Commercial development finance

[Hernan Crespo]

Dear Friends,

I am in the process of finding suitable finance for a $40M construction loan for a mixed use hotel, commercial and retail building in North QLD.

In the first stage, we will require $2.6M to settle the land. Currently there are a few residential dwellings on the land. DA approvals is expected to take 7-10 months to get done.

Then in the construction stage, we will require about $38M for the construction of the building. The good thing about this is that we are confident we can achieve 80% of pre-sale/pre-leases and 100% by the time construction is completed.

We have found the tricky part being the settlement of the land, where we are looking for a high LVR from a senior lender and a mezz funder/private equity to bring us up to 100% of the purchase price as possible.

Speaking to 5 banks so far I've had 2 banks who would not lend on the purchase, and on the other 3, the max I have so far is a 60% LVR loan.

Any advice on which bank i could go for a 70%+ LVR loan and any pointers on who i could talk to about the balance of the funding that would be much appreciated for the settlement.

Once DA is approved there will be no problems funding 100% of the construction costs.

 

[Medine]

Hi HC,

Have you tried nab?

Cheers, Medine

 

[APerry]

Hi Hernan,

Can you describe the land in a little more detail? Is it a number of titles, with a house on each title, or a number on the one. What is the zoning?

Are you wanting to cap the interest into the loan while you obtain the DA, or are you able to service the loan? Unless you can service the debt, the LVR you are after is too high for a bank, you will have to use an alternative lender.

Regards
Alistair

 

[Hernan Crespo]

Thanks for the response.

Zoning on the land is 'Central Business' so what we are applying for is an 'as of right' use.

There are actually 4 titles with a house on each title.

Ideally we would like to have interest capitalised but even if it is not we are quite ok with that.

We are talking to the nab. so far they have been quite non-commital; the reason being is that we are using a valuer who is not preferred on their panel. Unfortunately due to the heat of the local market, the more recognised valuers such as HTW all have work filled for the next couple of weeks, and hence will not be able to perform a report on this site in time for settlement, which is on the 17th of August.

Got no problems using alternative lenders as long as their rates and conditions are reasonable.

 

[APerry]

Hi Hernan,

If you are able to service the loan against the land, then you should have no problem getting 70% and capitalising the intertest for 12 months through a bank. If you cannot service the loan them you are probably looking more at a 60% lend, capping up to 65%, unless you look at a non bank lender.

You should be able to get up to 80% LVR through an alternative lender, including capped interest, but it would likely be more expensive.

If you let me know whether or not you will likely meet servicing requirements and also who your valuer is, I'll see if i can point you in the right direction.

Regards
Alistair

 

[Hernan Crespo]

Alistar,

The valuer will be J Dodds and Associates up in Mackay, they seem to be the only credible valuer apart from HTW who can actually get the valuation done on time.

We should be able to raise sufficient funds from our private investors to cover the servicing on the loan for the duration of the DA.

If you can assist with raising private equity for the project as well maybe we should talk and you can help us broker the deal.

Currently waiting on offers from Westpac and Investec.

 

[APerry]

Hi Hans,

Westpac's land bank policy is max 60%, with interest capped to 65%, or 65%, with the interest payments kept on term deposit, otherwise you will have to show servicing capacty. I would think an investment bank would be a last resort, Investec will be very expensive.

With regard to private equity, I can't help you as I would not feel comfortable taking investors a project from someone I don't know. I have tried this before and it has never worked out well. I'd be happy to assist you with financing the project though and I have access to very competitive mezzanine funds, if you have presales.

Regards
Alistair

 

[Hernan Crespo]

Alistair,

Can you give me your phone number so we can have a chat about it?

Thanks!

 

[APerry]

Hi Hernan,

It's 03 9662 1999.

Regards
Alistair