Kokoda Property Group has secured the senior construction loan for its $250 million flagship mixed-use project, Malvern Collective with Commonwealth Bank, and has today announced that the circa-$100m construction contract has been awarded to ABD Group.
Despite CBA slashing its lending on apartments by two-thirds in the past three years, Kokoda Managing Director Mark Stevens says the bank demonstrated a keen appetite to fund the entire 265-apartment project due to its strong pre-sales and the engagement of a quality builder.
“There was a time about two to three years ago that most developers would be challenged to find a major Australian bank to single-handedly fund a loan bigger than $100 million,” said Mr Stevens.
“So we would often syndicate the debt and work with two or more banks to co-fund the loan, arranging a diversified capital stack.
“Following successive regulatory changes by APRA since 2017, it’s been increasingly difficult for developers to secure traditional bank loans to fund their projects and we’ve all had to adopt more creative non-bank funding arrangements, until now.
“In the case of CBA at Malvern Collective, they are funding the whole loan themselves, which is rare but demonstrates that the big banks are still very much willing to back developers that can put forward well-managed projects, bolstered by strong sales activity and constructed by quality builders.”
Stevens explained that CBA was attracted to a number of factors which mitigated the project’s risk profile, including its 50 per cent pre-sales rate, made up of largely self-funding downsizer owner occupiers, as well as the choice of construction firm in ABD Group.
Stevens added that Kokoda’s incredibly complex tender process prioritised a builder that demonstrated a commitment to quality and to upholding Kokoda’s design vision, rather than awarding the contract purely on price.
ABD Group were also able to propose a construction methodology that would allow Malvern Collective to be completed in stages, allowing Kokoda to start realising earlier returns from the project via staged settlements.
Kokoda’s unconventional approach to the construction tender placed more emphasis on qualitative factors, to ensure that Malvern Collective delivered not only the required commercial return, but avoided the typical industry value-management process that could negate from its architectural vision.
“Given the emphasis on construction quality in the off-the-plan sector over the last 12 months, we performed a significantly more involved due diligence process on the credentials of the builder.
“This approach is certainly atypical amongst developers but absolutely critical for a project in today’s market to reassure purchasers and provide confidence to the banks.
“The market has changed and banks are looking at more qualitative measures when assessing developers.”
Malvern Collective is located on the corner of Glenferrie and Dandenong Roads at 641-675 Dandenong Road and is scheduled to commence construction this month, with a staged completion scheduled to commence from the second half of 2022.
Architecturally designed by JCB Architects with interiors by Carr Design, apartments are selling from $495,000.