Construction finance with no pre-sales

The situation

The following is an anonymised composite reflecting a recurring type of enquiry, not a specific settled deal. An experienced developer has secured a well-located site with development approval for a small townhouse project, and strong feasibility numbers, but has deliberately not pursued pre-sales, preferring to sell completed stock at full market value rather than at the discount pre-sale contracts often require.

Why it's hard

Most bank construction lenders require a meaningful pre-sale position before committing to a facility, using it as evidence that completed stock has real buyer demand rather than relying purely on a valuer's projection. Without pre-sales, the project is a materially different risk proposition to lenders, and the panel willing to fund it narrows considerably to those genuinely comfortable assessing feasibility, developer track record and site quality directly.

How it can be structured

A construction facility from a private lender or specialist fund experienced with un-presold projects is the most direct path, generally at a somewhat lower loan-to-cost ratio than a well pre-sold equivalent would achieve, with the developer contributing more equity to bridge the gap; the exit here is the sale of completed stock at full market value once construction finishes. Where the developer's own equity does not fully cover that gap, a mezzanine or preferred equity layer alongside the senior construction facility can bridge the shortfall, at an additional cost reflecting the subordinated risk being taken. A staged approach — funding site works and early construction first, then reassessing once some organic sales interest emerges during the build — is a third option some lenders will consider, effectively reducing the un-presold exposure over the life of the facility.

Because the absence of pre-sales removes one of the clearest external validations of demand, lenders in this category will often place additional weight on the valuer's own comparable sales analysis and the developer's marketing strategy for the completed stock, wanting to see a credible plan for how units will actually be sold once construction finishes rather than an assumption that demand will simply be there. Developers sometimes engage a selling agent well before completion specifically to generate genuine, if informal, buyer interest that can be presented to the lender as supporting evidence, even where formal pre-sale contracts are not being pursued. Where the site is in a location with strong recent sales evidence for comparable projects, even without direct pre-sales on this specific project, presenting that market evidence thoroughly can partially offset the absence of the developer's own pre-sales. Some lenders will also revisit the facility's terms partway through construction if genuine sales interest or informal reservations begin to materialise, offering an improved rate or an increased loan-to-cost ratio as the project's risk profile demonstrably improves.

What it typically costs

Pricing on a construction facility without pre-sales reflects the additional risk being carried, generally above the terms available to an equivalent, well pre-sold project, and is quoted on enquiry once a lender has reviewed the full feasibility. Costs include an establishment fee, a line fee during drawdown, and quantity surveyor and monitoring costs standard to any construction facility.

Timeline

1. Same day — scoping call to confirm site, approvals, feasibility and developer track record.
2. 5–10 business days — feasibility package assembly, including cost breakdown and build contract.
3. 3–5 business days — matching to private lenders and specialist funds active in this risk category.
4. 10–20 business days — credit approval and offer.
5. 5–10 business days — documentation and first drawdown.

Questions we'd ask you

1. What is your track record delivering projects of this type and scale?
2. What proportion of total project cost is being contributed as your own equity?
3. Is there any early sales interest, even informal, that could support the feasibility?
4. What is your fallback plan if stock takes longer to sell than modelled?
5. Is a mezzanine or preferred equity layer something you would consider to reduce your equity contribution?

Related

Construction finance · Mezzanine & preferred equity · Property developers · Pre-sales