Our client was an experienced builder but a relatively new developer as an individual. He was looking to build out his fourth site but didn’t have the equity to do it alone. Despite having a network in place to help provide investment, it meant offering a large profit share, so he was seeking a way to fund the scheme on his own and maximise his profits.

Location : South-East London

Loan Type : Bridging Finance and Development Finance

Loan Size : £1.19m (Bridge) and 5.32m (Development Finance)

Loan to Value : 75% LTV (Bridge) and 70% LTGDV (Development Loan)

The Situation

Our client purchased a mixed-use site, comprised of part residential and part commercial, for £1.7m, with outline planning for a knockdown and rebuild.  Most of the properties were tenanted, which allowed him to earn an income and cover his loan costs, whilst he worked on the planning.

Within 6-9 months of the Bridge loan completing, the client anticipated he would have his planning permission and would then build out the scheme.

The Challenge

Our client needed £510,000 plus costs to purchase the site, and therefore needed an investor to contribute. He knew however that he would increase the value of the site through the planning process, and we wanted to avoid an investor contributing a relatively small amount of equity, but taking a profit share on the full scheme. Our challenge was therefore to repay the investor as soon as possible, allowing our client to retain the bulk of the profit.

The Outcome

We arranged a bridging loan for phase 1 of the project; the acquisition of the site. Our client put in £210,000 and the investor put in £300,000 for a 50% share in the profits.  Post-planning, the value of the site was expected to be closer to £3m. The build costs of the project were circa. £2.1m, with a GDV of £7.76m.

Our plan was to raise enough debt in the development loan phase, to repay the investor when we replaced the bridging loan with the development loan.  The property was valued at £2.8m after full planning was granted, so the investor needed to be paid a profit share of £550,000 (50% of the £1.1m value uplift), plus his original £300,000, totalling £850,000.

We were able to raise a day one loan of £2.04m, meaning we could repay the investor entirely after nine months.  If we had waited until the project was finished, his profit share would have been closer to £1.4m.  Through working together, our client was able to retain more than £1m in additional profit, purely through taking the time to seek our team’s expert advice.