Real estate development can be an intensive undertaking that takes considerable time and resources. Finding commercial property development financing Adelaide for projects may prove more complex.
This article covers some key elements of property development finance that you must keep in mind to complete a commercial development project successfully.
Choosing the Right Entity
Commercial real estate developers who wish to raise commercial property development financing Adelaide must first decide how their project will be owned - either individually or through an entity created specifically for this purpose. When choosing an entity, considerations such as its termination procedures, tax implications, and who will operate it should be considered when determining its ownership structure. Likewise, this decision should consider whether recourse or non-recourse loans will be needed when raising financing for it.
This straightforward guide on raising finance for property development will help you understand the major differences among various funding products so that you can select one that meets your current financial circumstances and the development project you intend to undertake. Choosing one tailored to both these factors will allow you to successfully fund it without resorting to missed payments that damage credit ratings or put you at risk of bankruptcy.
Site Selection and Acquisition
Step one requires conducting extensive analyses on potential sites based on demographic factors and property requirements and verifying zoning allows development. Furthermore, additional investigations may include public utilities, environmental hazards and legal easements or rights-of-way on or across the site.
Size, shape, and layout of land are of primary concern when choosing where to locate businesses. Properties positioned with northern exposure usually provide more sunlight. Furthermore, many businesses prefer sites with ample surface parking, and a trade area analysis will identify what types of customers live or work nearby and their demographics.
Construction
Commercial property development can be an extensive, time-consuming endeavour. A developer must find land and conduct extensive due diligence, such as completing a Phase 1 environmental report, obtaining use permits and getting variances from local zoning officials before hiring architecture and engineering firms to help implement their plans. They often act as strong lobbyists on their behalf with local governing officials as well.
Loans made to finance the construction phase of a C&D project are more prone to risk than other loan types, so credit unions should establish policies and employ experienced staff members when considering these loans. Third-party experts should also be called in periodically during construction for review purposes. Deferring injection of equity increases completion risk, so an equitable contribution policy that requires all required capital to be contributed at each stage should also be in place.
Financing
Commercial property development financing Adelaide can impede commercial property development. With many lenders limiting their exposure to commercial and multifamily real estate assets during this pandemic, equity partners may lack funds for traditional bank loans requiring loan-to-value ratio coverage.
Development loans may provide the perfect solution. With short-term funding that enables lenders to advance up to 70% of gross development value (GDV), development loans can provide valuable short-term finance.
The financing that property developers utilise to fund a development depends on the type of project and the funding structure used. Generally, this will involve a mixture of debt and equity finance. Usually, the person who puts their money into development will have to pay back the loan, along with interest, but they will share in any profits that the business makes. There are a number of different types of financing available, including private equity, venture capital, and bridging loans.
The best way to find the right financing for your commercial property development is to speak to a professional. They will be able to explain the different options and help you decide which one is best for your project. You will need to work out how much money you are putting into the development, as well as the projected return. You may also need to factor in any additional costs that you are likely to incur.