Property developers too slow to embrace equity funding model - Michael Noonan

A combination of debt and equity financing is available for property developers, Minister for Finance Michael Noonan told a conference in Dublin on Wednesday morning. However, development has been stalled because developers have been slow to embrace the new funding model which requires equity backing to get projects off the ground.

Speaking at the “Construction Financing Options” event, Mr Noonan said that a sustainable financing model for construction and development in Ireland requires both senior debt finance and equity finance.

“ It was the norm before the boom and will become the norm again in Ireland,” Mr Noonan said, warning that “the boom time funding model is defunct and will not return”, and developers must embrace the new equity investment model or “else face being left behind”.

“If they do not, developers who either have access to risk capital or are willing to accept more realistic returns will take their place.”

Mr Noonan told the conference that a report from the Department of Finance shows that there is a sufficient supply of equity financing available to bring viable projects to the level of readiness where they can then access senior debt finance.

Mr Noonan said that it has been established that banks are in a position to provide senior debt finance for up to 60 to 65 per cent of the total development cost for viable, “shovel-ready” projects. To bridge the remaining 35 to 40 per cent funding gap, developers must either invest their own equity or source it from a third party funder.

However, Mr Noonan said that the equity financing market remains underdeveloped primarily because developers have been slow to accept certain features of the new environment. These include the need to finance projects with equity until the projects are sufficiently de-risked to allow access to senior debt finance; the need to get euqity from third parties; and that such equity is expensive and will require a level of shared control over decision making.