The Construction Industry Federation (CIF) is to launch an awareness campaign to inform the construction sector about the new systems for securing development finance. The CIF will work with the Department of Finance, the banks and other financiers to help create greater understanding of the new financial models which the industry will need to adopt if more construction activity is to take place.
This follows the conclusion of the ‘Construction Financing Options’ conference event in Dublin which was attended by approximately 200 developers, contractors, builders and financiers. During the course of the conference, the construction industry heard how the traditional finance model no longer applies.
Traditionally a single financial institution such as a bank had provided the full finance requirements for viable construction projects. However the current practice amongst the banks is to provide no more than 60% of the total finance towards any project. This means that construction companies need to secure additional funding through other financiers such as mezzanine or equity providers.
Speaking following the conference, CIF Director General Tom Parlon said, “With banks now only providing a maximum of 60% finance, the industry will need to adopt new financial models in future if they want to get projects off the ground. This will mean a change in thinking for the industry and a change in how they approach the funding of projects in the future. Mezzanine finance and equity providers are options that will need to be considered as part of the new financial models that will drive future activity in the sector.
“Whether we like it or not, the old system of construction finance is dead. Most projects will need to make use of these new models if they are to move forward. The industry has been looking for alternative funding options. We now need to start utilising these more complicated financial structures.
“Admittedly these finance models are a new departure for most in the construction industry. Until now only a small number of Irish projects have utilised elements like mezzanine or equity finance. That means there is a gap in understanding throughout the sector about what is involved. If we want to get more activity taking place then we will need to help educate the industry about the practical implications of these options.
“That is why the CIF will work with the Department of Finance and the various financiers to help raise awareness of the models of finance throughout the Irish construction sector. We have to help create a better understanding of the financial options that exist for the industry. We want construction companies of all shapes and sizes to be aware of the steps they can take when they are looking to secure finance,” he said.
“The whole purpose of the Construction Financing Options conference was to help bring financiers together with those who are looking to move construction projects forward. Over the last few years access to finance has been one of the key issues holding up construction activity. We hope that all those who attended the conference will have come away with a greater understanding of what financing projects now involves. Hopefully this will be just the start of a new way of thinking about finance for the wider construction industry,” Mr. Parlon concluded. http://cif.ie/