How to save good deals from going bad

by External10 Jun 2016
When a large, proven property developer ran out of finance before completing a promising new $85 million residential development in Sydney’s Hills District earlier this year, the situation could easily have ended badly for the mortgagor.

Though there were already $70 million in pre-sold units and the development was 80 per cent complete, the mortgagor’s private lender had run out of money, leaving a need for $7 million that no bank could ever be flexible enough to meet.

That’s when one finance broker called Chifley Securities. With a total of $1.1 billion in capital available from its new property development arm, the non-bank finance group had the flexibility, know-how and capital to save the project.

“We were able to help the mortgagor with a second mortgage on the asset, giving them the $7 million they needed,” Chifley Securities director Joe Morello says.

However, Chifley Securities went further. With a new development opportunity on the horizon, Chifley Securities was able to provide the developer with an extra $22 million in cash out, so it could purchase more Hills District properties.

“The developer wanted to take some equity out now rather than waiting a full six months until the development was finally exchanged and finished,” Morello says. “We put some of our best people in to help manage how that was done, and now when they finish the first one, they can just go straight on to the next one.”

A good deal done
Deals like this have become typical for Chifley Securities. Having only recently launched Chifley Property Development, the business has allocated $300 million to finance construction and acquire equity in Sydney and Melbourne projects.

Bringing together a portfolio of sophisticated and experienced high net worth investors, Morello says Chifley Securities is able to see to the profitable heart of a potential development and take a more entrepreneurial approach to deals.

“We have a unique attitude to property development deals”, Morello says. “Not only can we finance quality deals that may lie outside the strict criteria of a bank, we can also get involved in projects that interest us and we think are unique.”

It’s an approach that saved another Chifley client at the last minute. Having agreed to purchase a potential future development site in Campbelltown for $8 million, the client thought the deal was all but done just three weeks out from settlement. However, his bank changed that. Suddenly unhappy with the quality of the tenant and the condition of the property, the bank informed the client it would pull back his LVR, leaving him with little time to make the deal work.

“There was a tenant, but there was no tenure on the lease and it was a little bit run down. The bank decided it wouldn’t lend as much as it had originally promised,” Morello says. “A broker introduced him to us, and we were able to do the valuation, all the checks, and the mortgage documentation in eight days.”

Commercially minded
The tightening of major lender criteria in the property development market, historically low interest rates and strong buyer demand have given Chifley Securities a chance to expand its focus on property development finance.

Providing first mortgages, mezzanine finance and LVR’s of up to 90 per cent, Morello says the business has been working with brokers to identify quality development projects it can support with responsive, pragmatic finance. It is offering brokers an average of 1% commission on deals after settlement.

“Our broker partners like us because they know they are providing developer clients with a creative team of finance professionals that actually understand these deals, and who have the creativity and risk appetite to get them done.”

Chifley Securities first launched its commercial finance business in 2015. With 2000 established broker partnerships, it completed $400 million in deals from 270 applications last year, and has had a strong pipeline throughout 2016.

Morello says brokers with an interest in commercial lending can add to that through development deals. “Financing property developments can be complex, and the deal size can be large. But for brokers working with a finance group like Chifley Securities, that adds up to building their business a lot faster.”