The Challenges of Raising Finance: the Covid Crisis.
Published 1st August 2021
Developing accommodation projects is a challenging and time-consuming process, as we have seen on many occasions. A recent multi-million project in Nigeria hit the buffers after 18 months of development work when negotiations on project finance could not reach a satisfactory conclusion, caused mainly by Covid.
With all of the key project ingredients in place to make the project a success, project progress was looking good: a client, a fully designed, engineered and priced accommodation solution for student accommodation at a local university, a strong demand for accommodation in the area, and most importantly, a signed off-take agreement with the university themselves for a 25-year concession period. Timing was also good, as the project needed to start summer 2021.
The problems started thanks to Covid, which not only delayed progress, but also caused an unprecedented surge in material costs. Earlier in 2021 metal prices doubled, and even tripled at one point. International shipping costs have also doubled during the past 18 months, and seem unlikely to fall any time soon.
The cost plan which was produced during 2020 suddenly became woefully inadequate, as the re-priced construction costs reflected market conditions and likewise doubled in price, with risk-money becoming eye-watering. Suddenly 2021 was not a good time to be getting projects off the ground with so much international uncertainty.
The doubling of construction costs means financing requirements also double, however with fixed contractual incomes per year for the accommodation and the inability to extend the payback terms, suddenly a once feasible project became impossible to finance.
These are the sorts of challenges Aura's team face everyday, and the reality of the challenges of property development, with the added complexity of a pandemic.