At VC3P we see many requests for development funding, for Residential and Residential/Retail developments as well as some Commercial developments.
Based on recent months, where there have been some substantial shifts in how funders approach property developments, we see less than 30% of projects that have done enough groundwork to support their funding requests.
Things for developers to consider
There are 3 things to consider when it comes to development funding – whether you’re coming to us, or going to other fund sources:
- The quality and yield of the overall development
- The supporting documentation
- Track-record of the developer
1. Quality and Yield of the Development
Put simply, there are 3 key questions
- Where is it located ?, is this a location that will attract sufficient buyers to get you over 80% pre-sales ?”
- Are there enough comparables to support your $/m2 end-values ?“
- Are you yielding above 35% at the point that your Permits are issued ?”.
If the answer to any of these 3 questions is no …. start thinking about your plan B’s, as you will have trouble getting funding.
2. The Supporting Documentation
A selective appetite for funding risk highlights the importance for developers to present funding proposals in the most effective and impactful way. This is to give your project the best chance of getting an optimal funding outcome.
Here are the things funders are looking for – to either say yes or no to our funding requirements:
- Does your feasibility model have enough detail, particularly in terms of key project risks ?
- Does your development return meet the minimum expected by funders for your project type ?
- Are the cashflows comprehensive and complete (ie: no missing or unjustified line items) ?
- Are the recourse or underwriting security you’re providing acceptable to support this transaction ?
- Have you avoided having any unacceptable pre-sale contracts (overseas &/or multiple purchasers, deposits < 10%) ?
- Do you have sufficient equity (ie: how much are you putting) into the project, and will it be acceptable ?
- Do you have all the necessary information and approvals ready for funder due-diligence now ?
- Are the principal pay out and project time frame achievable within the project cash flows ?
- Do you have a simple legal structure (ie: not unnecessarily complex) for this type of development project ?
- Do you have less than 5 shareholders (including you) involved in your project ?
- Each and every one of these questions above is a Red-Flag. Depending on which of the above questions you fail to meet you may only need 1 fail to be a serious Red-Flag project.
To save yourself a lot of time and misery, try to make sure than answers to all of these a YES …. it will help you get the funding you’re after.
If the answer to 1 or more of these questions is a NO …. think about moving on from this project by finding a buyer willing to take it on.
3. Your Track Record as a Developer
Funders really do care about your track record, and you can guarantee it will be factored into the pricing of your funding.
Here are some thoughts to consider:
- If you’re looking to do your first development – pick something small and easily achievable. Avoid Councils that are notoriously antagonistic to developers and keep it simple so that if something goes wrong your losses are small enough to bounce-back.
- If you want to try on something bigger, think about partnering with a more experienced developer so you can learn and share the risks.
- Even if you’re an experienced developer, if this is the first time you’re doing a high-rise or the first time you’re doing a Residential/Retail mix then think about what you can do to lower your risks and therefore help funders to feel more comfortable with you. This will mean thy come back for more, when you’re ready.
To find out more, and to learn about how we can assist you, contact us on email@example.com and we will look at your project. VC3P joint ventures with a fund manager that has nearly $2B in funds under management, so we may be able to help you directly.