DEVELOPMENT STRUCTURE

Development project funding can be broken down into potentially three major components;

• Equity
• Senior Debt
• Mezzanine

With options of additional security and joint venture options.

Furthermore, development projects also require the make up of pre-sales, valuations, Gross Relations Value (GRV) and Loan to Value Ratio (LVR).

Lawrence Commercial can help tailor the correct facility to meet your specific borrowing needs. Contact Lawrence Commercial and find out how we can take care of your business financing needs.

COST BASED FINANCING

Cost Based Development Finance refers to traditional development finance using the Hard Cost method of funding, the lending percentage of the actual hard costs of the project - up to a maximum of 80% and the property developer will need to contribute a minimum of 20% cash or equity. As well as these risk mitigants, others such as pre-sales will need to be obtained by the property developer in order to draw down the funding.

GRV BASED FINANCING

Gross Realisable Value (GRV) Based Financing is a First Mortgage facility as opposed to Hard Cost Based Facilities.

GRV Based Development Finance is generally less stringent and also generally requiring minimum or no presales. GRV Based Development finance is based on the End Sale value of the project, on a cost to complete basis. Maximum LVR for this type of facility is 75% of GRV.

GRV Based Development Finance provides the following benefits:

• It gives the property developer the ability to contribute less equity to the project, and thereby increasing the return on investment.
• It allows the property developer to use equity elsewhere and effectively diversifying risk.
• It allows the property developer to continue with the project on a ‘stand alone’ basis.
• It is less stringent and more flexible than traditional development finance.

Lawrence Commercial can help tailor the correct facility to meet your specific borrowing needs. Contact Lawrence Commercial and find out how we can take care of your business financing needs.

MEZZANINE DEVELOPMENT FINANCE

Mezzanine Finance is a form of subordinated debt behind that of senior debt in terms of ranking on any claim on property assets and ahead of equity. Mezzanine Finance is generally secured by a second mortgage, and a second ranked fixed and floating charge over the borrowing entity and its directors. In short Mezzanine Finance fills the gap between the property developers equity and the amount of senior debt available. 

Mezzanine Finance provides the following benefits:

• It gives the property developer the power to determine the level of equity (if any) to contribute to a project;
• It is cheaper than equity, and provides a higher project rate of return on their equity;
• It allows the property developer to use equity elsewhere and effectively diversifying risk;
• It allows the property developer to continue with the project on a ‘stand alone’ basis;
• Control is retained by the property developer as opposed to Joint Venture partners, as Mezzanine Finance is passive provided the project is performing;
• Interest is tax deductible, profits are not;
• It can be raised relatively quickly as opposed to equity; and
• It will normally reduce the risk to the Senior Debt provider, and should lead to a lower rate.

Lawrence Commercial can help tailor the correct facility to meet your specific borrowing needs. Contact Lawrence Commercial and find out how we can take care of your business financing needs.

EQUITY & JOINT VENTURE FUNDING

TAKE OUT FINANCE

Take out Finance, as the name implies, allows for the funding of completed but unsold development stock for up to 12 months to allow the Developer time to sell the stock.