The Pros and Cons of Non-Bank Lending Explained

 

 

Written by David Lovato – CPC Development Lending Solutions

 

As any developer knows, finding the right finance is critical to your project getting off the ground. But getting all the funds in place can be a time-consuming and frustrating process. With the RBA starting the rate rising cycle in May cheap commercial loans via bank funding are becoming more expensive and less attractive.

Non-bank lenders have taken a growing market share since the GFC as bank regulations tightened over the last decade.  This has lead to more competition which is great news for you, because borrowing through non-bank lenders offers some big benefits. Interestingly as bank lending tightened, non-bank lending loosened leading to a wild west mentality. Not all lenders are reputable, there are many pitfalls but doing deals with the best non-banks can be rewarding and will help you grow your business.

 

The advantages of non-bank finance

 

Non-bank lenders are typically privately owned and operated. So they can offer credit with fewer strings attached than traditional banks, such as:

 

  • Lower pre-sales requirements to start construction
  • Lower equity requirements, freeing up cash to drive your future development pipeline

 

What’s more, you get to deal with funders who understand property partnerships, repeat business and an entrepreneurial mindset. So they will generally approve or decline your application within days (not weeks or months like the banks).

 

Non-bank lenders also generally adopt a whole-of-business approach: they focus on the bigger relationship rather than the individual transaction. So If things don’t go to plan, you can work with them to ensure a win-win outcome.

 

 

What’s the cost of a non-bank loan?

 

Lenders charge various upfront and ongoing loan fees, so the cost of a loan isn’t just about the interest rate. The devil is in the detail, because steep charges and loan fees can eat into your profits, making your project unviable.

 

Three factors determine non-bank rates and fees:

 

  • The loan’s risk profile
  • The project’s profitability
  • The borrower’s financial strength

 

A word of warning. Some lenders are deliberately vague about the applicable fees and charges, leaving you to discover them for yourself after you’ve committed to the loan.

 

For example, many loans come with a discounted interest rate that reverts to a higher rate if the loan terms are altered without mutual agreement during the loan term.

 

So it’s vital you’re clear on all applicable fees, charges and conditions before you apply. A specialist development finance broker such as CPC can help with this.

 

 

Five common mistakes to avoid

 

CPC has heard countless horror stories of developers trying to save money by arranging finance themselves, rather than through a specialist finance broker.

 

This usually ends badly.

 

That’s because these developers often end up making mistakes such as:

 

  • Falling for too-good-to-be-true deals

Some non-bank lenders lure borrowers by promising them fees and interest rates that seem too good to be true. Sadly, these lowball offers are generally scams.

 

  • Getting overcharged

You should also be wary of lenders that charge large upfront fees or seek caveats on your property to secure their fees before getting started on due diligence. Reputable lenders charge only a nominal upfront fee (to make sure the borrower is serious), which then gets refunded at settlement.

 

  • Signing up for punitive penalty clauses

Watch out for clauses in offer letters or loan agreements that impose heavy penalties for breaches of loan terms.

 

  • Committing to long minimum interest periods

Be careful of loans that require you to pay interest for a minimum number of months, as you might end up being penalised for paying down debt early.

 

  • Working with fake lenders

Some unscrupulous brokers portray themselves as lenders and charge large upfront commitment fees. Once you’ve paid, they find excuses not to write the deal.

 

 

Why work with CPC?

 

Even the most experienced property developer finds it hard to choose the right non-bank lender and loan product. That’s because there are many lenders on the market, each offering different loan products, borrowing criteria, interest rates, and fees and charges. But you need to get it right, because you don’t want to make an expensive mistake that prevents your project from breaking ground.

 

That’s where CPC comes in.

 

We’re a specialist development finance broker, and have been arranging funding for our clients since 2014.

 

We work only with well-established, reputable non-bank lenders that have:

 

  • Operated through different market cycles
  • Got a strong track record for managing loans from beginning to end

 

So you can be confident the lender we find for you will have:

 

  • Sufficient funds available
  • Demonstrated cashflow management
  • A loyal, long-term investor base

 

CPC unashamedly charges a nominal upfront fee. This ensures we can dedicate time to your project, so we can better understand you and your objectives.

 

We can then match you to the right lenders, presenting your project in the best light so they are keen to win your business.

 

Download our in depth lending guide here to learn more about current rates and jargon used in the development lending space.

 

Need development finance? CPC Development Lending Solutions can help you get your next project funded. To confidentially discuss your options, contact David Lovato on +61 434 932 634 or info@crowdpropertycapital.com.au

How to choose the right builder for your next commercial development

 

Written by David Lovato – CPC Development Lending Solutions

 

Have you ever wondered what might happen if your builder went bust halfway through your project?

 

I have first-hand experience of this problem.

 

Back in 2009, during the GFC, I was a young project manager working for an ASX-listed developer, when a builder that was doing three of our projects entered administration. All our sites got locked overnight. It turned out the builder owed $30 million to their creditors. We were shut out of our projects for six months, until we were able to legally take back possession of the sites and engage a new builder. It was a costly lesson.

 

Why do I bring this up? Because the current chatter within the industry is that lots of builders are struggling to pay their bills right now, largely because construction costs are at their highest level in 21 years.

 

So the thing that happened to my employer all those years ago might happen to you too.

 

How to protect yourself from financial risk

Don’t choose a builder based solely on a Google search. There’s too much money at stake for that. Instead, do thorough due diligence.

 

Here are three steps you should take to minimise your risk:

 

  1. Check their financials

 

It’s perfectly legitimate to ask a builder to provide their most recent tax return and a consolidated cashflow forecast. Be wary of builders that are reluctant to provide this information. You want to understand who their other clients are and whether they’re properly resourced to manage multiple projects. You also want to find out how much revenue they’ve forecast for the next two years, because, with some builders, their cashflow might be destroyed if even one client refused to make a progress payment.

 

  1. Check their legals

 

It’s important to understand your builder’s company structure and class of licence. Be wary of builders that set up shelf or subsidiary companies for their building contracts. You should always understand who the directors are, and if they’ve had any insurance or legal claims against them, whether with this company or another one. Also, take the time to review the individual licence details of the nominated supervisor to make sure that person hasn’t had any historical compliance issues.

 

  1. Do a credit check

 

Engage a credit and risk assessment firm like Newpoint Advisory or Dun & Bradstreet to do a background check on any builder you’re thinking about engaging.

 

Don’t forget to do these background checks as well

There’s more to due diligence than just doing finance and legal checks.

 

When you research builders for development projects, you should also do these three things:

 

  1. Check for relevant experience

 

Of course, you want to choose an experienced builder. But you also need to make sure your builder is experienced in the specific project you’re planning. For example, if you’re going to develop apartments, don’t engage a builder that only has house experience. Choosing a specialist will mean your builder will understand the building codes and design issues relevant to your type of project, and will also know subcontractors with relevant experience.

 

  1. Visit previous projects

 

Any builder you talk to will tell you how great they are (and will probably have some nice-looking photos too). But you wouldn’t be conducting proper due diligence if you took their word for it. So take the time to visit some of their finished projects. Also, speak to building and strata managers to find out how responsive they’ve been when residents have moved in and they’ve been asked to fix any problems that have cropped up. That will tell you how committed they are to delivering quality work and maintaining their reputation.

 

  1. Talk to other clients

 

Ask your builder to provide contact details for two or three other clients. When you speak to those other clients, ask them what sort of quality the builder delivered, how they managed the project, what their service was like and how their subcontractors acted.

 

CPC Development Lending Solutions can help you get your next project funded. To confidentially discuss your options, contact David Lovato on +61 434 932 634 or info@crowdpropertycapital.com.au.

Non-Bank Lending Jargon Explained

 

 

Written by David Lovato September  2021

 

National “Drop the Jargon Day” for the healthcare industry is on Tuesday 20th October so here’s some meanings around jargon that exist within the non-bank lending space.

 

Working in development finance you come across many personalities and a lot of ego’s. Eliminating jargon actually makes you appear more intelligent than less.  For now we need to live with jargon so here’s a cheat sheet of terms used in our industry.

 

The bottom line is no one knows everything so when someone tries to bamboozle you with industry jargon ask them to explain what they mean.

 

Download the CPC Lending Guide by clicking below for more insights into the non-bank lending space for development projects.

 

 

 

Non-bank lending guide jargon

 

 

 

 

 

HOW WE PROVIDE VALUE TO OUR DEVELOPER CLIENTS

CPC Development Lending Solutions secures market leading finance on behalf of developers – we get projects funded.

Working closely with our clients we are that new set of eyes that stress test your feasibility and project assumptions around revenue and costs.

We examine presales targets, project delivery team, transaction structure, funding request and timings. This allows your project to be presented professionally and takes it to the front of the queue leveraging off our strong non-bank lending relationships.

Engaging with CPC allows you to focus on managing your project and driving your consultant team. If you are looking to break ground in 2022 get in touch now. Its never too early.

For more information about CPC Development Lending Solutions check out our FAQ page 

To confidentially discuss your bespoke funding solution contact us today on email info@crowdpropertycapital.com.au or phone +61 434 932 634

Developing Property in 2021? 5 Key considerations to prepare for in the current market

 

 

 

 

 

As we move forward into the back half of 2021 the market remains strong in pockets but getting projects off the ground remains challenging.

Here are 5 key issues if you are considering bringing your development to market.
  1. Development finance 
  2. Planning delays
  3. Lack of qualifying Pre-Sales
  4. Price stagnation
  5. Construction Cost Increases

Development Finance

Reset your Project Feasibility and try to be more pessimistic

Its hard for developers to be pessimists but sometimes you should be. If you haven’t had a valuation carried out for funding purposes you should be cautious on your projected revenues. If your current project feasibility  assumes low-interest rates, bullish sales off the plan and optimistic timelines do yourself a favour and stress test your assumptions. Run some more conservative numbers to see the effect this has on your bottom line profit. 

Smarter developers are allowing higher finance costs and factoring of common delays to reach you project milestones (e.g increased presales timeframes and push back of construction start dates).

Remember its always good to under promise and over deliver!

Planning Delays

Steer clear of sites with rezoning and infrastructure risk

If you are a small to mid-sized developer right now you should avoid developing sites that require rezonings or significant developer (or government) contributions towards key infrastructure.

Governments are constantly in flux and key service providers (e.g Sydney Water, RMS) are inefficient and disinterested in your infrastructure problems. Many government announcements are made for political reasons but not all projects are funded and virtually none get delivered on time.

Focusing on areas that don’t rely on rezonings or major infrastructure will provide you with tangible outcomes.

Lack of Qualifying Presales

Where have all the off the plan buyers gone?

With a lot of completed developer stock on the market buyers now have a choice between buying new (generally owner occupiers) or buying off the plan (generally investors hoping for price growth before settlement).

With the foreign investor market flat theres generally not as many off the plan buyers around at the moment. Smaller boutique projects in established locations will be well positioned to break ground in these challenging times as lenders agree to fund construction without debt cover via exchanged contracts.  Try and secure your construction funding with a zero presales condition even if you plan to sell off the plan, it gives you more pricing control and potential uplift once the projects completed. 

Presales are a numbers game, smaller projects will get funded with zero presales and allow you to sell during construction. 

Non-bank lenders will work with you to ensure your project revenues are not capped and will allow flexibility if market conditions keep changing.

You should see your lender as a project partner at all stages of the development journey.

Pricing Stagnation

Know your market and be cautious of predicting bullish price increases

Momentum continues to shift in Sydney as house and townhouse  prices are booming but only pockets of apartment prices are rising. Recent sales indicate prices are flattening out and falling in pockets of oversupply.  Developers should be cautious in the pricing of unsold stock and look to residual stock loans so they don’t flood the market with product upon completion.

Allow in your feaso for contingencies such as incentives, increased sell down periods and completed stock holding costs. If you rate of sale has slowed or stopped altogether your price point needs review.

Construction Costs

The only way is up

In Sydney year on year tender inflation is  +4.5% this equates to a +25% increase in building costs over the last 5 years. This is a big risk to your projects quality and feasibility. Be wary of builders who are providing you with seemingly cheap pricing – do your research on their track record and financial stability prior to signing a contract.

If you are unsure about the construction costs in your market engage a QS early on to provide you with high-level current cost information so you can have a better idea of pricing expectations prior to design finalisation and tender stage.

 

 

OUR PROCESSESS

CPC Development Lending Solutions secures market leading finance on your behalf – we get projects funded.

Working closely with our developer clients we are that new set of eyes that stress test your feasibility and project assumptions around revenue and costs.

We examine presales targets, project delivery team, transaction structure, funding request and timings. This allows your project to be presented professionally and takes it to the front of the queue leveraging off our strong non bank lending relationships.

Engaging CPC allows you to focus on managing your project and driving your consultant team.

For more information about CPC Development Lending Solutions check out our FAQ page 

Planning Alert NSW – Back down on Housing Affordability as 47 Council areas fail to introduce Low Rise Housing Legislation

 

2056 Greater Sydney Commission - 3 cities

2056 Greater Sydney Commission – 3 cities

cpc-logo  July 2018

NSW Planning Update

Legislation designed to allow developers clarity around low rise housing has spectacularly failed to deliver in 47 LGA’s – providing a major blow to housing affordability in Sydney.

Sydney needs 41,250 new homes each year over the next 20 years. This move will impact supply resulting in more people continuing to be priced out of Sydney.

The state governments back down to allow local government’s further time to assess the impacts of the New Medium Density Housing Code is yet another example of the lack of cohesion between the local and state government departments. 

The perfect storm of planning approval delays, lack of planning certainty and tightening credit markets are all impacting developers bottom line feasibilities and profits. These all add up to challenging times in the development space.

What you need to know

The below is a list of LGA’s with and without deferral for further information click here

screen-shot-2018-07-07-at-6-17-12-am

The benefits of the new Low Rise Medium Density Housing Code include:

  • increasing the supply of housing across NSW, especially in Sydney, which will help improve housing affordability;
  • better meet the needs of our changing population by providing a broader range of housing options to suit different lifestyle needs;
  • help to maintain the local character of neighbourhoods with a storey height limit. This will ensure the size and scale of development will fit into established streetscapes and new release areas; and
  • ensure a consistent approach to the good design of medium density housing across NSW.

 

Contact CPC to better understand the full development potential of your site to maximise the value of your asset. Email: info@crowdpropertycapital.com.au

Private Lending – The Future of Development Finance


cpc-logo  March 2018

Rates from 7.5% p.a*
Flexible Presale Terms
LVR 65% on completion

As we move well into 2018 significant trends that align both investors and developers are emerging in the private lending space.

Private lenders entered the market in a big way last year, they were seen as the expensive option of last resort. This is now changing as the private lending market is taking a bigger share of overall development funding.

Why go private? The many benefits include flexibility with LTV ratios, lower presales hurdles and flexible repayment terms. Speed to settlement and funding decisions are made on the spot and can be relied upon.

Most developers have recently been hit with a perfect storm of events. Whether it’s lack of funding to settle sites under option or construction stage most developers are experiencing restrictive levels of developer equity. The realities are starting to bite.

Presales are slow, site holding costs are eating into profits and construction costs continue to rise.

Many developers have been forced by the banks to lower pricing on off the plan sales to reach high presales hurdles. This results in project revenue becoming capped in turn damaging bottom line profits.

Savvy developers are benefiting in many ways from these less onerous private funding channels.

Privates are becoming true business partners who will likely back not just their current project but also their future pipeline.

CPC provides developer advisory services to determine our clients short and long-term funding needs. We are connecting investors and developers with cost-effective opportunities that weren’t around months ago.

See below for our latest offerings and contact us today to discuss private lending options if you want to get your project ahead of the curve.

Contact – David Lovato
M +61 434 932 634
E: dlovato@crowdpropertycapital.com.au
W: www.crowdpropertycapital.com.au
* Rates will vary depending on the projects location, stage of development and private lenders appetite for risk.

Planning Alert NSW – S96 Submission will now be a S4.55 Modification


cpc-logo  March 2018

NSW Planning Update

Legislation regarding the Environmental Planning and Assessment Act 1979 has introduced a major change to the numbering of sections. From March 1st, 2018 terminology has changed – below is a cheat sheet of updates 

For Example 

  • A S96 Modification has become a S4.55 Submission
  • An S94 Contribution has become s S7.11 Contribution

screen-shot-2018-03-08-at-6-44-44-am

Contact CPC to better understand the full development potential of your site to maximise the value of your asset. Email: info@crowdpropertycapital.com.au