How to choose the right builder for your next commercial development

/in , , /by

 

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 [email protected].

Non-Bank Lending Jargon Explained

/in , , , /by

 

 

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.

 

CPC Lending Guide Download

 

 

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 [email protected] or phone +61 434 932 634

5 Key Metrics Private Lenders are focused on during the COVID Pandemic

/1 Comment/in , , /by

 

 

 

August 2021

 

These are unprecedented times with no one  able to predict the future, CPC has summarised 5 of the key metrics private lenders are currently focusing on to ensure they are investing in the right projects suitable to the current climate. To ensure you can secure funding for your next project look at these metrics closely and see how your project stacks up.

Metric 1 – DEVELOPER EXPERIENCE

Private lenders want to partner with experienced developers who have cut their teeth on past projects and learnt from their mistakes and experience. They are ready to back project sponsors who can demonstrate its not their first project and have runs on the board.

Metric 2 – PROJECT LOCATION

Middle ring suburbs with median price points, close to the CBD, excellent existing infrastructure (not promised). With foreign buyers are temporarily out of the local market and immigration suspended there is a renewed focus on a local catchment and established suburbs that have had recent gentrification and infrastructure investment. Locations that appeal to families, downsizers, retirees are strongly preferred by lenders.

Metric 3 – PROJECT SIZE

Lenders are spreading risk by project diversification. A loan book with more projects at a lower investment value per project  is much more attractive than a loan book with the same FUM made up of one or two large projects. Smaller boutique style projects make a lot of sense to lenders, less stock to shift, more competitive build environment and generally less project risk. If your project is from 2 to 15 dwellings you are more likely to get funding and your project started sooner.

Metric 4 – DEVELOPER EQUITY

Key loan to value ratios have shifted post COVID-19. Senior debt secured by 1st mortgage remains the focus for quality stable lenders. Generally lenders will require developers to put more equity into projects upfront, GRV around 65-70% is current senior. Mezz is available but is still expensive.  Developers also need to ensure they are not to heavily reliant on cash flow from other project completions.

Metric 5 – PRE SALES

Lenders will typically favour projects that have exiting pre sales purely due to the potential impact of COVID-19 on property prices. Having presales also proves to a lender you have a sales process in place that is delivering in these challenging times. Sales revenue remains one of the biggest risks to all projects moving forward.

 

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. 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 [email protected] or phone +61 434 932 634

 

 

 

Breaking Ground in 2022? Start your development funding journey now!

/in , , /by

 

June 2021

I always get asked by developers when should I start seeking construction funding for my project? Every time my answer is – As early as possible!

Its never too early to be seeking finance  in this current climate and this is why.

Our industry like many others is going thru a COVID related shift. Development professionals (architects, engineers, valuers, QS, lenders) are choosing to work more remotely from home, taking on more work and perhaps not working as efficiently as before. This remote working shift may ultimately become more streamlined as technology and management mindsets change – but we are not there yet.

Currently property industry businesses are finding it hard to onboard and employ additional staff. As demand increases processes and reports are taking longer to finalise. For example lending valuation report timeframes have recently doubled from normally 3-4 weeks to now 6-8 weeks. Some companies are refusing new work as they struggle to keep up.

The bottom line is to expect longer lead-in times to get your project commenced. Try to de-risk all aspects of your project that you have control over. The earlier you start the important process of securing project funding the better off you’ll be. You might not have your DA approved, appointed a selling agent or engaged your preferred builder – it doesn’t matter, its never too early.

 

Get in touch now and get your journey started.

 

David Lovato 

Managing Director

CPC Development Lending Solutions

M +61 434 932 634

E [email protected]

W crowdpropertycapital.com.au

 

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. 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 

 

 

 

 

 

Apartment & Townhouse Residual Stock Funding – Free up your Capital

/in , , /by

new-project-completion

 

 

May  2021  

 

As your apartment project moves towards completion with stock left to sell numerous lenders are now mandated to offer developers cost-effective residual stock funding.   

This funding is usually required to repay construction debt and allow sufficient time to achieve sales of completed unsold stock. Residual stock loans can allow developers to move onto their next project without compromising sales prices.

Residual stock lending key information

  • First mortgage funding
  • Typically $2m to $30m loan value
  • Gearing to a maximum of 65% LVR against “in one line” valuation
  • Establishment Fees 1.5%
  • Rates 4.95% 
  • Rapid decision and loan settlement

 

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.

For more information contact CPC today  email [email protected] or phone +61 434 932 634

 

 

Lower LVR’s – The New Normal for Developers

/in , , /by

 

cpc-logo

 

23rd April 2020 

 

The COVID-19 pandemic is reshaping economies around the globe with the local lending environment for development projects changing rapidly since March.

The property industry has already seen major impacts with lenders passing on riskier projects resulting in a substantial reduction in deal flow. One of the key changes over the last few weeks is the reduction in Loan to Value Ratios (LVR’s).

Lenders are requiring more equity from developers to protect their loan investment. We have seen a general reduction in risk/gearing with increased pricing. There are genuine post COVID deals being done now giving us and our clients the benefit of real time risk and pricing benchmarks.

If you are in the market for project funding there are options available as long as your  project generally sits within the following criteria :- 

  • First mortgage funding only 
  • DA approved projects preferred with minimal planing risk
  • Experienced project sponsors with access to additional equity
  • Loan size $3m to $10m max 
  • Gearing to a maximum of 55% LVR against GRV 
  • Postcodes with no actual (or perceived future) oversupply
  • Purchaser demographic – local owner occupier focused, not reliant on investors 
  • Generally 15 month max loan period 
  • Zero pre-sales still available for smaller projects (2 – 10 dwellings)

Projects that sit outside of the above criteria may find it challenging in the current climate to secure funding. Some of our lenders at the moment are carrying out internal valuations as they reduce reliance on external valuer reports instead relying on their in house lending expertise and committees loan decision making.

CPC has a solid network of reliable private lenders who understand risk and property cycles – they are open for business and adjusting their lending criteria to strengthen their loan book in  this current market cycle. The private lending market for developers remains active in pockets and generally excited by opportunities this dislocation is providing.

 

To confidentially discuss your bespoke funding solution contact us today on email [email protected] or phone +61 434 932 634

 

 

 

1st Mortgage Debt Deal Southern Sydney Development Site

/in , , /by

jb059_2brdual-key_20161026cpc-logo

 

15th December 2017

A registered first mortgage funding opportunity exists to fund a development project 11kms south of the Sydney CBD.

This opportunity is lead by highly experienced property development executives who are able to better assess risks and provide funding on loans with Loan To Value (LTV) ratios and Covenants that are reflective of the specific projects risk profile. The maximum LTV on this loan is 42% secured via first mortgage.

The developer has acquired the site for $26.5M in 2016 (100% equity funded). The total required facility of $11M is secured against the existing five lots. The maximum LVR is assumed to be 42% (subject to valuation).

The development is a 6,000m2 site yielding 168 apartments and is located 11km from the Sydney CBD. The site is 350m from the train station and 2km from Sydney Airport.

The exit strategy for this loan is the developer completing his current project in another suburb of Sydney. The developer has a solid track record of delivering apartment projects in Sydney (2012-2016 delivered 480 units over 5 projects, GDV $213M).

The minimum investment is $1.1M and interest is 10% paid monthly in arrears. This opportunity is open for a limited time only, further details are below.

 

INVESTMENT DETAILS*

Loan Facilty Type Registered 1st Mortgage
Interest Rate (investor) 10% per annum
Total Loan $11M
Minimum Investment $1.1M
Loan Term 12 Month Facilty from settlement date
Max Loan to Value (LTV) 42% (subject to valuation)
Targeted Financial Close Settlement occurred 1st September 2017

WHO CAN INVEST?

  • An investment of $1,100,000 or more by any Australian resident or non-resident.
  • Any business that is not considered a small business (less than 20 people)
  • Professional & sophisticated investors
  • An Australian financial services licensee
  • A body regulated by APRA include banks, building societies, credit unions, and life and general insurers.
  • A trustee of a superannuation fund
  • An approved deposit fund,
  • A pooled superannuation scheme
  • A listed entity, or a related body corporate of a listed entity.

To obtain further an Information Memorandum (IM) for this investment please contact [email protected]  or ph. 0434 932 634. *Refer to IM for additional information.

 

Australia Surges in P2P Balance Sheet Lending

/in , , /by

cpc-logo

 

24th September 2017

New research showing Australia has risen to become the second largest alternative finance market in the Asia Pacific sends a strong signal to the world about the underlying strength of Australia’s fintech and business environment.

Findings from a joint study by KPMG, the Cambridge Centre for Alternative Finance and the Australian Centre for Financial Studies, released today, reveals that Australia’s alternative finance market size grew by 53 per cent from 2015 to 2016 and has now reached US$609.6 million.

According to the Second Asia Pacific Alternative Finance Industry Report, Australia has leap-frogged Japan to become the second largest alternative lending market (behind China) across the Asia-Pacific.

FinTech Australia CEO Danielle Szetho said the report’s findings showed how the Australian fintech industry – in areas such as invoice financing, balance sheet lending, peer-to-peer lending and crowdfunding – was servicing the nation’s strong economy and the needs of growing small and medium-sized businesses.

“The demand for our products and services is strong and our fintech lenders are rising to the challenge. This broad-based reports showcases the cumulative efforts of government and regulatory bodies like the Australian Securities and Investment Commission (ASIC) and Australian Prudential Regulation Authority (APRA) to support the accelerating momentum behind alternative finance in Australia,” Ms Szetho said.

Click cultivating-growth-asia-pacific-alternative-finance-report-2017 to view the full report

 

Selling your Development Site? 5 Things you should consider…..

/in , /by

 

cpc-logo

 

 

September 2017 

Written by David Lovato

More and more developers these days are asking themselves should I sell one (or more) of my sites and consolidate operations? Why would a developer sell their lively hood? Are they in trouble? Are they too stretched? What’s happening to their business?

There are many reasons why a developer may consider selling a site (raw or approved) but they have usually decided to curb expansion plans or had unforeseen delays on existing sites or need to free up capital to complete other projects. If the developer goes about it the wrong way it can greatly tarnish their brand and market perception.

Here are 5 things to consider before listing your development site with an agent:

1. Is there any demand for my site?

If your site is located in an area of future oversupply be prepared to not find a buyer. Banks and private lenders are ruling out funding certain suburbs of Sydney. Limited ability for an incoming developer to obtain finance means your pool of buyers is extremely limited.

2. What’s my pricing strategy? Can I still make money on the site?

If you have purchased a site within the last few years and got a DA approval then you know exactly how much the site owes you.  Site values peaked in 2015 so many sites bought at the peak may not re sell for the same value. You should trying put aside your emotions, agents will always pump up the sale price but talk to valuers and development managers. They know how much a site is worth, you should be ready to accept a fair price. Don’t get greedy or your strategy may backfire.

3. Do I really want to advertise this sale with a major agency?

Signing an agency agreement with one of the big agents is like pulling your pants down. You are exposing your business to speculation that things are not going as planned and you will pay for the privilege. You will be assured of a vast database of buyers (none qualified) and you will run an expensive print and media campaign. A scattergun approach that exposes your business in this delicate situation is not the answer. A targeted and swift off market campaign is a better strategy to keep you divestment plans private, find qualified buyers and free up your capital ASAP.

4. My site is DA approved, it must be worth more?

In todays market more often than not developers are looking for raw sites, the market has peaked and smart developers are looking at sites for the next cycle. Expert developers will have their own brand and strategy and your DA adds no value to the transaction. The time and effort spent on getting the approval has no doubt been considerable but putting emotions aside and seeing it through the buyers eyes will help manage expectations.

5. Understand your buyers financial position

Once your site is for sale you will receive a wide range of offers. Some will be high and others extremely low and opportunistic. You should take a vested interest in reviewing the companies behind all of your offers, you must understand your bidders. It is likely a high bid is from an operator who is willing to pay more to ride out the cycle, the risk is their financial capacity to settle. Most land banking developers will not need finance and they will not pay over the odds – they are probably your underbidders.

 

Written by David Lovato from Crowd Property Capital, CPC is a peer 2 peer platform providing capital funding channels for Australian property development. For more information visit www.crowdpropertycapital.com.au

 

 

 

 

 

 

 

Peer 2 Peer (P2P) Lending – 5 Things you should know before investing

/in , /by

images-7

 

cpc-favicon

 

June 2017

P2P lending is the practice of lending money to businesses through online services that match lenders with borrowers. 

As we move into the second half of 2017 more property developers are having to turn to P2P lenders as their access to traditional forms of capital is tightening. 

The major banks are extending less credit to property developers, as a result credit is drying up to many development companies who are turning to these P2P funding channels – usually at higher interest rates.

Investors now have a wide range of options to obtain higher yields via participating in these loans but sorting the out the good deals from the bad is not easy as these investments are unregulated and carry substantial risks.

We take a look at 5  key things you should know about P2P lending before making any investment decisions:

 

  1. Don’t chase exceedingly high returns

 

If a debt offering is returning over 25% and is a “mezzanine style” deal chances are its extremely risky. A developer may have no options other than paying high rates like these over short periods but these deals are highly leveraged and need greater due diligence.

Bottom Line – Avoid deals that promise high rates of return, they are extremely risky and you may lose your capital.

 

  1. Know your investment timeframe

P2P lending allows developers to use your funds to grow their business by providing capital to buy new sites or pay their bills on existing sites.  

You generally won’t have the option of getting your funds back prior to the expiration of the agreed loan period. Most developers will need these funds for 12-24 months or longer until they complete their projects.

Be prepared for extended loan periods as projects encounter delays such as wet weather or underestimating the time to completion.

Bottom Line – Understand what project you are investing in and the agreed timeframes for your investment returns. 

 

  1. Investment Security 

 

Just like the major banks, P2P investors should be looking at security in the underlying asset to protecting their investment.

Lending on a first mortgage basis is the safest way to ensure your investment is protected. If a developer defaults on your principle or interest repayments you still have the benefit of first mortgage security. This puts your investment in a strong position as you have underlying ownership of the land. 

Bottom line – First Mortgage investment provides investment security. 

 

  1. Research the developer

Like the stock market, investors need to do some research. You need to understand the basics of a property market and drivers of economic development. How much of a track record does this developer (your borrower) really have?

Where is the project located? Is it close to new government infrastructure? Is there a need for housing, education, healthcare or retail services in that particular area?  

Does the developer have a proven development team with delivery experience on completed projects? Who is their preferred builder? What is the builder’s experience?

Bottom Line – You should ask all these questions prior to investing.

 

  1. Deal with reputable P2P lenders

Your best chance of a good initial (and repeat) experience in P2P lending is to do your research. The quality of the offerings (not quantity) is key. Online operators should have a local presence which is regulated by ASIC.

Bottom Line – There should always be someone you can talk to on any P2P website. Pick up the phone, make contact and get to know who you’re dealing with, you will soon find out if they know what they’re talking about.

 

About Crowd Property Capital: CPC is a modern property marketplace fueling a shift into the world that’s less dependent on the traditional incumbents and middle-men. For further information on P2P lending contact David Lovato on +61434932634  or visit https://crowdpropertycapital.com.au