Property Development

Property development is improving land for use by adding or replacing buildings. Property development finance is a loan in which its purpose is to allow a property developer to pay for land, put in streets and utility services, and building improvements.

Property development loans must meet both of the following requirements, whether:

  • The property development involves commercial property development or residential property development; and
  • The development property being financed is to be sold or refinanced when it is completed, to repay the debt.

Loan terms generally range from 12 to 36 months, and we can assist with loan facilities from $500,000 to $100 million. Loan to value ratios (LVR) will range from 60% to 70% of the combined costs of land at cost, hard construction costs and, applicable tangible contingencies costs. Credit risk is also an influencing factor for LVR.

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Property development loans require careful sensitive analysis before indicate interest rates and fees are applied. Interest rates for development projects vary on every deal.  What drives the rate is the risk. For most development projects lenders look at whether the risk is “lock-boxed” covered.  The major considerations are:

Sponsor Risk

  • Who is the developer?
  • Are they experienced?
  • Are they financially sound?
  • Will they guarantee the loan?
  • Have they done this type of project before?
  • Do they have hurt money in the project?

Project Risk

  • Does the project make sense?
  • Will it make money?
  • Is it pioneering?
  • Is there demand?
  • How much demand is there?
  • What external factors could affect the project?
  • Is there competition?

Completion Risk

  • Who is the builder?
  • How financially strong are they?
  • Is it an external builder?
  • Has the builder done a project of this nature before?
  • Has the builder been able to arrange sufficient insurance for the project?
  • Is it a fixed price-building project?
  • Are there retentions?
  • Is it a difficult site?

Exit Risk

  • Are there pre-sales?
  • Will the end product sell?
  • Are there pre-committed tenants?