Private Credit Facilities in Commercial Real Estate
Private credit facilities tailored for different stages of real estate projects include Site Acquisition, Development, and Residual Stock facilities. Each plays a unique role, optimising financing for various phases in property development.
1. Site Acquisition Facility
Purpose: Finances the purchase of land or property intended for future development.
Key Features:
Initial Stage Financing: Suited for early-stage financing.
Short to Medium Term: 6 months to 2 years, until development approvals are secured.
High Loan-to-Value (LVR) Ratios: Reflects the speculative risk of undeveloped land.
Considerations:
Pre-Development Risks: Dependent on successful planning approvals.
Exit Strategy: Typically requires refinancing to move into the development phase.
2. Development Facility
Purpose: Covers construction costs after approvals, such as materials and labour.
Key Features:
Construction Phase Financing: Activated once approvals are secured.
Medium to Long Term: Aligns with construction (1 to 5 years).
Progressive Drawdowns: Funds released based on construction milestones.
Considerations:
Construction Risks: Potential delays or cost overruns, requiring careful monitoring.
Interest Rates: Often influenced by project and developer reliability.
3. Residual Stock Facility
Purpose: Provides liquidity for completed but unsold units, aiding cash flow post-construction.
Key Features:
Post-Construction Financing: For projects ready for sale but with unsold units.
Short to Medium Term: 6 months to 2 years, anticipating sale periods.
Lower LTV Ratios: Lower risk due to completed construction.
Considerations:
Sales Risk: Depends on market conditions for unit sales.
Interest Rates: More favourable compared to acquisition or development loans.
Summary
Site Acquisition Facilities support the purchase of land.
Development Facilities fund construction.
Residual Stock Facilities provide liquidity once construction is complete.
Using the appropriate facility at each stage of a project ensures optimised financing, helping real estate developers manage risk and improve financial outcomes.
4o
Komentar