The world of construction finance without banks: HoldenCAPITAL
GUEST OBSERVER
To most within the development sector, the world of construction finance beyond the major banks is largely opaque, with no clear signage or yellow pages directory to guide developers in the right direction to find the best fit for their business and project needs.
There are a multitude of sophisticated providers of private construction or site acquisition money available to be tapped into, however most do not have a front door as such and they certainly don’t have a team of business development executives who pound the pavement looking for deals to invest in.
They rely on origination businesses like HoldenCAPITAL to source and present the opportunities to them, which is why we commit a lot of our time to engaging with them to gain a clear understanding of what they will and won’t invest in and the terms on which they will do so.
A point we often make to clients is that you wouldn’t waste your time trying to negotiate an important town planning issue without input from an experience town planner in order to draw on their experience, relationships and understanding of current approval authority expectations.
Similarly, we see ourselves in the same light, tapping into the knowledge gained from settling over $340 million in new development transactions over the past 12 months and our accreditation with over 100 lenders to ensure we secure the best possible financial outcome for our clients.
In fact, our list of lenders and equity providers is growing at the rate of about one a week and of these, some 87 are currently active in one form or another with Investor Funds, Mezzanine Lenders and Private Lenders accounting for over 70 percent of them.
In particular, we are seeing a growing level of demand for and supply of, Stretch Senior funding options where lenders are prepared to provide up to 86% of the Total Development Cost, in return for a total interest cost in the order of 11 percent but with more relaxed terms and conditions. This is particularly evident in the area of pre-sale debt cover, where there is scope to reduce this figure to well below the 100 percent+ required by the banks.
The demand supply equation for construction funds tends to react quickly as evidenced when the major and second tier banks started to withdraw from the market under regulatory pressure and we saw increased demand on those smaller funds and private lenders to fill the gap. After a flurry of activity many were tapped out and we found ourselves looking further afield to meet the demand.
Following interstate visits and trips to Asia we now have a significant number of new sources and as a result, we are finding that the capital supply is meeting demand and with a steadily growing supply of mandated transactions these new lenders are stepping up to meet the demand.
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arranged over $300 million of construction finance in 2015 across 52 projects. To discuss your project finance requirement please call (07) 3171 4200 or visit www.holdencapital.com.au