Development Finance

The market for development finance is becoming more competitive with new products and new lenders appearing regularly. This means there is more choice but you need to be able to access and assess these options quickly to ensure you get the best deal possible.

We are currently working on a development finance tool to allow you to search, compare and apply directly to a wide range of lenders but in the meantime please find outlined below a range of available products.

If any of these products are of interest then we can help you secure terms quickly.

Senior Debt Development Finance

Prime money for developers with cash to contribute to a new project or for sites that are already owned.

  • Lender arrangement fee from 0.5% to 1%
  • Up to 70% loan to cost (LTC) or 60% of gross development value (GDV)
  • £0 exit fee
  • No personal guarantees
  • Rate from 5% pa

Stretched Senior Debt Development Finance

A high Loan to Cost (LTC) product that reduces the cash contribution needed from the developer.

  • Lender arrangement fee from 1% to 1.5%
  • Up to 85% LTC for new projects or 100% of development if the land is owned
  • Exit fee from 1% to 2%
  • Rate from 7% pa

Mezzanine Finance

Used to top up a senior debt facility so cash input is minimised, or used to avoid a joint venture profit share.

  • Lender arrangement fee from 1% to 2%
  • Up to 90% LTC so an additional 25% to 30% on top of the senior debt tranche
  • Rate from 8% to 15% pa rolled in to the loan and paid on sale of assets or refinance

Joint Venture (“JV”) Funding

An investor provides all of the capital required for the developer to complete the project. Most JV’s work on a 50/50 profit share between the lender and the developer plus an annual interest rate.

Peer To Peer

A lender who pools a number of retail investors in to one single loan.

  • Lender arrangement fee from 1% to 5%
  • Up to 65% of GDV
  • Exit fee of 1%
  • Rate from 9% to 14% pa
  • Some lenders can also provide mezzanine finance as a standalone product

Private Debt Funds

New entrants from the UK and overseas looking to fill the gap left by the retail banks.

  • Lender arrangement fee from 1% to 2%
  • Up to 100% of CTC
  • Rates from 7% pa through to profit share of 50% of net profit
  • Senior debt, mezzanine and unitranche loans available up to 85% LTV
  • Quick to act so no lengthy credit committee or underwriting processes to endure

Private Lenders

Similar in style to the private debt funds but usually individuals interested in loans below £5m.

  • Lender arrangement fee from 0% to 1% of the loan advanced
  • Up to 100% of CTC
  • Rates from 5% to 10% pa
  • Exit fee and profit shares usually apply so the lender can achieve their target return pa
  • Very flexible when structuring a loan and invariably have been developers themselves

Unitranche Lending

High LTV/LTC single strip covenant light loans from aggressive investment banks seeking defined returns.

  • Lender arrangement fee from 2% to 3%
  • Up to 90% LTV
  • Rates from 7% pa

Contractor Finance

To help win the construction contact a builder will provide 100% of the development finance facility, some will also fund 100% fund the purchase of the land/building.

Not a traditional lending model but instead they load the construction profit margin and might charge an annual rolled-up interest rate.

Bridging Finance for Development

A way to quickly secure funds in 1-3 weeks from a lender that takes greater risk than a prime lender for a greater return.

  • Lender arrangement fee from 1% to 2%
  • Up to 100% loan to development cost or 60% of GDV
  • Rates from 0.6% to 1.5% per month
  • Interest can be rolled up

Security Requirements

Here is a guide to what lenders expect from a borrower, not all will apply to every case.

  • First charge on property
  • Floating charge for corporate borrowers
  • Assignment of building contract rights
  • Collateral warranties from significant contractors/sub-contractors/design professionals
  • Personal guarantees (the market average is an unsupported PG for 20% or less of the loan)
  • Life cover for the key members of the management team for a fixed proportion of the loan

The range of products and also jargon has increased due to renewed competition and the creative solutions now available. Please contact us for access to the lenders above or for a discussion on how we can help you through the process.