As rising interest rates and construction delays place property developers under increasing pressure, private funders are facilitating a growing number of commercial bridging loans to give the sector a lifeline.
Chief Executive Officer of IBN Private, Scott Roberts, said developers are sitting on projects for up to 12 months longer than they had forecast in their feasibility, resulting in unanticipated financial pressures.
“In the rush to bring projects to market and capitalize on the housing boom, developers have found themselves burdened with construction and settlement delays caused by global supply issues,” Mr Roberts said.
“And the cost of lost construction time can be significant.
“We recently worked with a client who purchased a development site at auction.
“His existing long-term lender had given him ‘the nod’ that it was okay to proceed with the acquisition, however changed their position due to cost overruns on his existing development resulting from a combination of supply issues, rising costs, and the impact of a major rain event.
“Despite the significant income to be generated from the imminent completion of the existing development, his lender would not facilitate this next acquisition until it was completed.
“The client was concerned about losing his deposit and the potential reputational impact of not completing the acquisition.
“We were able to structure an asset-backed bridging loan that effectively gave him room to breathe until they completed and settled their project, with no need for financials or a written valuation.”
Mr Roberts said IBN Private would facilitate an average of 40 to 50 bridging loans each year, however he expected this number to increase in 2022.
“Traditional banks tighten their lending policies as interest rates rise, resulting in longer timeframes for funding decisions and decreased risk appetite,” he said.
“This is where the private funding sector has an important role to play.
“Bridging finance is a short-term solution for a certain type and level of debt, ranging anywhere from $500,000 up to $250 million.
“At its core is its ability to enable companies to resolve their financial pressures and structure their business to return to normal trading.
“Loans are asset-backed, with no financials required.”
Mr Roberts said bridging loans were also frequently used by commercial and residential developers to secure sites in competitive markets where timing is of the essence.
“These short-term loans can be approved in a matter of days and enable developers to take advantage of opportunities as they arise, and better position their portfolio through the ensuing DA process,” he said.
“It’s a solutions-focused approach to capitalising on market cycles at opportune times.
“Once the position and value of the property improves, they’re able to meet the conservative risk metrics required by the traditional banking sector and transition their funding accordingly.”
Established in 2004, IBN Private is Australia’s leading private funding specialist, providing commercial funding solutions for property developers and business owners Australia-wide, specialising in projects valued between $2 million and $200 million.
The group draws on its own funding, together with more than 250 private funders and investors, ranging from large superannuation funds to Managed Investment Schemes.
“Our overarching objective is to help businesses achieve their goals and structure their balance sheet to the point that they can transition back to the traditional banking sector with confidence.”
For more information visit https://ibnprivate.com.au/commercial-funding-solutions/development-finance/