Link Commercial Mortgages can structure project finance facilities to assist funding almost any construction or development project:
- from a small townhouse project to high-rise residential or mixed-use complex
- from a small factory to large industrial complex
- including building refurbishments and extensions, and land sub-divisions
A project may commence with site acquisition, progress to Development Consent, then to Demolition & Construction of the finished product: project finance terms will vary according to risk categories throughout various project stages, and the risk mitigation strategies implemented to address the various risks.
Project finance is advanced on a Cost To Complete (CTC) basis, where funds are retained within the approved facility sufficient to complete the project according to Quantity Surveyor assessment and progress payment claim certifications.
The business of project finance may be described as identifying, analyzing, and mitigating of project risk. While there are many stages of project risk and risk types, the two main risk types are:
Performance / Completion Risk
The risk in getting the project from vacant site to a completed & certified end product available for sale, refinance, or tenanting.
Completion Risk may be mitigated by Builder’s financial strength and credentials, developer’s financial strength & expertise, and legal assessment of the terms of the Building Contract.
Market / Exit Risk
The risk in selling, tenanting, or refinancing the project on completion in order to recover funds lent or to service residual loan exposure.
The applicable question is, “…what will be the state of the market at project completion, will it be able to absorb the finished product at the assessed value in order to repay the loan and provide a profit…?”
Market Risk may be mitigated by Agreements to Lease, Pre-Sales, Take-Out finance, among other methods and techniques.
The four main ratios employed in analyzing the funding of a project are
- Lender exposure on Project Costs [between 70% - 80% depending on several factors]
- Lender exposure on Gross Realisation [between 65% - 75% depending on several factors]
- Residual exposure (after pre-sales) [between 0% - 40% depending on several factors]
- Return on Project Costs [between 15% - 20% depending on the nature of the project]
In recent years, the quality and quantity of pre-commitments (pre-sales / pre-lease) has become a higher priority and are scrutinized by our institutional clients’ lawyers as part of project funding due diligence.
Project Finance guidelines - Quick Reference:
||Up to $100,000,000 may be feasible
||Appropriately structured to cover project duration / builder’s program
||Develop, construct, refurbish, extend any property and sub-divide land
||Go to Interest Rates
||Capitalized within the facility for the term of the loan
||Without penalty on partial discharges of end product (if strata)
||Get a quote
||To 80% of project costs and to 70% of GRV
||Commercial, Industrial, Retail property, and some special-use
|Loan Servicing Requirement
|A minimum of 1.5 times interest cover is standard requirement, calculated using a combination of Financial Statement information and Lease information with allowable add-backs and other considerations. For-construct & hold facilities