Bricks, mortar and finance

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‘When the loan settles, the hard work begins’ is an old and illustrious cliché on broking, intended to get brokers to think about after-settlement service as more than the odd newsletter. Except, that is, in construction finance, where it’s 100% true.

Construction finance takes the usual broking timelines and turns them on their head, necessitating new ways of thinking about clients, processing and lenders. MPA has partnered with Australian First Mortgage to understand how brokers fit in.

Lending in the construction finance space is undergoing a major shift. MPA recently spoke to a major construction finance broker (whose interview you can read in MPA 16.10), who revealed that in the 2014/15 financial year he used the majors 64% of the time; that figure has since plummeted to 28%. Australia’s number one commercial broker George Karam told MPA a similar story in our recent article on infrastructure. On the developer side, a survey by the Urban Development Institute of Australia recently found that three out of five Melbourne developers were struggling to access finance from banks, and half said this could cause delays of over six months. In particular, banks – both major and non-major – have been tightening lending criteria for new apartments.

By fracturing the established links between developers and bankers, this turmoil has created an opportunity for brokers. MPA spoke to Matt Mannaert, of Victoria-based Top 10 Independent Brokerage Acceptance Finance, and Kristen Unsworth, director of National Financial Services in the Gold Coast, both of whom are established brokers in the construction space. Both mainly deal with single residential construction projects; for Mannaert, this came from working with investors, while Unsworth was previously a BDM at AFM. “It’s more your traditional townhouses, house and land packages and the occasional super fund lending as well,” explains Unsworth. “It’s really a variety.”

With these individual projects the clients can come in all shapes and sizes, and you can’t rely on borrowers having construction experience. “Most clients aren’t really aware, particularly those clients doing their first construction loan,” Unsworth notes. “They need to have their hand held the whole way through, so it’s very important as a business owner to make sure those clients get that service.”

There’s much to do after the loan settles, insists Unsworth. “They have five or even six progress payments during the construction phase. A lot of these people don’t live in the same state; they live in different states. They want to be kept informed; they want to see photos, how the property is being built.”

The importance placed upon ongoing service also comes up in remuneration structures. Many major commercial brokers dealing with large developers charge a fee-for-service, but for Unsworth’s brokerage trail commission plays an important role. “We don’t charge a fee-for-service. Trail allows us to grow a business and look after clients after they settle. After they settle it’s not finished; you’re always getting phone calls in those first six months. They need their hand held the whole way; you’re their point of contact.”

“After they settle it’s not finished; you’re always getting phone calls in those first six months. They need their hand held the whole way”
 Kristen Unsworth, National Financial Services (Aust)

Communication is crucial. Unsworth’s brokerage has a contract manager, and many other brokerages in this space have a disproportionally high number of support staff to handle after-settlement service (see MPA’s Top 10 Independent Brokerages, issue 16.8). Lenders can also be of assistance. MPA spoke to AFM sales manager Natasha Sultan about a tracking website that the non-bank has introduced for construction loans. Sultan says “a customer, broker or builder can see live tracking of their progress through all the stages, plus their history notes, anything outstanding, and we even go as far as a photograph of the different stages”. Builders, for example, can see when to expect payments, giving them the confidence to stay on site; additionally, brokers can get the site effectively white-labelled with their branding.

Technology can go so far, but a good BDM team remains vital. In fact, for Acceptance Finance’s Mannaert it’s the most important reason to pick a lender, especially being able “to talk directly with the post-settlement team and iron out different issues pretty quickly, because once the land settles all the developers want it to settle within two weeks, and then you’ve got all the post-construction parts of it… If you’re going through a hotline it can take half an hour to get the right answer, and it takes too long out of your day.” 

Direct access to decision-making needs to be complemented by consistent turnaround times and a long attention span when dealing with a lender, Unworth explains. “Some builds can take six to eight months, so it’s a long time to keep in contact with clients and make sure the process is going smoothly for them.”

Referral partners
Another defining feature of construction finance is the importance of referral partners. AFM’s Sultan characterises referral partners as the gateway to the entire sector. “The important thing is finding the right referral relationships,” she says, “because once you have cracked developers or someone that has a unit complex, or builders that do house and land packages, it’s then big, big volume’.”

Building those referral links, Mannaert says, was “a lot of hard work, to be honest… you get a couple of tricky deals, and if you can get them across where another broker has failed, you’re in a better light to the referrer”.

Having Acceptance Finance’s brand credibility behind him helped. He’s also tried to add value whenever possible and advises other brokers to do the same. “That could be education: I constantly go to my referrers’ offices and tell them where lending currently sits, what the problems are; for instance the recent changes with overseas investment lending … all that is value-add stuff to referrers and it helps cement the relationship.”

“I constantly go to my referrers’ offices and tell them where lending currently sits, what the problems are… it helps cement the relationship”
 Matt Mannaert, Acceptance Finance


The main referral partners in construction finance are accountants, fi nancial planners, developers, builders and other construction groups. It’s also helpful to maintain a network of valuers, notes Mannaert, as different lenders view different valuers in very different ways, and can potentially derail a project even before it gets started.

Specialised lenders in the construction lending space can provide guidance on which referral partners to approach first, says Sultan. “[Brokers] could ask the BDM for tips on the types of referral groups they should be targeting. The BDM would then tell them the right types of conversations to be having and that as a broker they can give the referrer a lot of control over the process.”

Construction finance needs brokers, and specifically brokers who have the attention span and resources to provide excellent service after settlement. Brokers need to prove to clients and referral partners that they can make this leap. “It’s all about service,” concludes Unsworth. “Getting in contact with people, going to meet people, getting out there and making yourself known. I’m not afraid to go into a real estate office, hand a card over and say, ‘I will look after my clients for you’; I back myself from a service perspective.”
Are you a Top 10 Commercial broker? Take two minutes to apply online here