"Tentative On Completion" valuations and finance

A

apapworth

Hello,

We are looking at building some units and have heard of getting "Tentative On Completion" valuations in order to borrow against the completed value of the development, rather than just borrowing a percentage of the building costs.

Developer Martin Ayles mentions this type of finance in his course and on his website, but we have not found a broker that has seemed to offer it.

Does anyone know the process of how to do this, which lenders would accept a Tentative On Completion valuation, and what percentages can be borrowed at what rates?
 
Hi,

Commercial construction lenders look at a number of benchmarks, including leverage at the end of the project. However they also look at things such as the % of cost being provided, valuers comments and your strength as a borrower. If you want to lend just against end value, and get a lender to ignore the % of costs they are funding, both the margins on the deal and your strength as a borrower would want to be very very good.

Regards
Alistair
 
Most Commercial Brokers would be fully aware of lending against the GR or end valuation of the project.

As Alistair mentions the CD and wonderfully development courses offered forget to tell you that unfortunately unless your deal is particulary strong and you have some good pre-sales and an decent asset base then your have little chance of funding the deal this way.

Alistair is based in melbourne so why not give him a call and get him to process the deal for you.

It will cost you nothing and save you a lot of anquish.
 
Hi apapworth,

I literally just walked back into my office after talking to my banker about a development loan for my three unit development. She said the following, which might be useful:

1. I need to provide a rental assessment upon completion. Apparently the yield is important in understanding my ongoing servicability situation. Makes sense.

2. I need to provide a builders construction cost quote or better still a signed contract, before the loan will be approved. They need to know the actual development loan amount.

3. I need to provide detailed plans to them, but they'll get their own assessor to calculate the Gross Realisation upon completion. I gave them the estimate of $830K each for the three, or a total $2.5M GR, but they'll check this against their own assessor's view before calculating their maximum lend.

They also pointed out, that with a GR over $2M this could theoretically reduce their max lend from 80% to only 70%. But I pointed out that they will be three separate strata titles, so will each be less than their $2M threshold. As such she agreed they could lend to 80% even if I hold all three.

She also mentioned wrapping our existing mortgage on the site into the new $1M construction loan so that the new loan would be $1.6M when fully drawn, and with the $600K currrent mortgage showing as drawn immediately. I don't really mind, so long as the new loan has the same rate as my discounted existing loan. I made that point and it should be OK.

So, I guess the concept of providing your own formal on completion valuation seemed unecessary in my case. Maybe if their valuer comes in too low, I might need to get one of my own to substantiate the lend, but I'll cross that bridge when I come to it. But in reality, a $1.6M lend against a GR of $2.5M is only a 64% LVR and I have quite a bit of buffer in their valuation. In fact, at an 80% max lend they could come back as low as $2M total GR or $666K each and I'd still be OK. There's no way they're that low so I reckon I'm safe with their valuer.

Cheers,
Michael.
 
Twitch said:
Michael, did I read you right, they want your PPOR as security in case it all goes pear-shaped?
Click to expand...
Nah mate, existing mortgage = the one on the development site. It already has a $600K mortgage on it. They want to wrap that up with the new $1M development lend to take the total mortgage on that site to $1.6M

My PPOR stays separate, although I do have to sign a gaurantee as director and they could come after my home anyway if it all went seriously pear shaped. Likelihood of that happening is seriously low though.

Cheers,
Michael.
 
MichaelWhyte said:
Nah mate, existing mortgage = the one on the development site. It already has a $600K mortgage on it. They want to wrap that up with the new $1M development lend to take the total mortgage on that site to $1.6M

My PPOR stays separate, although I do have to sign a gaurantee as director and they could come after my home anyway if it all went seriously pear shaped. Likelihood of that happening is seriously low though.

Cheers,
Michael.
Click to expand...

Got it, English was my weakest subject at school.

Your project sounds great, I've enjoyed reading the progress thus far, hope it all continues to go well :)
 
Twitch said:
Got it, English was my weakest subject at school.

Your project sounds great, I've enjoyed reading the progress thus far, hope it all continues to go well :)
Click to expand...
Watch this space! I'm hoping to post an exciting update in my thread by the end of this week... ;)

Cheers,
Michael.
 
Thanks for all your replies!

Sounds like I should be looking to commercial finance if I want to go up this road then, or perhaps I may be able to do it with a low doc at 80% of cost.

Adam
 
Our bank (ANZ) has done what they call "tentative on completion" vals for each of our houses we have built. (these are not complex developments just building a house on a block of land)

Surprisingly, each has come back at the same as the cost of the land and building contract. In fact one of them to the exact dollar...
 
poppy said:
Our bank (ANZ) has done what they call "tentative on completion" vals for each of our houses we have built. (these are not complex developments just building a house on a block of land)
Click to expand...

This will be just 3 units, so perhaps not too complicated... I wonder if there are any banks doing TOC vals on Low Docs loans...???
 
Yes Lodoc GR loans are common but again not charged at the standard rate of interest.

Normally as they are considered as a Development loan you will be limited to 75-80% of GR.
 
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