Last year, COVID-19 caused many construction lenders to retreat from the market. So Mark Hayes, director of Right Angle Group, turned to leading non-bank financier Trilogy Funds to provide a lending solution for his client’s residential apartment development.
This deal entailed the equity release of approximately $233,000 and the subsequent construction of a low-rise residential apartment building comprising 39 apartments in Benowa, Queensland.
I started engaging with the client, a Melbourne-based developer, in July 2020 during the height of the pandemic.
In the loan submission, the client requested a loan for $14.32m over an 18-month term with an LVR of 65% of the gross realisable value, including GST.
The development is predominantly investment-grade stock based on the building’s configuration, density, apartment gross floor areas, and its location on a four-lane arterial road. However, it benefits from a clear view of the Gold Coast Botanic Gardens and the Surfers Paradise skyline.
The plan had plenty of positives:
- The proposed project was geared towards a good-quality mid-market development
- The developers weren’t trying to
- ‘reinvent the wheel’
- At the time of the loan settlement, 10 presales had already occurred at a combined total of $6m
- The deal originated at the height of the first wave of the pandemic
- It was the Melbourne developer’s first project in Queensland
- The market ‘exit strategy’ was unclear at the time
- Many construction lenders were not
in the market at the time due to business uncertainty caused by COVID-19
When this deal arose in July 2020, it was difficult to tell what was going to happen next. This was evident across various levels, such as supply chains, the property market, the economy, etc. It wasn’t until spring (Sept/Oct 2020) that we started to see a ‘new normal’ arise.
With this new normal and with the developer residing in Melbourne, we knew it was important for us as the broker to make all third-party requirements as seamless as possible.
We helped arrange the valuation and quantity surveyor processes and put forward options for project management and locally based tradespeople. Our goal was to integrate a team-based approach and what I call ‘operational equity’ – a challenge we often come across is ensuring developers have enough hands on deck.
Another aspect we assisted with was ensuring the builder signed off on the project-build plan; we looked at the building budget and instigated construction cost mapping.
There are many moving parts in the property market. Construction costs were and still are at a historic high, so we highlighted the importance of obtaining up-to-date prices and tenders from builders.
Securing project finance at the time was also challenging. However, I had worked with the team at Trilogy Funds for years, and this trusted relationship meant we were able to work closely and in ways that enabled us to respond proactively to the changing market.
From what I experienced, Trilogy Funds was one of the only construction lenders writing loans throughout 2020. Trilogy Funds places value on broker relationships, so we applied a like-minded approach to the project.
This deal settled close to Christmas 2020 to ensure the developer could kick off in the first weeks of 2021.
I am pleased we were able to provide the developers with a tailored solution at the height of a pandemic. At a time when it was easy to walk away or say no, Trilogy Funds was willing to work with us and provide the developer with a funding solution tailored to their needs. Patience and trust were key – we recognised that no credit success would occur unless the project was well managed from a risk point of view.
I pick up little nuances from every deal I instigate. Each can add a small or more significant layer to how you approach things the next time. I believe in the constant adding of process tweaks over time to grow more efficient in what you do on a day-to-day basis.
Some of the keys to my successes:
- Forward thinking and process management to help ensure clients are ‘two to three steps ahead’
- A unique and versatile operational skill set that goes beyond arranging debt and equity funding and covers value-adding functions in project sales and marketing, and cost delivery management
- An unrivalled ability to coordinate and manage multi-dynamic teams of professionals in and around the successful financial close of property development funding transactions.