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 and generally ranges from 60%-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.
Property developers have always been looking for more innovative ways of funding their projects and one such way is Mezzanine Finance. Mezzanine Finance is a form of subordinated debt behind that of senior debt in terms of ranking on any claim on property assets and ahead of equity. Mezzanine Finance is generally secured by a second mortgage and a second ranked fixed and floating charge over the borrowing entity and its directors. In short Mezzanine Finance fills the gap between the property developer’s equity and the amount of senior debt available. Mezzanine Finance is only provided when the project is ready to begin, and the relevant funder requirements are in place.
Please see below basic pricing and general requirements:
LOANS:
- $500,000 to $10M (mezzanine component);
- To 85% of GRV net of GST or 95% of TDC;
- Loans are stand alone - no collateral required;
- Range from 21-25% per annum;
- Fixed for the loan term
REQUIREMENTS:
- Pre-sales should cover total debt;
- All pre-sales must be 10% cash deposits;
- First mortgagee must be a major bank;
- Valuation must be instructed by first mortgagee;
- Borrower Asset and Liabilities Statement to be commensurate with project;
- Typical first mortgage requirements also apply
If you are a property developer looking for Mezzanine Finance for your developments or if you are an investor interested in Mezzanine Finance please contact ACG for more information.