After operating for more than 40 years in their current facility, Boldbridge Group Ltd – the owners & operators of the Nambour RSL club – were ready to take their community services club to the next level. After years of planning and having positioned the club into a strong financial position, they were ready to build a second brand-new club.
Having secured a prime site in the heart of the booming suburb of Sippy Downs, undertaking a 3-lot land subdivision and selling two of those lots, they were ready to develop their new club.
COVID Hits = Banks Out
Being a hospitality business, the club felt the impacts and entirely shut down operations for an extended period when lockdowns began.
Before the pandemic, the club had been in discussions with a bank about their lending requirements. However, due to the uncertainty caused by COVID, the bank completely ceased having any appetite for funding businesses in the hospitality industry, leaving the club without any funding options, even as it appeared that the ability to trade was coming on again. Being able to see the light at the end of the tunnel, Boldbridge’s CEO, management and Board wanted to push ahead with the construction of the new building.
A Team Effort
Introduced to the CEO by Geoff Wholsen, one of (if not the) Clubs industry expert in Australia, with whom STAC’s Mark Trayner had on mutual clubs clients in the past 15 or so years, we were engaged to develop a plan to approach the debt market to seek a solution. Geoff’s input to that point had been invaluable – and would continue to be so throughout STAC’s engagement, with his expert opinions and detailed analysis of a whole range of factors that are critical in gaining the support of a lender.
Part of the complexity of the deal was to assess not only the feasibility of the greenfield club premises and the business itself but also another DA-approved and -required element of the development, being a small residential apartments tower and ground-floor retail shops over one end.
Given the complexities of the multiple components of the project, STAC introduced and engaged the services of a Development Management firm and a Valuation firm (initially on an advisory basis) to provide input into the feasibility of the separate components of the project. In-depth assessments were done on all aspects of this proposed development, and this attention to detail and focus proved to be well worth the investment when it came to closing the deal.
Armed with the additional input of these professionals, we undertook our in-depth financial and credit analysis, preparing a detailed IM (information memorandum) to pitch the opportunity to a range of lenders, including Banks and Institutional Non-Banks – which was undoubtedly a big ask amid the uncertain economic climate during COVID.
Challenges with Institutional Non-Banks
Although non-bank lenders are usually considered to be more accepting of risk than banks are, commensurate with a much higher cost of capital, there was a catch in this situation. A large project such as this requires a pretty decent-sized chequebook – which means that the potential non-bank lenders are not those to whom you go to for a $5m development loan. Lenders at the $20+ million end of town aren’t as expensive as the cheaper ones, partly because they get their capital from much larger investors – who don’t necessarily expect as high returns as individual investors do.
But there’s a catch.
Getting big investors in Australia, for the majority of fund managers, means going to the institutional retail superannuation funds; and the vast majority (if not all) of these super funds will not invest in certain industries that they believe do not meet their ESG guidelines – which includes coal mining and businesses that generate income from gambling.
Leveraging STAC’s database of over 300 lenders, including many institutional non-bank lenders, we took the opportunity to the debt market, quickly finding that ESG mandates had recently become incredibly strict. There were a very small number of fund managers who were interested in the deal, but they wanted their pound of flesh for the privilege – something which we at STAC did not believe was necessary for a business of Boldbridge’s strength.
Getting a Bank Across the Line
After some time, we gained the interest of all four major banks and one 2nd tier; however, we quickly knocked out three of the majors as their proposed terms weren’t nearly as attractive or feasible as the others. Entering into negotiations and an initial due diligence period, we worked through factors such as existing performance, risk management, management experience and capability, financial forecasting, and construction risk.
This period was focused on getting all stakeholders comfortable with the project and the business. Ultimately, we locked one of the major banks in for funding at the level we had sought all along and having leveraged our bargaining power by negotiating with two banks at the finishing line; we were able to secure very competitive terms.
The bank approved a debt facility for the construction, including allowances for construction delays that have been a significant challenge since 2020, including initial lockdowns, materials and labour shortages, and far too many significant weather events.
Following construction, the debt facility automatically transitions into a long-term debt facility, minimising the risk for the club as they do not need to seek further finance approval.
Construction of “The Bower Tree” is now complete.
STAC’s Experience with Specialised & Going-Concern Assets
At STAC, we’ve “been there, done that” with a whole range of specialised asset classes over our careers. Furthermore, combining our business & corporate finance experience with our property development capabilities, we are also experts in “Going Concern” assets – wherein an operating business is intrinsically a part of the real estate.
If you’re in a “going concern” sector – such as Clubs & Pubs, Child Care, Hotels & Motels, Aged Care & Retirement – and you’re looking for funding advice and solutions, give the team at STAC a call today.
