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New financing partnerships

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As the banks tighten up on lending, astute investors are becoming more creative when raising capital.

Property markets in many provinces are
still in the doldrums, but astute investors
are leveraging the latent opportunities and
entering into partnerships to finance projects. 

Apart from Cape Town, which is still
enjoying solid growth, residential property
prices are expected to grow at a sub-inflation
rate over the next five years or so, and this, in
conjunction with more people opting to rent,
provides opportunities for investors who can
access multiple properties. 
This is where the real value kicks in, says Gary
Palmer, chief executive of Paragon Lending
Solutions, which uses its portfolio of lending
products, network of funding partners and
own balance sheet to address clients’ needs
for property or bridge financing and working
capital. 
“Many investors are making use of this time
to build their portfolios, particularly looking to
scale their investments. The problem, however,
is that banks are shying away from risk and
investors looking to move fast on opportunities
must be creative when structuring their
finance.” 
In the past, Palmer says traditional lenders
were “much more willing” to fund acquisitions,
but now banks are only looking at 65% to 70%
of loan values, or even declining deals they
would have previously supported. 
“This creates
a funding gap and means investors will need to
be creative when assembling working capital,”
Palmer says. 
He says partnering with organisations which
have access to extensive networks of both
traditional and alternate lenders gives investors
a “significant edge”, not only to secure the
finance, but also in how financing deals can be
structured to meet their unique requirements.
As an example, he says one client, an
astute investor, approached his company with
R5 million to put down on a R50m deal. 
“Rather than spending many months sourcing
the remainder herself, we accessed R35m from
the banks and then found her an equity partner
to secure the remainder. 
The investor was able
to move quickly and snapped up a deal which
might otherwise have been lost. 
“A client in Joburg approached us
with an excellent opportunity in the
fast growing student accommodation
market. Paragon structured the deal by sourcing
senior debt and bridging finance.” 
In another arrangement a client with a R5m
bank loan needed another R5m for a deal he
was pursuing. Working with him, Palmer says
the company found a partner and structured the
deal between them to deliver optimal value. 
He says it is important for investors to
remember that no matter what kind of funding
they secure, any organisation or individual who
puts money into a deal has expectations, so
investors must “view their investors as partners,
not keep them at arm’s length”.
Property360
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