Commercial Development Finance
As we work in the Finance Markets daily, we have an in-depth knowledge of current market movements, lenders appetites and lender preferences. Therefore solving complex project funding challenges is part of our specialty of services we provide.
When assessing a commercial property transaction, we start by understanding the client’s key considerations. Only by knowing what the client aims to achieve can we provide an appropriate funding solution. We will discuss all relevant options to support your business success.
Funders today have varied appetites, preferences, and requirements for property development projects. What one bank may reject, another might welcome. Without daily interaction with these lenders, it can be challenging to identify which ones will be interested in your development.
Our advice is tailored to your business’s position and goals. We offer personalised packages based on the purchase price and loan amount. Factors that vary among lenders include loan terms, fees and charges, and variable or fixed-rate loans. These elements will impact the loan repayments and schedule.
Commercial Development Finance
Bank Commercial Property Loans
Traditionally, Commercial Development Finance is done by major banks.
Major banks are by design very sponsor centric. Their philosophy is that if we follow a good sponsor, then chances are that they will pick good projects and deliver good outcomes. So effectively a bank would first decide whether they are comfortable with the sponsor and only then would they look at the project and location.
Non-Bank Commercial Property Loans
Most banks and other mainstream financial institutions have stringent rules and requirements with regards to loan serviceability, borrower experience, tenancy mix and Loan to Value Ratios (LVR), to name but a few.
The minimum requirements would typically be the borrower’s up-to-date financials, proof that the borrower is a seasoned property owner, a strong WALE, Interest Cover Ratio above 1.5 times and a maximum 65% Loan to Value limit.
There are however a substantial number of private lenders and mortgage trusts (typically referred to as Non-Banks) that are less stringent, these Non-Banks will not be as stringent on Interest Cover Ratios, might accept a lower WALE and be comfortable with Higher LVR’s.
Non-Banks are “as a rule” more property focused, as opposed to banks that are more sponsor focused.
Mezzanine Commercial Property Loans
A Mezzanine Commercial Property Loan is a secondary loan, subordinated to the senior debt provider, typically secured by a second mortgage on the property.
Mezzanine finance is useful when the senior debt (the primary loan secured by a first mortgage) and the borrower’s equity do not cover the total property value.
These loans can also help reduce the borrower’s equity, allowing them to invest in other properties and diversify their risk.
While Mezzanine Commercial Property Loans come at a higher cost, reducing the borrower’s equity contribution can significantly increase the return on equity.
Preferred Equity & Joint Ventures
Preferred Equity and Joint Ventures are alternatives to Mezzanine Commercial Property Loans for increasing the level of “Other People’s Money” in a property investment.
For example, these options can be utilised when the senior debt (the primary loan secured by a first mortgage) and the borrower’s equity are insufficient to cover the total property value.
While similar to a Mezzanine Commercial Property Loan, Preferred Equity is not secured by a second mortgage on the property, thus eliminating the need for a deed of subordination to be negotiated with senior lenders.
This flexibility often makes banks more willing to approve senior debt when Preferred Equity is involved, compared to Mezzanine Commercial Property Loans.
The capital partner providing the preferred equity typically receives a fixed percentage of the property income and a share of the sales value if the property is sold.
The capital partner’s investment and returns are prioritised over the borrower or owner’s equity, but are subordinate to the senior debt provider.
Acquisition Commercial Property Loans
Acquisition Commercial Property Loans provide financing for purchasing commercial properties.
We offer funding to cover the acquisition cost, as well as potential capital contributions and post-settlement improvements.
Typically, the loan is secured against the property and its lease income. These loans are generally interest-only and have a term of three years.