Montrose director John Benporath structured a second mortgage facility for $840,000 to 81% of valuation over three residential properties in greater Sydney, Australia, comprising the borrower’s home, an investment property and 5 partly built luxury apartments. The security also included a debenture charge over the borrowing company, the company directors’ guarantees, and a deed of priority with the first mortgagee.
The purpose of the loan was to refinance outgoing mezzanine debt and to provide some additional funding to complete the construction of 5 luxury apartments in (the internationally renowned) Bondi Beach resort. The investment property and three of the apartments had been pre-sold at the loan outset, considerably mitigating the loan risk. In addition, the construction and project management was undertaken by the lender’s preferred builder and project manager.
The first mortgage finance was provided by three separate lenders, 2 banks and a mortgage fund at an average interest rate of approximately 9.5% per annum. Interest on all facilities was capitalized.
Construction was completed within the 7-month time frame. A fourth apartment was sold during the 10-month loan term. The residual mezzanine loan amount after settlement of the sales was refinanced by the first mortgagee.
Co-investors were repaid their principal prior to the maturity of the loan term and received a 20% return on the funds advanced.
Recommendation:
“I co-invested in the above two mezzanine mortgages. In addition to a very thorough information memorandum detailing the terms and risks of the loan, it was very comforting to know that we were investing alongside the Montrose director’s company as principal.” Benny Jacobs, Business Manager and Investor
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