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Traditionally, development projects have been funded almost exclusively by banks, with more recent non-bank participants entering the market. The amount of funding is typically determined by a percentage of the actual costs of the development. The amount of funding the banks will offer ranges from 50%-80% of the hard costs of the project, limited by location, type of project, amount of pre-sales, etc. This type of funding is typically referred to as Senior debt.
If a developer wanted additional finance beyond what the banks were willing to lend on the project the developers options are as follows:
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Provide additional security In the past when a property developer wanted to borrow more than the funder was willing to lend for the project, additional security was required, which the funder would cross-collateralise against the project. This would in effect mean that the funder would place a mortgage on the property developers other assets and lock them in for one project. More importantly the property developer would not be able to use these assets to raise equity to capitalise on any other opportunities until this project was completed.
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Equity Partners (Joint Venture) This is where the property developer seeks partners to invest in the project. The advantages for the developer is that the project risk is shared among the partnership, however so are the profits. At the early stages the risks and returns are at their greatest, and all parties involved realise if the proposed development is approved and completed there will be substantial profits.
GCC can arrange equity participation for suitable projects. Equity finance is typically a joint venture where up to 100% of project costs are covered. Equity finance is typically secured by a second mortgage position, or by taking a direct equity position in the borrowing entity.
Equity participation is particularly useful in situations where the project proponent requires the project expertise or balance sheet position of another party to ensure that the project proceeds to a mutually profitable outcome.
Joint Venture finance of up to 100% of project costs.
If you are a property developer looking for an equity participant for your developments, or if you are an investor interested in participating in development projects please contact Global Capital Corporation for more information 02 9222 9100 or, if you would prefer one of our consultants to contact you please complete and return our one page enquiry form.
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