Constructions Loans made simple: Vado Private’s guide to securing finance

Since 2021, Australia’s construction industry has been navigating a challenging landscape with rising inflation resulting in higher construction and funding costs. This has rendered many projects no longer feasible, particularly in multi dwelling residential construction. Whilst this is constraining supply, there are several green shoots. 

Over the past 12 months we have seen a return to more normalised construction market conditions. Construction costs have stabilised (increasing at a slower rate) which allows property developers, investors and financiers to assess project feasibility and forecast with more accuracy. There is also renewed confidence with many analysts predicting interest rates are likely to trend downwards in 2025.   

Private lending can offer a more stable funding source for property developers when banks are reducing their exposure and risk appetite. Vado Private has proven track record in funding and managing the construction phase of property development projects. We understand the complexities and nuances which gives us an advantage in identifying and mitigating risks.

Construction Loans Due Diligence  

Whilst all construction loans are different, following is a high-level list information required to assess a transaction:

• Planning Approval Conditions and Permits: This outlines all conditions required to deliver the project. This includes deferred commencement conditions such as procurement of an easement. The approval conditions will also state statutory fees payable as well as any bonds payable to Council and other regulatory authorities.
  
  
• Detailed Project Plans: This includes architectural drawings (section, floor plans, elevations), engineering plans, landscape plans schedule of finishes.
  
  
• Construction Certificate: Whilst the subject site may be planning approved, without a Construction Certificate the project is not shovel ready.
  
  
• Project Feasibility: A comprehensive breakdown of all project revenues and costs such as construction, professional fees, statutory fees, contingency, finance charges, interest and other developer costs.
  
  
• Valuation Report: The valuer is engaged by the lender to provide a report outlining demand, supply, ‘as is’ value (with planning approval) and the ‘As If Complete’ value.
  
  
• Quantity Surveyors (QS) Report: The QS is engaged by the lender to provide a report outlining cost to build, time to build, projected cash flows as well as commentary on the builder, building contract and relevant insurance.
  
  
• Building Contract: A comprehensive building contract should include clauses relating to Retention, Variations, Extension of Time, Defect Liability Period, Liquidated Damages, Latent Conditions and Progress Claims.
  
  
• Builder CV: Background on the Builder including details of previous projects constructed.
  
  
• Developer CV: Background on the Developer including details of previous projects delivered.
  
  
• Insurances: These are mandatory insurances required to construct a project. These include Builders All Risk, Public Liability, Workers Comp and Home Warranty Insurance (low density projects).

Upon Receipt of Documentation

We will assess the transaction and let you know if we have a lending appetite. Term Sheets are issued to approved applicants within 24-48 hours of receiving the required information. Please note Term Sheets can be issued based on preliminary information that doesn’t include the entire suite of documents outlined above.   

Frequently Asked Questions

Following are five common questions asked by brokers seeking construction funding: 

1. What is the maximum LVR Vado Private can advance for construction?

We can lend up to 70% of the Net Realisation Value (Gross Realisation Value less GST) for residential projects in metropolitan locations. For other property types (commercial, industrial retail etc.) the LVR’s are generally lower and reviewed on a case by case basis.

2. Does Vado Private require presales?

Presales are always preferred given they establish a market, a price and price certainty around the exit strategy.

We don’t have a prescribed policy on presales. We have funded multiple projects with no presales and assess each transaction on its merits.  

3. Does Vado Private fund incomplete projects?

Yes, we have financed many incomplete projects, but we need to consider the following:

a) What stage the project is at and the work completed and the cost to complete the builder’s program. Pictures of the project showing completed works are extremely useful. 

b) Will the remaining works be completed by the incumbent builder or a new builder?

c) Have all subcontractors and suppliers been paid? 

d) Are all certifications in order and verified in the PCA check list? All are insurance (home warranty, builders all risk, public liability etc.) in order? 

e) Are both the ‘As Is’ and ‘As if Complete’ LVR within policy? 

4. Does Vado lend to Owner Builders?

Yes, we do lend to Owner Builders and request for the following information:

a) Is the owner a licenced builder? This is essential as seldom will be fund a project for a landowner constructing under an owner builder permit. 

b) Does the builder have any experience in delivering projects of comparable size and scale?

c) Is the builder adequately capitalised and have capacity to fund overruns, variations and latent conditions?

5. Does Vado lend to First Time Property Developers?

Yes we do. We don’t penalise first-time developers. Instead we work with them to manage and mitigate possible risks 

For assistance

Vado Private specialise in providing competitive private credit solutions in a fast and timely manner. We have funded north of $500 million in loans across 230+ transactions helping brokers and their clients bring their real estate projects to life.

We have the funding capacity and resources to close out a transaction within a couple of weeks of getting an application for a construction loan. We would love the opportunity to chat to you regarding any scenarios or questions you might have for any of your clients seeking construction finance.  

Please contact the Business Development team at Vado Private to discuss any opportunities on the details below, or you can submit a scenario online via our website