Development Finance - Bank VS Non-Bank
- Tim Allen
- Aug 26, 2021
- 1 min read
March quarter 2021 price growth across many key real estate asset classes has made many developers feasibility returns look healthier on paper.
Naturally as a result more development projects to be offered into the market place. In my view Development Bank finance compares to Private Finance in 4 key areas;
1 . Equity - banks call for a relatively high cash equity requirement of 30-40% of total project cost vs a private 15- 25%.
2. Application Process - a bank will seek a full doc application process with analysis of personal & company tax returns vs the private lenders who largely focus on merits of the project.
3. Presales - banks seek high presales or pre-lease commitments before they fund a project whereas a private lender might be able to fund with 0 or minimal presales.
4. Rates - bank rates are low at c. 3-4% pa vs private lenders 7-11% pa. Ultimately there is a trade off between price (rate) and speed/ flexibility, the benefits of which can compound as more deliver more projects in less time.
I am currently seeing major bank appetite for development projects improve over last 4-6 weeks so please do reach out to discuss what your options might be.