Case Study: 75% of GRV + Nil Pre-Sales

STAC Capital recently settled a $5.15m stretch-senior construction loan for the development of 3 luxury townhomes on the Gold Coast, at a high LVR of 75% of GRV, with NIL PRE-SALES required. Adding further complexity, there were third-party investors in the project via an SPV entity.

As part of the deal tendering process, STAC Capital approached a number of reputable private credit funds, with a clear requirement for a nil pre-sale hurdle. 

Amidst a market that has become softer on credit risk appetite, only one lender was willing to stretch all the way to 75% of GRV with no pre-sales, with all others capping out at 65 to 70% (unless there were 1 or 2 pre-sales). 

Based upon initial indicative terms and the developer’s feasibility, it appeared that one lender’s 65% LVR option would actually be the best balance of initial equity requirement and cost, due to their non-standard funding table that allowed some later soft-costs to be equity funded (which would have suited the developer’s cash flows from other projects finalising).

However, when the valuation came in, the valuer’s assessment of GRV was more conservative than the developer’s, which increased the equity requirement and flipped which lender’s terms would be more attractive and suitable to the developer. This is a great example of why fine details of terms can be more important than just price or leverage.

Controlling the valuation was a crucial part of the process. STAC Capital arranged the valuation, ensuring that we and the client owned and controlled it. Doing this also ensures that you don’t go too far down a rabbit hole that might end up not working. This is something that we at STAC Capital always do – we see it as very important to the success of the deal. Most borrowers think that the lender must order the valuation, but STAC Capital almost never allows that to happen (and we can only think of one occasion where we were challenged, but we overcame that). 

STAC Capital’s experience and deep relationships in the private credit market were key to securing this loan. In a time when we hear that developers are finding it difficult to source finance, this deal is a great example of what can be achieved with STAC Capital on your side.

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