Glossary - Understanding CrowdfundUP Terminology

A

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

S

T

U

V

W

X

Y

Z

A

Acquisition Cost

Acquisition cost is the cost a company recognises for property after deducting discounts and adding incidental costs.


B

Bridging Loans

Bridging loans are used to take advantage of a short term opportunity in order to secure long term financing. A bridging loan is obtained by a developer while approval is sought.


Builders Design, Construct and Finance Loan

Builders who have a significant balance sheet can offer approved property groups design, construct and finance loans.


C

Capitalisation Rate

The capitalisation rate is the rate of return on the value of a completed property a potential investor would expect when purchasing the property. Each property has a different rate of capitalisation based on the associated risk and level of management required.


Commercial Bills

A bill of exchange issued by a commercial organisation to raise money for short term needs. Commercial bills assist the developer to raise finance through drawing and discounting bank bills.


Construction

Once finance is approved and contracts are signed, construction can begin.


Construction Loan

Short term, interests only drawdown facility on the property being financed. The loan covers the cost of land development and construction and can be disbursed as needed, as each stage is completed, according to a schedule or when a condition is met.


Cost-plus Contract

A contractor is paid for the cost of the work including all labour and materials.


D

Development Approval

Development approval process takes place after site selection and before commencement of construction. Here, further design, cost estimates, scheduling and financing is performed to further determine the viability of the project.


Development Brief

A development brief provides a guideline for the project outcome. A formal document is assembled containing conclusions to assist in understanding the objectives of the project and provide accurate proposals for costs and schedules.


Develop in Phases

Larger projects of 20 or more units should be developed in phases. This leaves a developer less open to unsold units, and if there is an increase in housing demand, gives the potential to increase prices.


Discounted Cash Flow

The method of valuing a project, company or asset. All future cash flows are estimated and discounted by using the cost of capital to give their present values.


E

Environmental Site Assessments (ESA)

An environmental consultant conducts environmental studies including analysis of the environmental impact of a development site or recommendations to create an environmentally sustainable project.


Equity

The amount of cash the developer or investors will contribute to the development project. Equity may be provided by partners or investors.


Expressions of Interest (EOI)

An informal offer made by an investor to the developer to signify interest. An EOI separates potential investors into a smaller realistic list.


F

Finance Company

Financial organisation that accepts deposits and lends to consumers and businesses.


Financial Leverage

The use of personal equity to borrow additional capital to fund the development.


Fixed priced contract (Lump sum contract)

A project is agreed to be completed within a specific scope for a fixed price. The amount paid does not fluctuate with the amount of work completed or resources used.


Free Equity

Money that is created and/or built up over time. The more free equity created, the less risk later on in the project.


G

Government and Authority Fees

Costs incurred by local and state governments. Items include rates, taxes, and planning application fees.


Guaranteed Maximum Price

The contractor is compensated for actual costs incurred plus a fixed fee. Unless the guaranteed maximum price has been formally increased as a result of the developer giving the project additional scope, the contractor becomes responsible for cost overruns.


I

Investment Bank

Financial institution that provides large amounts of long term fixed capital. Investment banks generally take an equity stake in the borrower to exercise some influence on it's direction and operations.


J

Join Venture Arrangements

A business agreement in which the parties agree to develop a new entity and new assets for a finite time, by contributing equity. The parties share revenues, expenses, assets and control.


L

Land Acquisition Loan

Loans securing the purchase of a potential development site.


Land Banking

The process of securing future property development sites, at the current price. Property development companies buy land and put them in their 'land bank' to secure land for future property developments.


Lender

The entity that advances borrowings for a stated period and for a fixed or variable rate of interest.


Liquidity

The ability to convert an asset to cash quickly and the degree to which an asset can be bought or sold without affecting it's price.


Loan to Value Ratio (LVR)

LVR is the proportion of money borrowed (loaned) compared to the value of the property. Lenders examine an LVR before agreeing to loan the money needed for purchase in order to assess risk.


M

Mezzanine Finance

Funding that shares characteristics of both debt and equity often used to finance acquisitions. The lender has the right to convert to an ownership of equity interest in the company if the loan is not paid back in time. Mezzanine loans are subordinate debt provided generally by private lenders or venture capital companies.


N

Non-recourse loan

A loan secured by collateral, usually property. The borrower is not personal liable, therefore if they default, recovery is limited to the property pledged as security.


P

Planning Approval

Planning and/or development from the local council approval is required for any change of use or building operation.


Plot Ratio

A ratio representing the density of building in a specified area of land.


Preliminary Development Finance

A developer approaches financial institutions to gauge their interest in financing the development and to obtain the level of debt that can be secured.


Preliminary Feasibility Study

Calculations using relevant cash inflows and outflows, income and costs in order to establish whether or not the project is financially feasible.


Professional Investor

A person who controls or manages at least $10 million of investment in securities or holds an Australian Financial Services License.


Provisional Sum Item

An amount of money tentatively agreed upon between two parties contracting for work to be performed where the full extent or nature of the work is not yet known.


Pooled Equity

A syndicate of investors providing additional equity to developers working on large projects.


R

Residual land value

The value of the completed development less construction cost interest equals the residual land value.


Retail Investor

Essentially, everyone is a retail investor unless they satisfy one of the requirements to be classified as a wholesale client or sophisticated investor under sections 761G (5), (6) and (7) or section 761GA of the Corporations Act 2001 apply.


Return on Equity (ROE)

Return on equity measures the rate of return for ownership equity of stakeholders. It measures the efficiency of profit generation from each unit of shareholder equity.


Return on total development cost (TDC)

Return on total development cost measures the percentage return of the profit/return after the deduction of the total development cost.


Risk Participation Loan

A syndication of lenders when there is a large sum of money to be invested in a development and the lender desires to reduce risk or is unable to fund a construction loan of the size required.


S

Seed Capital Loan

A seed capital loan covers the costs for the initial design and submission of development approval, often obtained in exchange for equity or stake in the project.


Sensitivity Analysis

Simulation analysis to evaluate risk or identify critical factors. Key quantitative assumptions, including underlying a decisions, estimate, or project, are changed systematically to assess their effect on the final outcome.


Site Costs

The costs associated with developing the site, including clearing land to final landscaping.


Site Survey

A topographical and feature survey of the site completed by a land surveyor.


Sophisticated Investor

A sophisticated investor is one or more of the following:

  • A person or entity that has obtained an accountant’s certificate dated no more than two years ago that the client:

(a) Has net assets of at least $2.5 million, or

(b) Has a gross income for each of the last two financial years of at least $250,000; and

  • A person or entity that is controlled by a person or entity that meets the requirements of (a) or (b) above.
  • A person or entity who invests where the purchase price of the product is at least $500,000

Syndication Fee

Costs incurred in promotion of real estate development syndication, including negotiating with potential investors, arranging new partnerships and negotiating finance.


T

Turnkey

The contractor undertakes the entire responsibility, from design through completion and commissioning.


U

Unit Price Contract

A construction contract in which the client or owner pays a fixed sum for each completed unit of work.