Basalt Ridge Developments

Read the courtship before the project, and read it in both directions. A new-to-bank file arrives dressed for the interview: without settlement statements, the 28% ROE is a claim shaped for exactly this room — marketing with a decimal point rather than a track record. That is no accusation; every developer's first deck to a new bank looks like this. But it defines what the bank actually knows, which is that six projects were completed and the rest is unverified. Then read the other direction honestly. Your bank has a growth target, the relationship manager has this quarter, and the developer mentioned the two circling banks twice. Every party in this file has an incentive to say yes quickly, and none of those incentives improves the project by one dollar. When the room wants a deal this much, the incentive structure belongs in the file.

The project itself, on its own numbers: presales at 40% against a 60% policy, in a suburb repricing downward, with a 3.5% contingency against a 5–10% norm. The two ways out of a development loan are that the presales settle, or that completed stock sells at feasibility value. Way one is 20 points short of policy. Way two is weakening at 4% per half. And the contingency — the number that absorbs the difference between a plan and a build — is thin precisely where this cycle bites, in cost escalation and delay. The project is optimistic rather than bad, and the optimism sits exactly in the lines whose presentation the developer controls.

B is the tempting answer — win it with structure: a presales condition precedent, QS certification, 10% contingency, personal guarantees. Every element is professionally correct, and the ensemble misses the point of first deals. A term sheet carrying every protection the manual offers, presented to a counterparty the bank has never seen perform under stress, does one of two things: it loses to the circling banks — in which case it was theatre — or it wins, and the bank now holds a fully-levered position with a stranger, protected by paper it has never tested against this sponsor's behaviour. Structure is a substitute for knowledge, and it substitutes badly at the beginning of relationships. That is what B misunderstands: the problem is not that the deal lacks covenants. It is that the relationship lacks history.

The senior banker's read is C: offer the relationship, and re-sequence the deal. Two honest shapes — a smaller project first, sized so that both parties can afford to be wrong about each other; or this project at leverage low enough that the developer's own equity carries his optimism, with the bank funding what the verified numbers support. Say it plainly: "We want to be your bank for the next six projects, and we price the first one so we get there." A developer whose track record is real hears sequencing as seriousness — his 28% says he can afford patience. A developer who needs a stranger's full ask, this month, at 40% presales into a softening suburb, has told you which kind of file this was, and the circling banks are welcome to the courtship. The first deal teaches the counterparty what the bank will tolerate, and that lesson compounds for as long as the relationship lasts.