Our client was seeking funding to assist with the acquisition of the ‘Springtime Gardens Caravan Park’, a strategic landholding with future development potential, fronting the M1, with a reliable holding income from permanently let tenants.
The Challenge
The nature of the asset created some challenges in gaining the interest of banks, due to the purchase price and fair market value being reflective of the redevelopment potential of the land, rather than a capitalisation rate of the net passing income; i.e. a bank could see this as “land banking a development site” rather than a medium- to long-term investment.
The Solution
As a part of our process, STAC Capital considered bank and non-bank funding options to assess which would best suit our client’s strategies.
Non-bank funding options were quickly excluded as the cost associated with the LVR it would facilitate, did not make economic sense to the client. Simply put, they were not willing to borrow at mezzanine debt rates – and a WACC (Weighted Average Cost of Capital) calculation proved that a non-bank senior debt rate of any more than about 5.7%pa would equate to a higher WACC than a bank plus mezzanine debt.
As for the banks, disappointingly one bank even stated that they weren’t interested in the asset because of the demographics of the tenants (apparently a bank that infers that they are a local bank of the people, doesn’t want to support a property owner that provides affordable housing for low-income earners!).
The Outcome
After navigating the funding challenges, we arrived at a major-bank solution, negotiating a 50% LVR 3-year interest-only loan with one of the major banks, based upon the valuation as a potential future development site.
If you or your clients are acquiring a property that may cause some hurdles to jump over and doesn’t tick all of the banks’ boxes, get in touch to discuss how we can help structure and negotiate ideal solutions.
