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Home > Property Developer Podcast > 17 – How to make sure your property development project is ‘bankable’
Podcast: Property Developer Podcast
Episode:

17 – How to make sure your property development project is ‘bankable’
Category: Business
Duration: 00:53:20
Publish Date: 2016-07-04 10:38:31
Description: Ensuring your property development project is 'bankable' relies on lenders feeling confident that the development will be a success. Understanding how lenders assess your project goes a long way to helping you strongly position the deal from the earliest stages. Past guest and finance specialist Gayle Stapleton shares some tips and ideas about funding, lending and one thing you can do to ensure your deal stacks up from day one. Gayle is a former long-time bank executive who left the dark side and now runs her own finance business called Stapleton Pacific. Property Developer Training If you are keen to get started today in learning about the property development process and what you need to do at each step, then jump into the Property Developer Training course (www.propertydevelopertraining.com). This is the program that Justin has put together to help you get quickly started in property developing. Complete the course at your own pace and in your own time, and learn the tips, trips and techniques that Justin has used in all his projects. Find out more at www.propertydevelopertraining.com   Property Developer Quiz Keen to find out how ready you might be to become a developer? Then take the Property Developer Quiz (www.propertydevelopertraining.com/quiz) and get a sense of where you are at… Types of property development funding In this chat we discuss the current lending landscape, take a deeper look at valuation and quantity surveyor reports, and cover some of the different types of debt and funding options out there, for example:- senior debt- junior debt or mezzanine finance- preferred equity- developer equity. It certainly is a moving feast when it comes to development finance with lenders changing their appetite and amending their selection criteria all the time. And I think that is why a finance specialist can really help you stay aware of where the lending market is at and how to obtain the best deal. Things to consider with real estate development finance Here’s a couple of things I took away from our chat. 1. Consider a higher cost of capital. You may need to start factoring in higher capital costs when doing your project feasibility. With major lenders tightening their lending parameters you may be forced to use a blend of different debt types and paying higher interest rates. And considering interest rates were above 7% and 8% not many years ago, paying those kind of rates should be viewed in the broader context of what you are trying to achieve with your developing. Do you want to get in and out faster, or are you happy to complete a project, wait for it to all settle and then go again? 2. Look to engage a quantity surveyor and valuer to help with your initial project feasibility. Gayle spoke about making your project ‘bankable’, which means ensuring that your total revenue and total development costs stack up. Having an early indication about this can let you know whether you are skating on thin ice, or have sufficient margins to weather a drop in values or increase in costs. And often you can use a firm that is part of the panel of approved consultants that the banks look to engage when they are assessing your funding application, so you can get out in front of that process. 3. Contemplate what you would do if a lender required higher debt coverage or introduced other hurdles. I have come to understand that banks are in the business of making money through selling money, and they really hate losing money (don’t we all!), so they will do pretty much anything to reduce their risk. That means at any point in time they can change their lending criteria, tighten loan conditions and even call in loans early. This means they may make it really hard for you to get funding for example by requiring 100% debt coverage, rather than 80%. This may slow down your ability to get construction started and thus finish your project and ...
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