Loan Description

Loan Type 

Senior Debt

Loan Amount

$22.0m

Background

Borrower is a developer, seeking to raise debt finance to complete a development of residential serviced apartments in Mascot, NSW and to provide initial working capital to the serviced apartments operation.

Construction of the project is nearly complete with the development anticipated to be completed by July 2017. As at 29 February 2017, $53.2m out of the total $67.2m in construction costs have been satisfied (representing ~79.2% of construction costs).

As at 29 February 2017, the Borrower has equity funded all $53.2m of the construction costs expended to date. The $22.0m of debt raised will be used to complete the development and provide initial working capital for the serviced apartment operations.

The sponsor is seeking to develop these serviced apartments to take advantage of the growth in occupancy rates in the Sydney Airport accommodation market. This has been due to strong passenger growth through Sydney airport leading to growing corporate and leisure demand, which combined with a constrained hotel market in the Sydney CBD has resulted in overflow to airport located hotels. The principal of the sponsor is a successful businessman and is presently the chairman and major shareholder of a well-known ASX listed company.

The principal of the sponsor has a track record in investing in and successfully managing turnaround businesses.

Project Type

Construction of the project commenced in June 2016 and is expected to be completed by July 2017.

The project when completed will have a gross floor area of 10,865 sqm and 4,827 sqm of fully enclosed covered area. The main features of the project are:

• 7 Level building (plus one basement level)
• 146 guest rooms: 144 “5 star” apartments and 2 “6 star” penthouses (the two “6 star” penthouses are subject to s96 approval)
• Other facilities: lobby, restaurant, bar, meeting room, swimming pool, sauna and gym
• Basement car park for 133 vehicles
• Includes back of house support space for housekeeping and hotel stores
• Construction of a new double height warehouse with two level office space, linked via a skybridge

The proposed property will be positioned as upscale/luxury (4.5-5 star) serviced apartments. The development has been designed by architects and interior designers, WP Suters Clark Keller, who have designed similar developments in Australia, Hong Kong, Thailand and Dubai. Zauner Construction are in charge of the construction of this project. The borrower has a long-standing relationship with this builder, who has previously completed other developments for the borrower.

The borrower is seeking to be an owner-operator, and has appointed an experienced general manager to lead the serviced apartment operations. The manager has over 25 years of experience in the hotel Industry in Australia, Dubai and India.

The sponsor is seeking to develop these serviced apartments to take advantage of the growth in occupancy rates in the Sydney Airport accommodation market. This has been due to strong passenger growth through Sydney airport leading to growing corporate and leisure demand, which combined with a constrained hotel market in the Sydney CBD has resulted in overflow to airport located hotels.

Location of Property

The subject property benefits from dual frontages to Baxter Road and Robey Street in the Sydney suburb of Mascot and within the Sydney airport precinct. In addition to being proximate to the domestic and international terminal (3.5km away), the proposed development is only 10km south of the Sydney CBD. All major modes of transportation are located within close proximity. Immediate surrounding development comprises low to medium commercial and industrial buildings.

Approval Status

DA approved and construction is nearly complete underway with $53.2m spent of the total $67.2m in construction costs (representing 79.2% of construction costs). Construction is estimated to finish by July 2017.

Use of Funds

The $22.0m raised will be used for: – Completion of construction ($14.0m) – Working capital for the serviced apartments operation ($8.0m)

Completion Value

$53.5m based on valuation report prepared by Jones Lang La Salle on 30 Sep 2016.

Replacement Cost

$89.1m (excl. GST) as estimated by WT Partnership report dated 8 Sep 2016.

Loan Term

12 months

Operator

After completion the serviced apartment development will be owner operated.

The borrower has appointed an experienced general manager to lead the serviced apartment operations. The manager has over 25 years of experience in the hotel Industry in Australia, Dubai and India.

Forecast Financials

Serviced apartment forecast financials are as follows:

Leverage Matrics

LVR (based on Debt / Replacement Cost) = 24.6% LVR (based on Debt / Completion Value) = 41.1%

Indicative Interest Rate

6.0% per annum

Security/ Collateral

1st Mortgage on Property and Development.

No director guarantees available – sponsor is seeking a loan which is non-recourse in nature given low LVR of transaction.

Lender Exit

Refinance with an investment term loan following completion of development. Low LVR of transaction makes this potentially feasible.

Alternatively lender could provide an investment term loan upfront, of which part of the agreed uses of funds would be for completion of development. By the time a financing transaction is settled, very little construction will be left.

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