What Makes a Good Construction Project?
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The construction industry has been under scrutiny in recent years, with many investors preferring passive deals over construction financing due to market uncertainty. However, quality construction investment opportunities do exist, and Bowery is committed to funding the right ones.
Through strong governance and rigorous due diligence, Bowery identifies and funds construction investment opportunities that are not only financially sound but also built for success. A prime example of this is our investment in Langmore Lane, Berwick (42km southeast of Melbourne CBD).
A Closer Look at Passive vs. Active Construction Investment Financing: What’s Right for You?
Many investors gravitate towards passive real estate deals due to their lower perceived risk and steady cash flow. However, construction investment financing offers a unique opportunity for those looking to achieve higher returns.
While they can come with additional complexities, well-structured construction investment financing deals can provide superior margins, greater value appreciation, and stronger equity positions. Unlike passive investments, where returns are often capped by rental yields or market fluctuations, construction investment financing allows investors to enter at an earlier stage. This means they benefit from development gains and increased asset value upon completion.
With proper due diligence, risk management, and structured exit strategies, construction investment opportunities can be a powerful tool for portfolio diversification and wealth creation. That’s what we help our investors achieve.
Let’s look at the Berwick project.
The Key Ingredients of a Successful Construction Investment Project
Confidence in the Construction Investment Opportunity’s End Product
One of the most critical elements in construction investment financing is ensuring that there is a demand for the finished product. The Berwick development consisted of 15 apartments, and nearly half were pre-sold before construction even began. This level of early commitment, backed by legally binding contracts and 10% deposits, provided strong evidence of market acceptance. Investors and homebuyers demonstrated confidence in the location and product, reducing financial risk significantly.
Berwick itself is an affluent, family-friendly metropolitan suburb with highly desirable private schools, making it an attractive location for potential buyers. This ensures long-term demand — key to a project’s success.
A Strong Developer & Builder for Construction Investment Success
We meticulously review financials and previous performance to ensure that both the developer and builder have the necessary expertise and resources to complete the project.
In this case, the project was led by a highly experienced developer, Andrew Harmon, who has a track record of delivering similar projects in the area. The builder also had a proven history of successfully completing similar developments, which added another layer of confidence.
Additionally, a major green flag was that the sponsor paid for the land in cash, meaning there was no existing debt on the property. This showcased a strong financial position, reducing risk.
A Clear Exit Strategy in Construction Investment Financing
A well-structured exit strategy is vital for any construction investment financing deal. In the Berwick project, Bowery ensured that if no further pre-sales occurred, the debt could be reduced to a 36% loan-to-value ratio (LVR), allowing a traditional bank to take over the remaining financing.
To further secure the investment, we rigorously reviewed sales contracts, ensuring that apartments were sold to independent third-party buyers — not related parties — providing verified, independent demand for the product. Additionally, substantial deposits ensured that buyers were committed, reducing the likelihood of cancellations.
Security & Governance for Investor Protection
Bowery always secures a first-ranking mortgage on all funded projects, meaning we hold the primary claim on the property. In this case, there was no existing debt on the land, further strengthening our security position. Beyond this, Bowery also secured a General Security Agreement (GSA) over the borrowing entity. This means that if unforeseen issues arose, we had the legal authority to take control of the company’s assets and complete the project.
To further mitigate risk, we required personal guarantees from the borrowing entity’s directors, verified against their personal assets. This additional safeguard ensured accountability and financial backing from the sponsors themselves.
Live Tracking Throughout the Deal
It’s not uncommon for construction projects to encounter unexpected delays and cost overruns. To mitigate this risk, Bowery’s internal governance processes include ongoing monitoring. John Nave, a key member of our project oversight team, ensures that every tranche of funding is released only after an Independent Quantity Surveyor validates the progress and cost structure.
This proactive management ensures that projects remain on time and within budget, protecting investor capital and reducing potential financial surprises.
Navigating the Construction Investment Landscape
While the construction sector has faced significant challenges post-COVID, there are many strong, well-structured construction investment opportunities that present excellent investment potential. The key is thorough due diligence and careful selection. The Berwick project exemplifies the kind of deals Bowery seeks — construction investment opportunities with:
- Strong market acceptance
- Experienced and financially secure developers and builders
- A well-defined exit strategy
- Secure investment structures with first-ranking mortgages and GSAs
- Ongoing oversight to keep projects on track
At Bowery Capital, we remain committed to identifying and supporting high-quality construction investment opportunities that provide strong returns while minimizing risk. For investors looking beyond passive deals, well-managed construction investment financing offers a pathway to higher margins and excellent long-term value. If you’re interested in how we approach due diligence, structuring, and risk management in construction investment financing deals, let’s chat.
