This form of funding is for professional or perhaps first-time property developers who require short term funding to help re-imburse for the cost of the purchase of land, and help towards the construction costs of the project, or a mixture of the two.
Like in the bridging market, the number of development finance providers has increased markedly in the last 5 years providing plenty of choice to intermediaries to match their client’s needs. Development Exit Finance is a product variation, which is designed to take out an existing development loan and replenish the borrower’s capital before the sale of the property has taken place.
Development Finance has two constraints that borrowers must work to. The first is the loan to cost ratio (including the costs of land) LTC%, and the gross development value ratio of the project, which is the gross sale value of the property or properties or GDV%.
Some lenders may require although not all will look for a developer profit margin, which for some is 15% and others 20%. All proposals should be costed fully – construction and transaction costs, i.e. legal fees, architects and planning costs, and agents fees for property disposal all used to determine profitability.
Rates again vary according to risk and level of contribution put into the transaction by the borrower. Lending can be to individuals, limited companies and trustees of SIPP’s where funding is needed for the development of commercial property. Lenders will need a first charge on security, and lending is known as Stretched Senior Finance or Debt. However, top up or second charge, Mezzanine Funding, is also an area Try Financial can help our clients with, should they need it.