Overview
LocationUsed by us to distinguish where the property is that the loan will be made against. Lenders can be location agnostic, and believe that different locations should attract different Underwriting Criteria and pricing : Manchester
LoanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More Type : Stretched SeniorTypically used in Development Finance but also available for Commercial Property, it refers to a class of loans that offer higher LTC and / or LTGDV than a normal standalone Senior Lender. It's like a combination of Senior + Mezzanine, except you would still normally achieve a higher loan with Senior + Mezzanine. A Senior Lender will normally go to 60% or 65% LTDGV, whereas a Stretched Senior Loan may go to 70% LTGDV. On a Senior + Mezzanine loan, you can achieve 75% LTGDV. As you would expect, rates are higher for Stretched Senior than for Senior Only Loans. The term is also used in the Commercial Mortgage market, as Alternative Lenders continue trying to make inroads to the main lenders market share. Development FinanceSpecialist funding, specifically used to fund a Development Project. Lenders predominately use a combination of LTC and LTGDV to assess how much they are willing to lend. Other factors also come into consideration; Property Type, Location, Development Experience, Profit Forecast, etc. A lender will determine the total Gross Loan they are willing to advance, and then deduct Lender Professional Fees, Lender Interest, Lender Arrangement Fees, and 100% of the Build Costs. The Residual Loan is then available to draw against the Land, so is often referred to as the Land Loan.
LoanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More Size : £ 13.2m (gross)
Loan-to-ValueThe ratio of debt to property value, expressed as a percentage; for example a Borrower that obtains a Loan of £ 6,000,000, against a property value of £ 10,000,000, would be expressed as 60% LTV. : 97.4% LTCTypically used in Development Finance as a ratio, to measure the Loan granted in relation to the overall costs of a development project. Normally expressed as a percentage. Costs are split into Land Costs (purchase price of the site, SDLT, legal fees, etc.) and Build Costs (the build contract, QS, Architect, CIL, S106, etc.). A Lender will normally agree to advance a percentage of all of these costs. They will normally agree to include their own funding costs towards the total costs, as the interest and fees are normally rolled up (See Rolled-Up Interest). and 68.9% LTGDVTypically used in Development Finance as a ratio, to measure the Loan granted in relation to the overall end value of a development project. A Lender may offer 60% LTGDV and 80% LTC, and it is the lower of these two ratios that will determine the final loan size advanced. The Loan advance will include an allowance for Lender interest and fees as these are normally rolled up (See Rolled-Up Interest).
The Situation
Our client had purchased a site with outline planning from receivership. Part of the monies paid for the land were deferred until the development was built. The client had very little equityThe difference between the debt and the asset value; the part that the Borrower actually owns. The equity value can increase in value over time, if debt is reduced and / or the property increases in value. The reverse can also happen. See Negative Equity. to contribute to the project, so we needed a very high LTVThe ratio of debt to property value, expressed as a percentage; for example a Borrower that obtains a Loan of £ 6,000,000, against a property value of £ 10,000,000, would be expressed as 60% LTV. loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More.
The Challenge
Our client had covered the fees of his professionals, to revise the planning to enhance the value of the site. The build costs, lenderA company or person that lends money to another. interestRegular payments made by a Borrower to a Lender in return for the money that has been lent to them. and fees, and lender professional feesTypically used in Development Finance and accounts for the following; Valuation Fee, Lender Legal Fees, QS Fees (both for the QS Initial Assessment and the ongoing Monitoring Fees)., plus the clients additional professional feesThe fees charged by the Professional Services that accompany a property transaction; e.g. Lawyers, Surveyors, Quantity Surveyors. had to be covered entirely by the development loanSee Development Finance..
The majority of development lendersA company or person that lends money to another. want a minimum of 10% of the costs of the overall project injected into a deal by the borrowerThe person, persons, or commercial entity applying for the Loan from the Lender.. On that basis, the client should have put just under £1.5m of cash into the project. In fact, our client had contributed just £ 400k of his own money into the deal.
The Outcome
Through working with our client, visiting the site, as well as meetings with local agents and surveyorsA person that inspects land or buildings professionally. Any new Mortgage would normally require a Surveyor to inspect the security property to confirm it's suitability as loan collateral, and it's value. This person is normally appointed by the Lender., we were able to gain an in-depth understanding of the strengths and weaknesses of both our client and the site.
A very successful marketingTypically used in Development Finance to describe costs incurred directly by the developer to go towards the promotion of the site to sell it (brochures, hoardings, website, photography, etc.). It is viewed as a legitimate Build Cost by the majority of Lenders, and should therefore be included in the Development Appraisal as it will have a lending value (i.e. you can borrow a percentage of this cost if you want to). strategy was implemented to assist with pre-sales whilst site preparatory works were ongoing. Through forward selling of some of the units, we were able to de-risk the loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More sufficiently for a lenderA company or person that lends money to another. to come on-board.
We negotiated close to 100% of the funding requirement on a straight loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More deal, rather than through profit shareNormally used by a business to incentivise employees and typically expressed as a percentage. In property transactions it could be the share of profit between equal or unequal partners in a JV scheme. Or, a Developer may offer their team a Profit Share if they perform to time or budget. We most often see it if a Developer is deemed by the Lender not to have the necessary experience for that particular scheme. Rather than not lend, the Lender may suggest that they incentivise the main building contractor via profit share., allowing our client to maximise his return with minimum equityTypically used in Development Finance to recognise the minimum amount of real money that the Lender wants to see in the deal from the Borrower. This can be any costs incurred directly by the borrower in relation to the development project, rather than just pure deposit. (See also Sweat Equity)..