If it stacks up, do it.

Tricky. That’s one word that could be used to describe the current market for property developers. Tight would be another one. In short and without going into why - it has become increasingly hard to find opportunities where the deal-economics work and when you do, finding the financial resources to get it done requires a Masters degree in patience and perseverance.
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However, where challenges arise around project finance and availability of capital, opportunity also opens up in the market. A number of our developer clients are now uncovering more opportunities that make sense – the economics stack up.

We don’t have to tell property developers that availability of credit is incredibly tight at the moment. And what’s more, trying to secure it through the main banks is taking too long to be a viable solution. In our view, if a property development project is going to make money, availability (or scarcity) of finance shouldn’t be the reason it doesn’t happen.

We recently worked with a client who had an opportunity that ticked all the boxes, but was struggling to secure the finance needed to get it across the line. 

Here’s how we helped: The six-month lever for long term value. 

Our client is a landlord with two commercial building assets. One of the assets was identified as a prime opportunity for refurbishment to both increase market value and yield. A pretty straight-forward opportunity, but the stumbling block came when our client’s bank assessed that the cost of refurbishment would push their mortgage over LVR limits on existing values. Whilst this would only be the case until the refurb was complete and the new valuation could be relied on, the answer was “no.”

We took a different view; a view based on the projected value of the asset after refurbishment, rather than on the short term impact of an increase in lending.

We provided the funding for the cost of refurbishment secured by a second mortgage; our client completed the project in under six months; and the resulting increase in value of the property allows for the finance to be restructured within the LVR rules of their main bank.

In short, the outcome for our client is a higher value, better quality asset that delivers a higher yield with a tidy long term debt position. We provided a short term lever for our client to make something happen; to realise the value and reposition the asset and then revert to their single mortgage facility with their bank.

If the deal economics work, availability of finance should not be the reason your project doesn’t happen. If you’re trying to secure the finance you need to get a sound property project across the line, get in touch. If the deal stacks up, we’ll help you find the solution.

Give us a call on 09 215 9364 or email us at fundgrowth@merx.co.nz if you’d like to set up a time to talk.

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