Ikebana, Melbourne developer Gurner repays $130 million in construction loans after foreign sales successes

The apartment developer Gurner has taken the unusual step to announce it has repaid $130 million in construction loans to banks after his two recent apartment projects were well settled in the week leading up to Christmas.

The projects included Ikebana (pictured above) in West Melbourne, that comprises 241 apartments and ground floor retail with a total construction debt of $90 million financed through NAB.

There was also 107 Cambridge Street in Collingwood consisting of 91 apartments plus ground floor retail, with debt totalling just over $40 million with ANZ. 

The projects saw strong settlements from both local and foreign purchasers, and all apartments leased prior to settlement, going against the market chatter about settlement issues and oversupply.

Both projects commenced settlement the week before Christmas – traditionally a difficult time of year for the property market.

By Christmas Eve, 107 Cambridge Street was fully settled, while Ikebana had reached over 90 percent settlement totalling over 215 apartments.

Founder and director Tim Gurner, pictured below, said while 107 Cambridge had zero foreign sales, 45 percent of the apartments at Ikebana were sold to FIRB purchasers. 

He said the risk of settlement defaults was low due to the quality of the agents and buyers in the project and the increasing percentage of FIRB buyers who settled with cash or other means of financing in lieu of the Australian banks’ support. 

“The specific agents that we use are the best in the business and have been selling internationally for over 15 years, so they know their clients inside and out.  It is the smaller, new agents without a solid reputation that appear to be having issues,” Gurner said.

“Unfortunately the minority of small, dodgy agents have cast a shadow over the industry and scared the banks, however, the majority of the big international agencies we use have been around for 15 to 20 years and know much more about the Chinese market, the economy and the buyers than the banks or us.

“Absolutely there has been a move towards overseas and private institutions filling the funding gap the Australian banks have left behind. There really was no other choice when 80% of the finance market disappears overnight,” he said. 

Major banks had tightened lending to foreigners and investors in 2016 to curb the rapid growth in property values.

“I was initially wary of the rumours around settlement issues and the constant negative press, so we did spend more time and resources focusing on our buyers and the settlement and valuation process to ensure we could mitigate as much risk as possible,” he said.

“Interestingly, we have found a substantial number of purchasers at Ikebana settling with cash – over 35 percent - which is much more than any other project we’ve sold to date. Previously we saw cash settlements in the realm of five to ten percent.” 

He said the market had become more competitive and difficult due to changing regulations and planning policies which would test developers. 

“Considering the success of Ikebana and 107 Cambridge Street which were our first true settlement tests after the changes in foreign lending were announced, I’m confident if developers work hard with purchasers and find alternative funding options, buyers will get through this period unscathed.” 

Gurner said his company had several new projects which are expected to launch and find success in 2017. 

He had a piece of advice for developers. “It is however critical that developers take heed of the change in finance conditions as it is very real,” he said. 

“The main difference for us now is the time it is taking people to get finance approved, valuations completed and then settlement locked in… the days of swiftly preparing projects for settlement are well and truly behind us.”