Depending on the Developer’s strategy there are various options available in the market for residual stock facilities. As a rule of thumb, the term and gearing of the facility are directly related to the cost of the facility i.e. a 20-year home loan style loan is typically much cheaper than a 6-month bridging loan.
Common success strategies BEDROCK Funding can secure include:
1. Arranging a Residual Stock Facility:
The developer intends to retain the residual stock for a long-term investment period (> 5 years). Reasons for this might include, no GST liability, no sales commissions on those units etc.Effectively under these circumstances we can arrange a residual stock facility at a relatively low cost of funds, say <5% p.a. at a Loan to Value Ration (LVR) of between 60% and 70% enabling the developer to access their equity currently locked up in the project to reinvest into their next project.
2. Arranging 6 – 9 Months Bridging Facilities:
The second scenario sees the developer wanting to progressively sell down the residual stock, but in an orderly fashion. This will ensure they are not rushed by a construction lender needing to be repaid and enables them to maintain and potentially improve the capital value of the stock.
In these cases, we can arrange 6 – 9 months bridging facilities, which will provide the developer with sufficient time to undertake an orderly sell down.
Bridging loans are more expensive due to the shorter period and are typically priced at an interest rate between 8% p.a. and 12% p.a. at a 70% LVR.
Advantages here are that there are no early payout penalties and the facility allows the developer to retain some of the proceeds from each sale rather than waiting until the lender is fully repaid as these bridging loan lenders do not require full net proceeds when settling the units provided their exposure is progressively improving.
There are of course many variations on these two basic strategies, so the best course of action would be to let us have a look at your individual requirements and assess how we can structure a custom solution to satisfy your individual project needs.