Commerical Lending

Does anyone have any experience with commercial lending to fund developing.

Example; I have $1m, looking to develop a site that will cost $1.7m, can a lender/broker make the difference without any additional servicing throughout the build? (The interest could be capitalised?)

Does this scale on the amount of money/track record you have, Im asking cause I spoke to the ANZ and they said they offer 30/70 terms but on a $10m min value (so you would need 3m of your own money), there isn't much between the 1-2m range.

 

How many units are you building?

Funding will be highly dependent on whether the transaction falls within residential or commercial guidelines.

Here is a good guide which is still relevant:

Development Finance Guide

 

Im planning on building 3-4 which puts me in a grey area, its over residential but not enough for commercial.

 

Thanks, for your advice, I will read that guide

 

Quite a bit.
We usually fund ours through commercial for various reasons.

You need a broker who knows what they are talking about (few actually do).

Our most recent ones was a 4unit build $1.2mil lend on $1.8TDC. And end Val’s of $2.4. Interest was capitalized. And no pre sales required.
We could demonstrate serviceability on completion.

It’s hard borrowing in that size, as you are stuck between departments. Too big/complex for resi. Too small but high risk for commercial.
Having a successful track record of developing helps.
Also. In the last year or two appetite for ‘Mum and Dad’ developers has dried up a bit.

What your proposing doesn’t sound impossible but probably not easy. Your broker will need to know his/her stuff and will be worth their weight in gold.

Blacky

 

Yes your right, I have a friend who is a manager and even they can't help me out, commercial lending has dried out, so your lending on a 30/70 basis if thats correct? (600/1800)

How did you manage to get that deal? Was it through a broker or bank? Will you be selling at the end or holding, that makes a difference to the bank, I think commercial prefer selling while resi prefer hold.

How will you demonstrate serviceability? Will it be with the sales or other income if you plan to hold?

 

Yeah. I think it was slightly below 70% lend against hard costs from memory.

We went direct to the bank which I wouldn’t recommend to most people. We are different as both my brother and I have significant experience as commercial bankers and still have strong connections with several banks. To the point we are thinking about moving into Broking commercial business.
We know how to structure and write commercial deals.
For ‘normal’ people I would strongly Recommend reaching out to one of the commercial brokers here.

I would also question ‘why commercial’. It has its place but resi is a different beast (and is cheaper) and may be better suited. You won’t know unless you speak to someone who does.

The thread linked earlier has some good reading.

Blacky.

 

If you are building 3-4 units then you should be looking at residential lending. It would be overkill to use commercial lending products (mainly expensive) and secondly funding is very limited across the board. You will need to tick ALL boxes and jump through a lot of hoops.

If you are doing a 3 unit construction then there are several lenders but when it comes to 4 unit construction then I think RAMS is still the best lender as their servicing is far greater than the other lenders that do 4 unit construction. They also have the added flexibility of assessing the application based on its merits so if the application is strong they can consider looking at the higher of the land value plus construction or valuation.

Valuation is going to be the big issue due to the higher valuation amounts so theoretically the variance between valuers is going to be greater. This is one of the main things that gets developers unstuck.

 

Great advice mate, I will speak to my broker about Rams, at the moment he has me going through commerical, its 1% higher rate which ill see if we can get down due to going to resi

 

Sounds like you have the deal through your connections, going through a broker is my only choice as ive approached various banks and they dont want a bar of it. After these 2 projects hopefully I can do a similar deal to what you have done through my broker.

Will you be selling or holding at the end though?

 

Your broker is unlikely to recommend RAMS as they are not paid any commissions. Some brokers (I personally don't) have a referral agreement with RAMS franchises where they are paid a portion of the traditional comms.

Even at RAMS you need to deal with the right loan writer as most people working for RAMS aren't even aware of their own niches and how to structure such an application.

The issue with commercial lending isn't the rate - its the fees and the hoops you need to jump through. Doing it under residential lending is a far easier and cheaper transaction. Commercial construction lending is traditionally designed for a higher volume construction deals.

 

Thanks for your advice Shahin, I will speak to my broker and work from there. If he doesn't suggest rams, ill personally go in or try through another broker. Yeah the rate doesn't bother me as such its the fees im worried about which do stack up as you have outlined in your guide.

I plan to keep these though, so maybe I would benefit greater going through resi due to less fees/lower rate however many banks have straight up said no, hence going through a broker with a construction loan.

 

Knowing someone in the bank is one part of it. Structuring the deal is another part. Just knowing someone isn’t enough. The deal still has to fly.

The one mentioned above will be 50% sold.
One other one we are doing is being 100% sold. An earlier one we did none was sold.

Blacky

 

I think its mainly due to being 4 which makes it hard to get finance in the resi space, cash flow is positive and end value is strong so I don't know where its going wrong

 

I would recommend you contact Shahin. He clearly understands development and commercial funding and will be able to tell you how to get it over the line.

Not much we can do on a forum without the complete picture.
Going direct is unlikely to work.

Blacky

 

yeah I will give shahin a message although im located in melb, will that make a difference?

 

He might have to type slower for you

 

havent done business with anyone outside of vic, im new to interstate business