CASE STUDIES

A syndicate of 16 shareholders purchased 7.977 hectares of residential zoned land 410 km south of Perth for $1.4 million cash.  The land is to be developed for 68 residential lots in two stages with an ‘on completion’ value of $14.97 million.

The syndicate funded the development approval costs and a valuer determined the ‘betterment’ value to be $2.8 million.

As history shows, with staged developments based on rolling/peak debt cash flows, the level of debt funding required can be a moving target dependent on everything going according to defined timelines. In this regard, to protect against any delays of subdivision works, issue of titles, settlement of stage one lots etc., the level of funding obtained ($7.6M) was sufficient to complete the development as one stage.

This funding covered 100% of the project costs including development, consultancy, statutory, holding, finance, interest capitalisation and GST.

Pricing was then structured to be in line with funding on a peak debt basis.  Pricing instruments were negotiated based on the approved limits being the line fee and establishment fee. (As the interest rate margin was calculated on the daily loan balance, it was not affected by the approved limit with the borrower only being charged on the portion of the loan progressively drawn).

Limited liability guarantees were taken from directors only and there was no pre-sale requirement.

A client secured 2.07 ha for $1.425M in a south eastern suburb and is holding it for future development. The land is zoned rural however forms part of a Redevelopment Authority Master Plan.

A quick settlement period was achieved but the client was depending on the sales proceeds from other developments prior to settlement on the subject land.

In view of the timing difference, 100% funding was achieved based on the following:

Refinancing of an existing loan facility secured by a vacant duplex lot to release available equity.

Funding of $1.961 million was obtained for the refinance of the existing loan facility, purchase of the subject lot, six months interest provision, stamp duty/purchase costs and financing costs.

This funding represents 82.57% of the value of the duplex lot and the purchase price of the rural lot.

As a condition of approval the subject debt is to be reduced from sale proceeds to a level comfortable to the lender within the six month term on expiry of which the facility will be rolled into a land bank loan pending rezoning and development approval.

The property will then be revalued with funding required for development to be geared against the ‘betterment’ value and 80% of total development costs thereby reducing the amount of cash the client is required to contribute.

A client purchased 3,222 m² of industrial land for $1.24 million in order to construct a purpose-built head office and showroom.

The funding included a business development loan of $1.445 million to cover the land purchase and associated costs; a GST float of $125,000 to fund the GST on the purchase price; and a business loan of $150,000 to refinance an existing facility.

Total funding of $1.72 million was secured by the property being purchased along with an existing industrial property owned by the client. The combined security value of the properties was $2.065 million resulting in a loan to value ratio of 83.29%. Higher gearing was negotiated on the basis that the GST float was repaid on receipt of input credit and the $150,000 facility was paid within three years via principal and interest payments. A $5,000 rebate was paid to the client by the lender as a refinancing/switching cost reimbursement.

A joint venture spent $1.8 million on 40 hectares of land in south west WA (zoned viticulture/tourism) with the intention of developing 15 tourist chalets, a caretaker’s residence, a house, eight commercial units, a vineyard, common facilities and dam beautification with an ‘on completion’ price of $8.49 million.

Having obtained development approval prior to settlement, the land was revalued at $2.75 million. Total redevelopment costs were established at $3.59 million. Seven lots were pre-sold as ‘house and land’ packages to joint venture members. Another seven were pre-sold to private buyers.

Receipts were used to finance senior debt funding of $5.14 million, representing 95.36% of land purchase price plus development costs, leaving only $250,000 to be contributed as equity by the joint venture partners.

A GST float formed part of the funding and limited liability was guaranteed.