Development Finance

Affordable Housing Finance

JV Partner

Please find brief outline of the Joint Venture affordable housing / GAP Housing / Low Cost Housing, development funding structure, below.

Development Funding Structure

with JV Partner
‘WATERFALL’ REPAYMENT  STRUCTURE:

  • Repay JV Partner’s Equity From First Free Cash
  • Repay Developer’s Equity
  • Repay JV Partner Required Returns ( 25% / 30%  IRR)
  • Repay Developer’s Required Returns ( 25% / 30% IRR)
  • Pay balance of cash to JV Partner and Developer in ratio of shareholding

Cost Schedule

  • Minimum Term – 3 months
  • Maximum Term – 12 months
  • Minimum APR – 13 %
  • Maximum APR – 30 %

Example :

  • Loan                         R 1 million
  • Term                        R 1 year
  • APR                           13 %
  • Repayment         R 1 130 000

Subject to lenders Terms and Conditions at time of quote.

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The Basics

Ideal residential units are to be between R 280000 and R 480000 selling price.

Developer enters into a partnership with the JV Partner (JVP).

Development land transferred to a Special Purpose Vehicle (SPV) company.

JVP only holds 30 % shares and Developer 70 % Shares in SPV (even though the JVP will contribute a greater equity amount to the project).

The total project value cannot be less than R 140 million.

Banks will provide up to 70 % Debt finance to the project. (JPV does not sign any sureties for this loan but the developer will have to).

JVP and Developer to provide 30 % Equity combined. For this size project, a minimum of R 40.2 million, is required.

JVP will contribute up to 80 % of the 30 % Equity required eg  R 32.2 million.

The Developer to contribute 20 % (or more if they want to or can) of the 30 % Equity required
eg R 8 million.  This can be in the form of Land, Value Added or Cash.

First free cash is paid to settle JVP equity loan (Interest and Dividend), then Developers Equity loan is paid out.

Then JVP paid out Return of 25 % to 30 % IRR on equity portion invested.

Then Developer Return of 25 % to 30 % IRR paid out on equity portion invested.

Balance of cash (Profit) paid out to JVP and Developer in ratio of shareholding.

This scheme has been running in South Africa for a number of years and has proven to work successfully with experienced Developers.

This JV structure can also be applied to Blocks of Rental Flats that are for long term investment purposes and / or  for student accommodation.