50 – The current lending landscape for property developers

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By Justin Gehde. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.
The sands of development funding are always shifting, and never more so than recently, so today we are going to be talking finance with past guest Matthew Royal. He is going to give us a round up of the current lending landscape and what is happening with development finance. Just before that, you may recall in episode 48 where I spoke with Andy Hoyne about how to get 200 people lining up to buy stock in your next development project, that we offered a copy of Andy’s beautiful book the Place Economy, valued at $200, to anyone who could suggest a great case study of a project that had made a big difference in the local community. I did receive a number of examples from listeners and Andy has selected a winner… so the winner is… drum roll please. Larry Li who sent in a great development project in Auckland New Zealand called Hobsonville Point. It is a significant redevelopment of an old air force base that is being slowly developed to provide more than 4500 new homes, of different types and price points. It was a great case study and here is a link to the project’s website, which is hobsonvillepoint.co.nz . So congratulations Larry, enjoy the book, and thanks again to all the people who sent in suggestions. Just quickly before we move on with the show, if you are interested in learning how to develop property safely and profitably, then email me justin@propertydeveloperpodcast.com to find out about the mentoring program that is available to listeners of the show. "At the moment there is more non-bank capital than qualified deal flow." Matthew Royal. Okay, on to today’s guest finance expert Matthew Royal from Property Development Partners, who is also a past guest of the show, he featured in episode 28. In that episode we talked about building up a pipeline of works and how banks assess risk. Matthew has a long association with development finance and I wanted to speak with him about the current lending landscape and what developers are facing with getting finance for their projects, as a lot has changed since our last chat. In this conversation we discuss what’s happening with the banks, how developers are still obtaining development funding, and some tips on how to manage the current credit conditions. Lessons for property developers Okay, there you go, an update on how things are looking out there in funding land. It certainly sounds like things have turned in terms of availability of credit and many developers are looking at alternatives to simple senior debt funding from the banks. Here are a couple of things I took away from my chat with Matthew. 1. Banks aren’t lending to new clients So if you don’t have an existing relationship with a major bank it seems you may have trouble securing a loan with them. This has meant that many developers are exploring alternative funding options and residual stock loans, which may come at a higher cost than what they had originally planned for in their feasibilities. So my advice is to start discovering what options and costs you may need to include in your next project feasibility. 2. Look at your marketing, sales, and finance strategies With the current lending landscape, how are you going to tackle the existing conditions. Do you need to review how you are planning on marketing your properties, is your sales campaign right for where the market is headed, and how accurate is your funding strategy? As the market moves, it is prudent to monitor and update your project plan. 3. Seek early input from your trusted advisers As the funding sands seem to be frequently shifting, it would be wise to speak with your advisers about what’s happening, how your project may be viewed by lenders and how you plan on securing funding to get your project delivered. Early and ongoing discussions can avoid nasty surprises later which may slow down your development and eat into your bottom line. Alright, we are almost done for another episode.

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