To get a project funded, it is essential for a developer to demonstrate a track record of timely project completion. However, it is observed that, today, most of the banks have a very low appetite to fund private developers.
Also a few banks that do some funding for smaller developers have a differential lending criteria vis-a-vis large names - and regardless of the track record of small developers. This will then require private developers to reach out to non-banking financial companies even when they charge predatory financial costs.
The developer must demonstrate a clear vision about the size of a project, so that it is within his capabilities and capacity. It is essential that developers also outline all the “soft costs” associated with the projects, including obtaining permits along with engineering, infrastructure and other construction-related costs.
Never lose sight of estimates
Developers must have all finances pertaining to the project well-documented, to provide the financer a detailed estimate of all the costs incurred on the project. Good financial discipline is extremely essential for the success of a project, and may include - but is not limited to - timely vendor payments, and ensuring contractors and workers associated with the project are paid on time.
Real estate financing requires meticulous planning on part of the developer to obtain all of the desired objectives. To make the project viable, the developer must work extensively to optimize project costs through value engineering, the building’s design, sourcing of materials through the supply chain – and all done in advance.
Be open to multiple funding options
These must be done before narrowing down to a particular financing route. Developers can also consider taking expert advice from consultants specializing in project funding, who can recommend appropriate methods. -
Developers can also opt for debt financing, as a funding avenue for their projects, wherein the developer can borrow money from a creditor, after having discussed the terms for future repayment in advance. This requires keeping track of periodic or regular interest payment, calculated based on a previously agreed upon coupon rate.
Tap other developers' interest
Some other avenues developers can consider for raising funds to complete their project include applying for a grant where a certain amount of money will be provided by a government body or organization to fulfill a particular project. It would be beneficial to partner with other real estate developers who can help manage the costs by sharing buildings, equipment, expertise and workloads.
Sales can provide source of income, however, if private developers launch multiple projects in a year, they should be extremely careful to be able to demonstrate strong sales and insure that the projects have sufficient net worth to service the debt in case a drop in sales has been witnessed.
Kalpesh Kinariwala is Chairman of Pantheon Group.