I have lost count of how often we find clients approaching us after working with their regular mortgage broker only to find them unable to find the needed finance, or even worse,finding themselves with unpalatable finance solutions; the transaction being impaired by poor presentation, removing the option for adequate finance due to pedigree.
Working with a specialist broker in this space is crucial to ensuring you end up with a solution fit for purpose and are best set up to succeed.
Helping you choose the best lender
Each development will carry different challenges and needs. Some will have a lack of pre-sales, some a lack of equity and others perhaps will be built to rent, requiring an investment solution on completion.
There is a surprising amount of depth in the New Zealand property development finance market, well beyond the banks themselves and not all lenders are created equal. Each challenge above may mean a different funder being better suited to the project at hand. Some will specialise on smaller projects with no sales. Some will be better at leveraging a project and reducing the equity required. Others will be better able to service deals in more regional areas. Some will be able to provide unique solutions to larger ($25M+) transactions.
Development finance Llenders also have different make ups of their development funding structures. Some are private family offices utilising their own capital, others have high net worth individuals providing equity and wholesale finance lines alongside, others still will be deposit taking entities with higher governance from the FMA. Some are based onshore and others offshore. Even amongst those with wholesale lines, these can be provided by different divisions of the same bank which in itself presents its own challenge.
Understanding your lender and why they are best suited to your development is crucial to making sure you have the right partner for your development. At LPL we have a list of over 120 different lenders that work in this space and can place you with the right partner.
Managing your expectations
Requirements and pricing on property development finance debt often changes. The market is constantly evolving due to broader economic restrictions as well as particular lenders positions. This means that what you can achieve for development finance will constantly change and working with a broker who understands the current position of the market and its participants will help greatly with managing your expectations.
Knowing early if a particular development may need to secure greater equity or pre-sales to meet funding requirements is crucial as these things can often be tricky and take time to achieve. It also gives you as a borrower a level of certainty and comfort about your investment and if engaged early enough will make sure that you don’t pursue an opportunity entirely out of reach.At LPL a large part of our job is to manage clients expectations and coach them toward getting a transaction into a palatable position for funders. If your broker is not in close contact with the market and obsessively familiar with it’s requirements it can be to your detriment and result in time wasted and sunk costs.
Get your financing as quickly as possible
Linked to the above, working with a broker who is familiar with the development finance market ensures that you will get a quick outcome on your finance which can be crucial to the success of your development. It may mean that you can secure the build price proposed, it could mean ensuring you complete well within sunset dates in a contract.
Part of what we do at LPL in the role as broker is work through the detail that the client has available, including the relevant contracts (SPA, construction / civil etc.) to ensure these are in a format acceptable to a funder and save time and cost renegotiating these.
Time is money and often the quicker you can move forward in a project will mean the greater certainty, and ideally quantum, of your profits.
Identifying the right consultants
Throughout a development you will need to engage with a number of consultants such as a valuer, quantity surveyor, project manager, solicitor etc. Some of these may be required by the lender and they may be particular about who is used.
Working with a broker familiar with the market will ensure that the consultants required are identified (saving you cost on those not required), that you are referred to consultants appropriate for the project and those that you engage are acceptable to funders and will provide an acceptable outcome.
At Lateral Partners we have deep relationships with many consultants across the market and can help identifying the party that would suit your project and make those introductions.
Your development finance broker represents you
Your broker will take the information provided and present that to a lender. In this instance they represent you. Given the development finance market is unregulated there is not a level of qualification or submission format required for all brokers to adhere to. It is also, often, not a core part of a brokers revenue (predominately more standard lending) and can mean their understanding of the market is limited.
What this often results in is poor advice to the client, and poor presentation to the funder. We are aware that often applications can be presented to non-bank lenders in a format of a forwarded email from the client with perhaps a valuation and consent attached and as little as AMAP (as much as possible) contained as text within the email. That is the lowest bar, but surprisingly common.
Non Bank lenders can often be forgiving of this, more pre-occupied with maximising their capital, and do a lot of the heavy lifting for the broker, taking a lead on the transaction and leading to the broker acting more as a conduit of information. The risk here is that you aren’t receiving the best advice and can be led to a loan structure not best suited to your project.
Often as well, these emails are forwarded onto numerous lenders in the market. This leads to the vibe a deal is being shopped and can result in lenders having little patience for a transaction or apathetic pricing resulting in a poor outcome for the client.
The worst outcome to being poorly represented is your transaction being declined by a number of providers and gathering a black mark. Once stained with that it can be exceptionally difficult to get a transaction across the line and you may find yourselves unable to proceed or stuck with a lender you would rather not be.
At Lateral Partners we have a template for our development credit papers and experienced brokers that will present your development in its best possible light in a format that makes it quick and easy for the proposed lender to approve. We take pride in the effort that is put into each paper and ensure all clients are represented well to the market.
There is a lot that goes into putting together and presenting a development finance application. If you aren’t engaged with the right professionals you will likely find yourself impairing the outcome you will receive, even to the point of not securing the capital you require.
Understanding your finance costs
As discussed in our blog 'The 4 common mistakes to avoid in property development', it is a crucial thing to understand for development. Finance costs usually make up a significant part of your overall budget and accurately understanding these is crucial to ensuring you manage them well. Check out the blog now to learn more about it!
If you have a project and are unsure who to speak to reach out to us today.
Please read our Disclaimer Statement for more information.
