12-Month vs. 18-Month Private Credit Investment Terms: Understanding the Basics

At Bowery Capital, we often field questions about the differences between 12-month and 18-month investments – both of which are on offer to our investors. We’ve written this article to help our community understand what’s behind these two popular private credit investment options. And in anticipation to the questions you might have, our follow-up article to this one gets into exactly what matters: would a 12-month or 18-month term work better for some investors over others?

Why Different Terms Exist: Borrowers Have Different Needs

When you invest in private credit with Bowery, you are essentially investing in a commercial real estate project by a property developer. And different commercial real estate projects have different needs.

Term durations differ simply because real estate developers have different funding needs. Some borrower projects require funding for shorter terms, others for longer terms.

12-month Terms: Simpler Real Estate Projects

12-month transactions are the standard at Bowery. When it comes to these shorter term loans, borrowers are typically using the funds to purchase a site for future development or need “bridging” financing.

Here’s a quick example: Let’s say a developer has put down a deposit for a rundown property on a large plot of vacant land. They see the potential to subdivide the plot for residential use. This subdivision would significantly increase the value of the land and allow the developer to either sell the subdivided land or develop it further. The planning permit from local government may only take 6-months, so a 12-month facility from Bowery gives the developer more than enough time to settle the property, arrange and receive the permit, and prepare the site for future subdivision with a generous buffer in case they run into unforeseen challenges.

12-month terms make up the bulk of Bowery’s private debt investment opportunities.

18-month Facilities: Complex Real Estate Projects

18-month investments are the go-to option for projects that need a bit more time. These often include purchases with longer settlement periods, land with complex permitting processes, or ground-up construction projects.

Imagine a developer planning to build a small apartment complex from the ground-up. From breaking ground to the final coat of paint, 18-months provides a more comfortable and realistic timeline for completion and sale of the development.

Bowery offers 18-month term private debt investment opportunities where we have developers of exceptional quality.

Bowery’s Approach: Realistically Matching Terms to Project Timelines

At Bowery Capital, we believe in aligning investment terms with realistic project timelines. It’s not just about what looks good on paper – it’s about what works in the real world.

From subdivisions to complex construction projects, our team of experts have seen countless projects through to completion. Whether it is from overly optimistic timelines or unexpected challenges, we understand how projects can face delays. We understand how to anticipate them and how to overcome them.

This experience is exactly why Bowery takes a prudent approach, carefully assessing each project’s needs and the borrower’s ability to deliver.

How We Assess & Determine Term Lengths

When determining whether a 12-month or 18-month term is appropriate, we consider:

The nature and scope of the project.

We look at the complexity of the development, whether it’s a simple land subdivision or a multi-story apartment complex. For example, a basic subdivision might comfortably fit within a 12-month term, while a ground-up construction project often requires 18 months or more.

The borrower’s experience and track record.

We evaluate the developer’s history of completing similar projects on time and within budget. We look at the strength of the team around the developer including project managers and builders. A team with a strong track record might be able to handle a more optimistic timeline, while we might recommend a longer term for less experienced borrowers.

Local market conditions.

We consider local council approval processes, which can vary significantly between areas and project types. And these can vary significantly between deals, as Bowery funds projects all across Queensland, New South Wales and Victoria – both regional and metro areas.

Potential challenges or delays.

We anticipate possible setbacks such as potential supply chain issues for materials, or complications in obtaining necessary documents (eg. Certificate of Occupancy). By factoring in these potential challenges, we can recommend a term that provides an adequate buffer.

Why Appropriate Terms Matter: Creating Better Together

Bowery’s fundamental purpose is to create better outcomes for all its partners. And it begins with helping borrowers achieve successful commercial outcomes.

By matching the facility term to a realistic and achievable timeline, borrowers have adequate time to complete their projects without rushing and with peace of mind. This reduces the need for extensions which can be costly for borrowers.

When timelines are achievable and have a reasonable buffer, everyone goes home a winner.

Which is better for investors: 12-month v 18-month terms

In Part 2, we focus on what different term durations mean for investors. Our article delves into the strategic considerations for choosing between 12-month and 18-month investments. We’ll explore how factors like changing cash rates, personal financial goals, and market conditions can influence your decision.