Obtaining Development Finance for Real Estate Development in Auckland
The development of commercial property will always require a fair bit of time and funding, starting from acquiring the land, planning the project, getting building approvals, carrying out the construction, and finding either buyers or tenants. While all the steps required to be taken are achievable for a person with the right experience, it is the funding that can quite often turn out to be a stumbling block. Here are some tips on obtaining Auckland property development finance.
Development finance is difficult to get, because lenders are averse to taking risks on property. This is especially so with regard to the major high street banks. After all they have their own stakeholder’s interests at heart. If you plan to take development finance for acquiring derelict or rundown property, lenders will be even more sceptical, as such properties are not insurable and this increases the risk for them. If properties have been lying vacant for a long time, it is probably because the location or other things about the property that is a disincentive for tenants. Asking lenders to risk their money on property that cannot be sure of any returns is extremely difficult.
Property development for new projects is however another matter and can receive finance, although this will be in stages. This will start with the initial purchase of land, building the required structure and final completion. Even in such cases, lenders need to be convinced of the viability of a project and the chances of recovering their loaned amounts, through sale of units in the property or long-term leasing. This is why lenders who arrange for development finance will insist on a proper business plan of the entire project, with details on how income will be generated, and repayments will be scheduled. Finance is given in stages, and a complete reasoning has to be given to the lender, of the costs incurred at each stage, so that they arrange for the necessary finance. It makes sense for the developer to take into consideration delays in receiving finance, due to the requirements for verification by the lender. The developer then on his part can arrange to negotiate for staggered payments to suppliers, so that they come due when the necessary finance is received. Final payments may be negotiated to be paid a few weeks after completion, so that all the processes with the financier are completed, and their final tranche of development finance received by the developer.
Development finance is best obtained through the services of a commercial finance broker such as Auckland’s Global Pacific Finance. These are people who are well versed in all the required documentation for any application, and also have extensive contacts among lenders and other institutions that do offer development finance. The broker will also be of help in preparing the necessary business plan that will demonstrate the viability of a project, taking into consideration all risk factors while computing the return on investment. Remember that lenders have a lot of expertise on tap that will question every aspect of the business plan, and having an experienced broker by your side, will help you to anticipate queries and answer them. If you have been in the commercial property development business for some time, a proper presentation of your previous work, verified with fully audited accounts, can help to convince the lender of the professionalism you bring to the project, which in turn lessens the risk for them.
Gather as much information about property development finance, and find projects similar to the one you are planning. You can call them and ask them for information about their sources of finance. Make forecasts that are sensible and not overly optimistic, taking market conditions and economic conditions into consideration. A well-made, realistic business plan, which convinces lenders can even help you to negotiate better terms.
In the last couple of years the commercial real estate market has taken off after the slow-down of the GFC. As a result Auckland property development finance is now easier to find with more lenders coming into the market. Many of these do not advertise that they are commercial lenders so you need to use the services of an intermediary like a finance broker but you must still have a good business plan to present to the lenders and brokers. For some ideas on obtaining property development finance, visit this website.