15 Jun Case Study – A time-sensitive property purchase
In May of this year we had the pleasure of assisting a new Joint-Venture client with the completion of a time and condition-sensitive land purchase. The borrowers had committed to purchasing a block of land in South-East Queensland with the intent to sub-divide the property into 4 lots. The contract of sale was subject to both a settlement deadline of May 29, 2020, and a DA approval. The purchase price was $950k and a loan of $715k was required.
Earlier in the year, the borrowers had shopped the deal around a little. We quoted early in the process and had a funder who was keen to facilitate the loan, however the borrowers elected to proceed with a lender who could offer a cheaper rate.
The clients were using equity held in other properties to support the deal. The other properties had contracts on them and were anticipated to settle in early May, meaning the clients would have the settlement proceeds available to complete the purchase of the land at the end of May.
Enter the Pandemic.
By April, as COVID-19 started to become an issue, the contracts on the borrowers existing properties had fallen over. The purchasers of those properties were unable to fulfil their finance clauses as their banks had retracted their approvals. Given the expected supporting equity was no longer available, the lender the borrowers had originally planned to use chose to withdraw their offer of finance.
The clients approached the vendor and explained their situation, they requested an extension and were declined this request. It was now the start of May, they now had to come up with the remaining equity and still meet the May 29 settlement deadline or risk losing the opportunity.
Our BDM, Paul, had remained in touch with the borrowers throughout the whole process. They reached out to Paul for guidance on what options they had to not lose their deposit, all the council and professional fees paid to date and the property purchase itself, Paul immediately went to their aid.
Putting it all together.
We contacted the funder who had provided the indicative approval in early 2020 to ask whether he would still consider the deal. He confirmed he was still happy to proceed. We are fortunate to have long-standing relationships with a broad range of private funders. Each of them have their own set of parameters they like to work within and their own preferred terms and appetite. We were confident that if the funder had already committed those funds to another deal, we would be able to source a new funder from our panel.
Next, we had to figure out how to cover the lost equity issue.
To throw an 80’s reference in, there was a bit of “By the power of Grayskull”, as Scott, David and Paul put their collective 90 odd years of experienced heads together to restructure the deal and organised to fund the approval based on the DA value.
We were able to document the loan and settle a mere week after the client approached us for help.
It’s not always about rate.
You may remember a few weeks ago we wrote an article about the cost of not taking on private lending. This case study is the perfect example of what the borrowers stood to lose (Professional and Council Fees, their deposit, the block of land) should they have persevered with rate as their sole driver.
The borrowers were amazed at what we were able to achieve for them and have now approached us to fund their construction costs for the subdivision and have referred a friend who needs assistance with an industrial development transaction, also in South-East Queensland.
Our knowledge and understanding of the deal, combined with decades of development funding experience meant that we were able to devise a structure that met the tight time-frames and business needs of the clients – quickly. Experience trumps cost, any day of the week.
So, what’s holding you up? Click here to have us on your team.
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