Overview
An experienced developerAn individual or entity that buys and improves property, or builds entirely new properties, that are typically sold at completion of the project. sourced a prime development site and used a Joint VentureTypically used in Development Finance when two or more partners collaborate on a project. Normally each party has a different skillset; e.g. one party maybe an experienced Developer / Development Manager and the other may have less practical experience, but have more Equity available to get the project off the ground. A contract will normally be drawn up to recognise each parties contribution, and the profit share / return that they entitled to at the end of the project. (JVTypically used in Development Finance when two or more partners collaborate on a project. Normally each party has a different skillset; e.g. one party maybe an experienced Developer / Development Manager and the other may have less practical experience, but have more Equity available to get the project off the ground. A contract will normally be drawn up to recognise each parties contribution, and the profit share / return that they entitled to at the end of the project.) partner to reform the disused Hotel into a Landmark residential development of 21 apartments in South Devon.
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 : Newton Abbot, South Devon
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 : DeveloperAn individual or entity that buys and improves property, or builds entirely new properties, that are typically sold at completion of the project. ExitVitally important for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. Expect the Lender to evaluate the plausibility of either option and amend the terms accordingly. Finance
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 : £999,750
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 to Value : 75%
The Situation
Our client had approached us a few weeks prior to Practical Completion, having achieved excellent salesReferring to the sale of a property. We use the term in Development Finance and Bridging Finance to describe the Exit Strategy the Borrower expects to use to repay the Loan. to date with 12 of 21 units sold off-plan and with reservation depositsThe net difference between the acquisition price of the property and the value of the Mortgage. It can be expressed as a monetary value, but more often as a percentage figure; e.g I can get 65% LTV Mortgage, therefore my deposit is 35%. taken on 5 of the remaining 9 units.
The 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. was due to expire in a matter of weeks so part of our brief was to work with the JVTypically used in Development Finance when two or more partners collaborate on a project. Normally each party has a different skillset; e.g. one party maybe an experienced Developer / Development Manager and the other may have less practical experience, but have more Equity available to get the project off the ground. A contract will normally be drawn up to recognise each parties contribution, and the profit share / return that they entitled to at the end of the project. Partner to give them peace of mind that they would be replaced. We refinanced from the expensive 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. onto a longer-term and more cost-effective developerAn individual or entity that buys and improves property, or builds entirely new properties, that are typically sold at completion of the project. exitVitally important for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. Expect the Lender to evaluate the plausibility of either option and amend the terms accordingly. finance product.
This increased our clients ROCEA measure of profitability, and how efficiency capital is deployed. The higher the number is, supposedly the better the investment performance has been. It is calculated by dividing the Earnings Before Interest and Tax by Capital Employed. Used by most investors in Commercial Property and Developers as one measure of whether they invest in a property. (Return On Capital EmployedA measure of profitability, and how efficiency capital is deployed. The higher the number is, supposedly the better the investment performance has been. It is calculated by dividing the Earnings Before Interest and Tax by Capital Employed. Used by most investors in Commercial Property and Developers as one measure of whether they invest in a property.) and allowed him to access some of the 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. he had created before the salesReferring to the sale of a property. We use the term in Development Finance and Bridging Finance to describe the Exit Strategy the Borrower expects to use to repay the Loan. of the 9 units had been made. Monies which could be used to go towards financing his next development.
The Challenge
There were two challenges to overcome on the case;
- The lenderA company or person that lends money to another. we planned to use had recently changed its criteria reducing 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. on developerAn individual or entity that buys and improves property, or builds entirely new properties, that are typically sold at completion of the project. exitVitally important for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. Expect the Lender to evaluate the plausibility of either option and amend the terms accordingly. finance from 75% to 65% 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..
- They had also recently changed their criteria reducing the number of units from no limit to 6 units.
The Outcome
By putting together a detailed presentation of the development and showcasing our client’s ability to deliver the scheme, we leveraged our longstanding relationship with the lenderA company or person that lends money to another.. As a result, we negotiated an exception on both the 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. (75%) and the number of units taken as securityAn Asset used as Collateral for a Loan..
We were able to transact quickly to enable the existing funder to be replaced and secure our client more time to sell the remaining units at full market valueAlso known as the Open Market Value, and it is deemed the fair price for a property if sold in normal circumstances; i.e. the seller is not in a distressed situation, and the market is operating under normal conditions. The RICS definition is; The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion..