When assessing development finance, the interest rate is naturally one of the first numbers developers consider.
But in a changing funding market, it should not be the only one. A lower-cost facility that requires a project to wait months for sufficient pre-sales may not ultimately deliver the lowest cost to the development. Holding costs continue, construction pricing can change and capital remains committed while the project waits to move forward.
The real question is not simply: What’s the interest rate?
It is:
What is the most effective funding structure for this project, at this point in time?
The Cost of Waiting
Depending on the lender, project and funding structure, pre-sale requirements can become a significant hurdle to commencing construction. If achieving the required debt coverage delays a project by six, nine or even twelve months, the financial consequences can extend well beyond the cost of finance.
Holding costs continue
Existing debt and land holding costs do not stop while a project waits for finance conditions to be satisfied.
Construction pricing can move
A delay may expose the project to changes in construction and trade pricing, potentially affecting an otherwise established feasibility.
Market conditions can change
Sales conditions, buyer demand and competing supply can look very different several months from now.
Capital remains committed
Equity tied to a stalled development cannot readily be deployed into the next opportunity.
Look Beyond the Headline Rate
There are circumstances where paying a higher interest rate for a more flexible funding structure can produce a better overall project outcome.
For example, a non-bank facility with reduced or no pre-sale requirements may allow construction to commence considerably earlier than a lower-rate facility requiring substantial pre-sale debt coverage.
That does not make non-bank finance the right answer for every development.
It means the total cost, timing and conditions of the funding structure need to be considered together.
And increasingly, developers need to understand the alternatives available before accepting that a funding hurdle means their project has to stop.
When Funding Circumstances Change
Funding requirements can also change during the life of a project.
A request to refinance, a change in lender appetite, an approaching facility expiry or pre-sale conditions that can no longer be achieved can create an immediate need to reconsider the project’s funding strategy.
This is where access to a broader funding market becomes particularly valuable. BEDROCK Funding works across more than 50 active banks, institutional funds, non-bank lenders and private investors to identify funding structures appropriate to each project’s circumstances.
With more than 20 years of specialist property finance experience, BEDROCK understands both the development process and the requirements of the funding market.
Our role is to find the funding structure that gives your project the strongest pathway
forward.
If your current finance arrangements have changed, your pre-sales are delaying
commencement, or you simply want to understand what other funding options may be available,
talk to BEDROCK Funding before making your next decision.
Request a confidential funding assessment.
Our role is to find the funding structure that gives your project the strongest pathway forward.
If your current finance arrangements have changed, your pre-sales are delaying commencement, or you simply want to understand what other funding options may be available, talk to BEDROCK Funding before making your next decision.