In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Development Finance
If you are looking to build a duplex or up to 4 townhouses we may be ale to assist you with a residential loan product. The proviso here is you would have to be building to hold long term and we can show serviceability on the end loan required (including future rental income).
If you are building more than 4 dwellings, or you plan to sell on completion, or we can't show servicing for your deal on a build and hold basis we can look to either the banks for commercial finance or non banks / private credit funds if it falls outside banks parameters.
Getting bank finance for developers is quite difficult at the best of times and if you are fairly new or not asset backed then may not be possible at all. This is where the private credit and non banks may be able to help.
We will work with you to find the best / most cost effective solution for your project. Give us a call or submit your enquiry here.
GRV Finance
Private and non bank lenders may work off the gross realisation value (GRV) of the project rather than the traditional hard cost or total development cost (TDC) method when working out how much they will lend. This alone could be the difference between getting finance and not.
The main things non traditional development finance lenders will look at are:
- The Project – does it make sense?
- The Profit – is there a big enough profit in the project ?
- The People – are the people behind the development experienced?
GRV development finance method explained
Gross realisation value (GRV) based first mortgage facilities look at the projected end value of the project and will extend funding to a percentage of that. In general the maximum GRV is 65%, or 70% in some cases.
Advantages of GRV development finance
- No pre sale requirements can mean a higher realisation price especially in a rising market.
- No pres sale requirements can mean the project holding costs are less and the development can commence more quickly.
- Less developer equity required.
- Taxable income figures for the borrowers are not generally required.
- All fees and interest can be capitalised
GRV development finance general guidelines
With non bank lenders and private funders, nothing is set in stone. However, below are some guidelines that, if met, will ensure we can help you secure developer finance.
- Projects should be in desirable locations with high demand for the product being built.
- Profit margins should be between 15% and 25% depending on the type of project.
- The borrower should be an experienced developer.
- The borrower, while not generally required to prove serviceability, will need to have some tangible assets behind them and not be credit impaired.
- While the funding may be typically be available up to 65% of the GRV or end value, this ratio cannot be exceeded at the land stage or any stage of the development. If the land has increased significantly from when it was purchased there is no restriction on using the increased value. This means that 100% of hard costs can be funded in some circumstances.
GRV funding versus traditional hard cost funding
Below is a set of basic figures that we have extrapolated to show the advantages of GRV development finance over traditional hard cost funding.
Assumptions (all figure are GST exclusive):
| Interest rate TDC / bank funding | 8% |
| Interest rate GRV/ non bank lenders funding | 12% |
| Construction period | 12 months |
| Hard cost method 80% of TDC | GRV method 65% of end value | |
| Realised value from sales (net of sales costs and GST) | $7,000,000 | $7,000,000 |
| Land cost / value | $2,000,000 | $2,000,000 |
| Development build cost | $3,200,000 | $3,200,000 |
| Development soft costs | $250,000 | $250,000 |
| Interest & fees | $350,000 | $600,000 |
| Total Costs | $5,800,000 | $6,050,000 |
| Maximum loan | $3,360,000 (80% of land + build cost) | $4,550,000 (65% of GRV) |
| Developer equity required | $2,440,000 | $1,500,000 ($940,000 less than TDC) |
| Profit | $1,200,000 ($250,000 more than GRV) | $950,000 |
| Profit margin on costs % | 21% | 16% |
| Profit margin of sale % | 17% | 14% |
In the above example by using GRV method to secure developer finance, the developer reduces profit by $250,000. However and importantly, they could secure funding with a significantly smaller equity contribution (over a $900,000 less).
With GRV finance usually there is no requirement for pre sales so the developer also has a possible upside in the sale realisation prices being higher. Even a minor increase in price over the 12 month period would more than make up for the $150,000 in extra interest and fees charged with the GRV development finance method. If you assume a sale price that is 5% higher in 12 months time on completion then that would equate to $350,000 in additional sale proceeds.
Examples of recent development finance deals that we have brokered
- Townhouse construction finance - 3 townhouses - Melbourne VIC (resi bank loan)
- Land acquisition and civil works finance - Land subdivision - Hunter Valley NSW (joint venture and non bank debt)
- Refinance development site - Sydney NSW (non bank resi loan)
Developer finance needed? Mortgage Experts.
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