Mortgage Broking for Commercial Projects

Developers for commercial projects need the appropriate financing at the appropriate stage of the project, and while some may have a very good relationship with one bank, in most cases they will use a specialist mortgage broker. They will have a good relationship with their chosen mortgage broker and will trust the mortgage broker to do the right thing at the right time.

Danika Schulman, mortgage broker

Any commercial development proceeds as a number of different stages, with the first stage obviously being the purchase of the land which may even have an existing building they intend to knock down or significantly remodel. The financing for the purchase of the land will preferably be reasonably short term as the developer will almost certainly be selling the property at the end of the project. At this very early stage the project will have a relatively high degree of risk, and the mortgage broker will need to find a financier who is comfortable with this level of risk. This will almost certainly not be a normal bank but will instead be a second tier lender or even a collection of high networth individuals, and the lending will naturally be at a significantly higher price than the normal bank lending rates. For mortgage brokers Bay of Plenty click this link.

Once the land has been purchased then the developer will want to get all the planning and consents underway and completed as quickly as possible, and they will need some funding for this stage. The level of risk stays high until the final council consents have been received and the developer knows that they can go ahead, hopefully with the original plan which also has the original projected financial return.

When the planning and consents are complete then the developer will want to start work, and they will need more specialist finance via their mortgage broker, which will be paid out during the various milestones of the project. The financing at this stage may be deemed to be a lot less risky than at the land purchase stage and the broker may be able to get a much better deal for the developer and perhaps even roll in the land purchase (and pay off the expensive loan). As the development project proceeds more commercial interest will be paid by potential customers, and it is quite possible that the developer well actually sell most or all of their development even before the project has finished. This can be very lucrative for the developer, as the purchase price can be multiples of the cost of building and land purchase depending on the market conditions at the time. Even better for the developer, they get to pay off all their finance a lot earlier and save on the financing costs. While the developer is the one that takes the risk, its the mortgage broker who’s the brains behind the financing, but this can be very lucrative for the mortgage broker given the size of the loans that they have arranged.

If the mortgage broker is very smart then they may be able to arrange for the purchasers of the property to use them for their financing as well. There are understandably a few very wealthy mortgage brokers in any business community. For more information visit NZMortgageBroker.org.

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