Equity Release Loans

In the search for the often elusive additional equity to finalise a project, non-bank lenders can be the answer.

Developers are continually looking to drive their equity as hard as possible, and often only have a limited pool of capital to allocate, whilst trying to manage capital across a number of projects concurrently.

When projects hit delays, which can be due to a multitude of reasons such as planning approvals, construction shortages, lack of sales activity or even – let’s face it – pandemics, borrowers can experience increased financial pressure. Additional equity can be hard to come by and the cost of those funds can be prohibitive.

Non-bank lenders predominantly support developers throughout the development cycle in terms of debt for land, construction and re-finance of residual properties, however, they may also be a means of sourcing additional equity via an existing asset.

Bank loans on commercial terms against completed assets are cost competitive, but often the loan to value ratio (LVR) is set at 50% or lower. A non-bank lender will often take a more realistic risk approach to the LVR on an individual asset and may be willing to offer LVRs of up to 70%.

Similarly, banks may expect borrowers to meet other onerous requirements or be unable to provide a speedy turnaround. Borrowers therefore often seek alternative ways to source funds.

In terms of a project where additional funding is required, refinancing an existing asset, for say a 12-18 month term, can often release sufficient equity to achieve completion. Equally, the equity release could be utilised to support other business activities or be deployed across multiple projects. This is most attractive when the profitability to the developer of deploying the equity in the existing project is likely to outweigh the incremental cost of the loan.

Generally, the underlying expectation of non-bank lenders is that there must be a clear repayment strategy at the end of the loan term. This is usually via refinancing or sale of the asset, completion of another project, or other business operating income.

TierONE Capital has a proven track record of helping many of their developer clients release equity. Our experienced team of professionals has developed a transparent process that includes a quick answer, clear communication and a pragmatic approach from start to finish.

For more information about how TierONE Capital can assist you with an equity release loan, please contact Malcolm Ferdinands on 0413 980 000 | malcolm@tieronecapital.com.au or Dino Di Costa on 0407 450 639 | dino@tieronecapital.com.au.

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