Short term residual stock lending – Case Study

Short term residual stock lending – Case Study

You may have seen Scott’s LinkedIn post from last week where we shared a few details of how we have recently been able to assist some of our clients. If you aren’t friends with Scott on LinkedIn, you can do that here) We put together a case study to show how we assisted a Queensland hotelier with funding, and this week we’re sharing how we assisted a Melbourne based developer with residual stock finance.

The current Victorian lockdown situation is proving challenging for developers, not from a buyer interest perspective, but from a property access perspective. Buyers are still completing transactions, but there has been a notable slowdown in completions due to the inability of buyers and agents to come together and complete the viewing, or for valuers, and building and pest agents obtaining access to fulfill inspection and completion reports.

We have fielded a few enquiries of late from developers with mostly sold projects who are having trouble settling their last few apartments but need the settlement proceeds to get started on their next project.

The situation.

We were recently approached by a Victorian developer who had sold nine out of 14 townhouses in a small city fringe development. He had plenty of interest in the properties after a successful marketing campaign, then the lockdown hit, and two buyers were unable to complete their contracts.

The developer approached us to discuss a residual stock funding arrangement that would see him able to move to the next project, keeping his crew employed and his construction timeline moving forward.

The residual stock funds have been used to payout the residual debt with the initial project funding group and to provide funding to commence works on the next project. A fantastic outcome for all involved.

With a residual stock combined value of $2.5m, we were able to achieve a 70% LVR providing funding of $1.750m for a term of 12 months. This will enable the client sufficient time to sell the remaining stock without urgency, ensuring a premium price for the product.

What is short-term residual stock lending?

Short-term residual stock lending provides developers with the ability to borrow funds against the value of remaining property stock, this could be vacant land, apartments or townhouses. The borrower has peace of mind in knowing what the interest commitment will be upfront and has the opportunity to negotiate an early payment clause directly with the lender, providing flexibility should the residual stock sell earlier than anticipated.

Need residual stock funding?

Using residual stock funding makes good business sense, particularly in the current environment. Having the ability to maintain a development and pipeline schedule helps to avoid downtime and the accrual of costs while waiting to start your next project.

To find out how we can assist you and your development funding needs, contact us here.