Property development finance
In these challenging economic times, with a tightening housing market, combined with rising input costs, the majority of lenders are showing distinct signs of nervousness in terms of the project type, loan to cost and level of experience required to get a facility approved. There are however still reliable lenders out there willing to back the right property development project.
So, what difference can you make to the outcome?
The first job is to prepare a comprehensive property development appraisal, which helps communicate to a lender the relative financial merits of the deal; that you will make an acceptable level of profit, and they will (comfortably) be repaid.
You should also present with the Development Appraisal all supporting papers which have been prepared in conjunction, including (as required) CV’s, statement of assets & liabilities, synopsis of experience etc.
..you only get one chance to make a first impression – your development proposal is that first impression…
How are the property development products structured?
Typically, property development loans are available over a twelve to eighteen month period in order to fund the land/building acquisition and the development costs.
The development loan is split into two parts;
Land Loan: Typically 65% to 75% of existing land value, with the loan outstanding for the entire term of the development.
Development Loan: Typically 65% to 75% of build costs – hard and soft costs i.e. pure construction costs together with professional fees, drawings etc. Draw down of this funding will be in tranches, and invariably against Architects certificates.
Is 100% funding available?
Given the current market conditions, pure 100% funding is extremely difficult to obtain. BUT for experienced property developers, and for the right project, such levels of funding are still possible – either through a single lender, or by arranging mezzanine finance through one provider and the senior debt through a traditional lender. These arrangements involve equity / profit sharing with the lender who is effectively an ‘investor’ in the project and will work very closely with you.
100% funding, or at least higher loan to values than traditionally available may also be achieved by providing additional supporting security, without sacrificing ‘equity’.
Development funding is the most interesting area of finance and there are experienceed investors still using this type of finance to make excellent returns, even despite the uncertainty of Brexit and large businesses.
The UK will always be seen as the front runner of commercial development and the way these schemes are funded. Remember the more detail and evidence you can provide the better your chances of securing the right deal.