Case Study: Staged Development Finance

by | 24 Nov 2021 | Case Study, Property, Property Development, Residential

A residential developer sought STAC Capital’s assistance with funding for 45 townhouses in McDowall over two stages.

The Challenge

Only six months into COVID, there was significant uncertainty in the market with respect to development funding, as sales in residential projects had slowed.

Banks’ at this point were mostly focused on reviewing and assisting their back-book of clients who were going through tough times – new funding for large projects was not of too much interest. The client had, fortunately, staged this development into two stages, being 24 townhouses to be delivered in Stage 1, and 21 townhouses in Stage 2.

The Approach

STAC’s approach was to present a funding opportunity which was largely de-risked via the existing pre-sales held for Stage 1 (not to mention a smaller funding requirement), get the bank on board with supporting the project and commence construction so that sales & marketing channels could see that this project was moving forward and would not grind to a halt, like many other projects during this period.

The Outcome

Funding was approved by a bank for Stage 1 only initially, with the primary focus and agreed strategy with the client to commence work on site. This strategy proved successful, as once construction commenced on Stage 1, sales momentum began on Stage 2 of the project. Whilst STAC’s approach meant the entire project was funded under a tiered approach, the primary focus was to de-risk the funding requirement which was achieved by presenting a strong development funding proposal supported by sales for Stage 1.

The Bank was subsequently presented with a funding request for Stage 2 a few months after construction commenced, with market support evident via pre-sales. In this instance, STAC believed Bank funding was achievable, however, there were hurdles that were needed to be managed to ensure this was possible. The approach proved successful and allowed our client to achieve a lower cost of funds for their project via Bank finance as opposed to a non-bank funding solution for the entire project given the pre-sale position presented upon initial funding review.

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