Case Study: Over 96% of TDC with Pref Equity

by | 26 Oct 2021 | Case Study, Property, Property Development, Residential

An established developer approached STAC asking how they could accelerate their project pipeline, with the limited capital they had already tied up in existing projects.

Our Approach

The client had proven to be a very capable developer over several projects that STAC had negotiated their construction finance for; they had delivered quality projects on time & budget, well received by buyers.

With a limited balance sheet but strong capabilities, we were willing to offer them a syndicated Preferential Equity structure that would have us backing the clients with our own personal funds.

The Solution

The agreed structure saw the developer contributing only 20% of the required equity, receiving 50% of the project profit. The developer would also earn a DM fee for managing the project, which was incorporated into the total development costs of the project.

Having set out the Pref Equity parameters, the developer was able to proceed on DD on multiple sites with confidence.  

The Outcome

Within a few months, they had successfully acquired a site at auction (unconditional terms with a short settlement period), without DA, knowing they had the personal equity backing of a STAC syndicate.

With a total Debt + Pref Equity funding package that was structured to cater for site acquisition, costs to achieve DA and construction, the total gearing levels equated to:

  • 92% of site purchase price (without DA), plus pre-construction costs
  • 96% of TDC

The developer has subsequently achieved DA, pre-sold all 4 high-end townhouses and is about to commence construction with less than 4% of TDC as their equity contribution.

This structure has also allowed the client to preserve some of their available equity to put their foot on another site, which ultimately will allow them to achieve (1) project diversification, (2) higher RoE (Return on Equity) and, (3) better cash flow via further DM fees on multiple projects.

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