What Makes a Development Opportunity Bankable in Today’s Market?
Successful property development requires more than a good site. Capital providers increasingly assess the entire development proposition, from acquisition and planning through to construction, sales and exit.
Successful property development requires more than a good site. Capital providers increasingly assess the entire development proposition, from acquisition and planning through to construction, sales and exit.
A development site can be exceptional and still be difficult to finance.
For lenders and investors, the underlying land is only one component of the credit and investment decision.
The strength of the sponsor, planning position, feasibility, capital structure, construction strategy, market demand and exit all influence whether a development opportunity is ultimately bankable.
It starts with the site
Strong development opportunities generally begin with sound fundamentals:
- location
- zoning and planning controls
- site characteristics
- surrounding infrastructure
- demographic trends
- competing supply
- end-user demand
- achievable pricing
But acquisition price remains critical.
Even a high-quality site can become commercially challenging if too much of the future development margin has effectively been paid to the vendor upfront.
Feasibility must withstand pressure
A development feasibility should not simply demonstrate that a project works under ideal assumptions.
It needs to withstand changes in:
- construction costs
- interest rates
- programme
- sales rates
- selling prices
- planning outcomes
- contingencies
- funding costs
Capital providers will generally want to understand what happens when assumptions move against the project.
The stronger the project’s ability to absorb those movements, the stronger the funding proposition.
Sponsor capability matters
Lenders and investors are not simply backing a development.
They are backing the people responsible for delivering it.
Relevant experience, financial capacity, consultant selection, builder strategy and demonstrated ability to manage complexity can materially influence the appetite of capital providers.
Where a sponsor does not possess every capability internally, the strength of its external development team becomes particularly important.
The capital stack must make sense
Development capital may involve multiple layers:
Sponsor Equity
The capital contributed by the developer or project owners.
Senior Debt
The primary secured development facility.
Mezzanine or Subordinated Capital
Additional leverage sitting behind the senior lender.
Preferred Equity or Joint Venture Capital
Equity capital structured around agreed economics and risk.
There is no universal optimal structure.
The appropriate capital stack depends on the project’s risk, profitability, stage and sponsor objectives.
Exit needs to be clear from the beginning
The exit strategy should not be something considered once construction is nearly complete.
It should influence the project structure from day one.
Possible exits include:
- presales and settlements
- completed-stock sales
- refinancing
- investment hold
- whole-of-project sale
- institutional acquisition
A credible exit gives lenders and investors confidence that the transaction has a defined pathway to repayment or realisation.
The exit strategy should not be something considered once construction is nearly complete.
It should influence the project structure from day one.
Possible exits include:
- presales and settlements
- completed-stock sales
- refinancing
- investment hold
- whole-of-project sale
- institutional acquisition
A credible exit gives lenders and investors confidence that the transaction has a defined pathway to repayment or realisation.
Global Path’s approach
Global Path Property Development considers development opportunities across the complete lifecycle, from origination and feasibility through capital structuring, planning, design, development management, construction and exit.
Through the broader Global Path platform, development opportunities can also benefit from commercial finance, capital relationships and strategic advisory capability.
Great development begins with the right opportunity. Successful development requires the right structure.
Discuss a development opportunity with Global Path.