PROPERTY DEVELOPMENT
PROPERTY
DEVELOPMENT &
REFURBISHMENT
LOANS
A property development loan is a commercial short-term loan generally offered in two stages – the site loan (purchase or refinance) and the construction loan.
What is property development finance?
A property development loan is a commercial short-term loan generally offered in two stages – the site loan (purchase or refinance) and the construction loan. Both elements are secured on the development site in question and the building project as it develops but can also be secured wholly or partially on other residential or commercial property assets owned by the applicant (additional security).
The development loan provides the applicant with the means to complete on the purchase of the site if necessary or to re-finance the site if encumbered to another lender or the site can be used as client contribution if valued sufficiently so the lender just funds the build costs.
Once the development or refurbishment program commences, funds are made available to be drawn down at agreed stages to assist with the development, refurbishment or conversion costs associated with the project.
Property development mortgages can only be put into place on an asset that already has planning permission for the construction phase – if planning is not in place, then a bridging loan can be offered to buy the land but at a low LTV.
What types of development projects are supported?
A brief synopsis of current key underwriting criteria:
Residential housing - single / multiple units
So called ' affordable' housing schemes are favoured and those with a mix of affordable and higher value units
Purpose-built student accommodation is well supported particularly in high demand locations and near to those Universities holding Russell Group status
Major residential refurbishments including conversions of former commercial properties to provide residential units under permitted development rights
Completion of existing ‘distressed’ developments subject to the availability of current and satisfactory monitoring reports.
There are a smaller number of lenders in the market who will lend to develop pure commercial schemes and specifically we can support:
Mixed use schemes for examples a combination of residential apartments with retail units on the ground floor.
Commercial and Industrial schemes which have pre-sale or pre-let contracts in place to a strong covenant(s).
Purpose built assets and conversions such as nursing care and day care nursery centres for operators with a strong business background and good financials.
Completion of commercial units, office, and nixed-use schemes, new build hotels, student accommodation etc. with management or sale agreements in place etc.
What funding structures are available?
With increased competition between lenders there is no shortage of creativity when it comes to the structuring of development debt;
Senior Debt
a standard development facility provided by a lender and secured on a first ranking legal charge over the development site.
Mezzanine Debt
generally expensive top up debt ranking on a 2nd ranking legal charge behind the senior debt and provided by a small number of specialist mezzanine lenders.
Stretched Senior Debt
A blend of senior debt and mezzanine debt but provided by the same lender, this allows the lender to make an advance to a higher level and charge a higher rate or an increased exit fee paid on redemption of the loan.
100% Funding
Technically a lender provides all the funding necessary to acquire the development site and build out to completion, these advances are offered when the borrower can provide acceptable additional collateral security to the lender over and above the development site itself.
Joint Venture (JV) lending
A small number of lenders will offer to partner with an experienced developer on attractive high demand residential schemes providing 100% of the entire project costs. There are various ways that JV schemes can be structured including debt, equity share, inflated exit fees and a combination of all. However, structured the lender will generally be looking for a share of the profits in the scheme up to 50%
SPV / Vendor Partnership
Increasingly popular ‘marriages of convenience‘, where a site owner will partner with the experienced builder / developer in the creation of a ‘Single Purpose Vehicle’ (SPV) which is a business entity created for the sole purpose of completing the development. The benefit to the borrowers is that the land when transferred to the balance sheet of the SPV from current ownership would be treated by the lender as borrowers contribution to the project, subject of course to their being no loans, mortgages or liens secured on the site as the proposed lender would require a full and unrestricted first charge on the site.
Product Benefits
The ability to borrow a higher percentage of the project cost is often a key benefit for the client with restricted funds. The higher the client’s contribution and experience generally the lower the cost of funds.
The ability to roll-up the interest costs over the loan term removes from the client the problem of having to find the costs for the finance until the sale or refinance of the property to cover them.
Access to more Lenders – Most developers only have knowledge of a few funders of development finance generally restricted to their own bank and one or two others. We give you access to a broad range of lending institutions for your developments.
Build More Properties – For the company that specializes in construction of property, borrowing funds allows you to build more properties at the same time than simply a leveraging of your own funds would allow.
For free, expert advice to help secure funding for your development project please call us today to see how we can help or submit an enquiry and we will contact you.
Our advice is offered freely, in confidence and without obligation.
