Commercial Development Loans
Typical commercial developments include:
Industrial Property
Offices
Warehouses
Retail Premises
Mixed Use Developments
Industrial Property
Offices
Warehouses
Retail Premises
Mixed Use Developments
What steps do I follow?
Engage suitably qualified experts who can help you (accountant, architect, development consultant, builder, and financier)
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Understand the market and the dynamics that drive it
Determine what sort of property you’d like to develop
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Understand local zoning laws on the parcel you are looking at
What is your exit strategy – are you holding or selling the asset on completion?
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Break down your development process and associated costs
- Land acquisition date and cost
- Stamp duty
- Cost of experts (planning, design, quantity surveyors, construction)
- Build contract and milestones
- Timeframes for completion (allow 3 – 6 months of surplus time here for project delays)
- Holding costs (if funded with debt)
- Contingencies (at least 5% of the build cost)
- Sales and leasing costs on completion
Submit applications for the required approvals (development approval, and building licences, finance approval etc).
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Begin the project, and check in on progress regularly.
Engage independent parties (quantity surveyor) to analyse progress against milestones, and cost estimates.
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Apply for occupancy certificates
Risks – what should I consider before undertaking the project?
Builder/Construction Risk
Is the contracted builder experienced in this type of development? Do they have the financial ability to withstand any potential shocks throughout this process?
Liquidity
Commercial assets trade far less frequently than most other asset classes. This means that in need your ability to liquidate could take time, or need to be made at a substantial discount.
Asset
Does the constructed asset offer wide enough appeal to suit my target audience?
Cost Overruns
How much of your project has locked in costs. What variable could influence final costs? Do you have contingency to absorb these costs?
Location
Is there demand for my development in the area I am building it?
Legal
If the final product is unsuitable, against approved building codes, or not safe – what additional risks does this expose?
Environmental
Environmental risk can come from land use regulations and environmental protection concerns. Sustainable materials and building quality are becoming bigger concerns
Macroeconomic
Would a downturn in the broader economy compromise this asset, or is it recession proof?
Leverage
How much debt is secured by the property? Is this sustainable and affordable based on the income generating capacity of the asset?
What will the bank assess?
Credit history of borrower
Track record of completing similar projects
Asset type
Project specific metrics
(LVR, ICR, Loan to development costs, Quantity surveyor reports, Builder)
End use of the development and ability to service loan
(Either from business profits or rental income streams)
