Property developers have always been looking for more innovative ways of funding their projects and more importantly maximising how much they can borrow - one such way is Mezzanine Finance.  In short Mezzanine debt fills the gap between the property developer's equity available and the amount of senior debt the lender is willing to lend and is generally secured by a second mortgage.

Traditionally mezzanine loans have been supplied by specialist lenders or private investors, an area which GCC has excelled in over the years. In recent times mezzanine finance has become more difficult to place with the requirements becoming more stringent, such as 100% pre-sale cover, collateral security etc.  In response to this GCC has been working on an alternative.

Through our extensive network, GCC is in a position to source builders for appropriate well located developments who are and can not only build the project at a fixed price determined by an independent QS but are also able and willing to inject cash to cover any shortfall (as mezzanine facility/equity behind the senior lender).

Residential Development Finance – Senior & Mezzanine Finance

Our client has contracted to buy a development site in Western Sydney for $1.5M plus costs. The property is zoned for 15 x 2 bedroom residential apartments and should sell for $6.5M.  Given that it is a rising market the clients would prefer not to obtain presales as they firmly believe they will obtain better prices for the units close to or when completed. GCC was approached to arrange development finance via a private non-bank lender due to the fact that no presales would be available.

As we started working on the proposal we were informed by the borrowers that some of the investors had pulled out and they were short approximately $500k.  Traditional mezzanine finance was not an option as there were no presales.

Solution

GCC approached one of our builders who we have been working with over the years and discussed the project.  The builder did his research and agreed that the project was viable, well located and would sell well in the current market.  He further agreed to build the project at the QS price on a fixed price contract basis and further agreed to contribute the shortfall of $500k as a mezzanine loan.

Senior Debt

Loan Amount:           $4,225,000

LVR:                       65% of GRV

Rate:                       11.50%

Mezzanine Debt (supplied by the builder)

Loan Amount:         $500,000

LVR:                      75% of GRV

Rate:                      20% pa