ADS’s guide for site acquisition finance against existing properties.
Three Steps to a Successful Site Acquisition
Borrower is provided an indicative letter of offer from the alternative lender with indicative pricing and terms requesting the borrower to pay some upfront fees to cover the cost of a valuation report to be commissioned and the lender’s initial application fee.
A Valuer is instructed by the private lender and contacts the borrower to arrange access to view the collateral property. The Valuer issues their report directly to the private lender (note these are not always provided to the borrower).
If everything is OK in the valuation report, the lender typically issues a binding letter of offer requiring the borrower to sign the document and pay for legal fees to have the formal loan documents issued.
What to Watch out for in the Site Acquisition Market
1. Lender fees
When conducting a site acquisition, it is important to read any indicative offer of finance in detail as each lender has their own set of terms and conditions that are not standard across the industry. Often private lenders may ask for a proportion of their lender establishment fees paid even if they do not deliver on the financing due to circumstances including if the borrower withdraws from the financing (break fees).
2. Time-box the lender
Negotiate a requirement that if the private lender has not provided the funding by a certain date, the borrower is entitled to pull out of the financing and not incur any break costs. This stops the process dragging out indefinitely in situations where the financing is time critical to the borrower.
3. Valuation surprises
Quite often in site acquisitions, the lender commissioned valuation report comes in below the expectations of the borrower. Different private lenders have different ways to instruct the valuers including the sale time period window on the property which can have a significant impact on the estimated valuation of the property. Some strategies are for the borrower to pay the fees only for the valuation report first before committing anything else further or for the borrower to engage their own valuer to produce a report (however it should be noted that not all lenders accept all valuers).
Other Areas of Interest
- Find out more about site acquisition
- Explore ADS’s private lenders
- Contact us to apply for a site acquisition loan