Scott Roberts, director of Queensland-based specialist commercial finance broker IBN Direct, called on his 35 years of experience in the industry to help a client with a complex and challenging commercial property purchase involving a tight time frame and council planning issues.
We recently assisted a client with an off-market commercial property purchase in Southeast Queensland. The proposal came with some unique challenges to be taken into consideration when placing the deal.
The security property was an industrial warehouse that was zoned medium-impact industry. The vendors were under pressure to sell due to LVR policy changes at their bank.
The property also had issues related to informal and undocumented lease arrangements, and unresolved town planning-related issues with the local council regarding road widening at the front. In its favour, the property was prime for a subdivision or revamp, or both – something that helped get the deal across the line.
Given the pressure from their bank, the vendors didn’t have the time to list and market with a real estate agent. Instead, they contacted local real estate and property buyers’ agents and requested they reach out to their networks to find a purchaser.
The short time frame also meant that a valuation was unlikely to be completed, significantly impacting the future purchaser’s ability to conduct full and thorough due diligence.
It was apparent that this was not going to be a typical bank deal; either a cashed-up purchaser had to be found or specialist lending would be required. Luckily, one of the agents knew someone in the market for commercial property. He had recently sold a commercial property to him and thought this might pique his interest.
It did. The purchaser was excited to act on the property, but only days prior had settled a new commercial purchase that left him enthusiastic but short on cash. He approached a few people in his network to put the word out. Within two days, a new external silent cash investor was brought on in exchange for a separately titled, newly created lot to be established within the property.
Given the limited due diligence time frame, the purchaser made an offer to the vendor that was reflective of his risk.
As we workshopped the deal, the potential to resettle the leases became apparent, as did the opportunity to negotiate with the council regarding the road widening. This allowed the purchaser to proceed in a structured manner, maximising the potential of the site and creating a more valuable and bank-attractive asset for the future refinance.
We structured the facility to include a prepaid interest and fees allowance within the loan to allow the purchaser to focus his efforts and cash on obtaining the required development application.
A short-term loan was the preferred option for the purchaser. It allowed him the opportunity to settle the loan quickly while giving a little breathing room to formalise the leases in preparation for refinancing to his bank.
Our specialist lender saw the value in the site, without the valuation, and appreciated that a quick settlement was required.
The property is now fully leased and returning 8%. Negotiations with the council have also been completed, and a positive outcome has been arranged for all parties regarding the road widening, further enhancing the bankability of the deal.
Our ability to truly understand the deal, the goals and the timeline of the borrower ensured that we were best placed to assist with placing the deal. The lender provided a short-term facility of $1.4m over six months with a three-month option at 11% per annum.
A deal like this comes with a raft of challenges. Knowing and understanding these challenges from the outset enabled us to structure a deal that provided the purchaser with the means to facilitate their project. The purchaser needed to find a silent partner to invest the shortfall. They had concerns over the state of communications with the council regarding the road widening. It was the middle of 2020, COVID-19 was in full force, and banks weren’t interested in lending for commercial property. The short time frame the vendor required for settlement meant that full due diligence could not be completed.
A deal like this only works when all parties are collaborating. When everyone is clear on the outcome and the role they play in achieving that outcome, they can bring their full set of skills to the table and work together to problem-solve, tap into each other’s networks and find the right solution for the client. We are delighted to have been a part of the team on this deal.