we worked up a strategy that was realistically achievable to increase the GR when it came time for construction to proceed, which gave the fund manager sufficient confidence to proceed to settlement.

The Outcome

  • Genuine 100% of Total Development Costs – nil equity in from the developer – that will enable the delivery of the project with a GRV of approx. $30m
  • Pre-construction funding advance well in excess of the purchase price
  • Nil presales at the settlement of land
  • Nil profit share, allowing the developer to maximise returns in a rising market
  • Ability to exit the subordinated debt after stage 1, with sufficient equity to fund stage 2 with standard senior debt
  • Weighted interest cost of junior + senior debt calculated at 13% of drawn funds

If you would like to discuss this article or learn more about our funding solutions, please contact us.