Overview
Our client was 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. of residential propertyA person's main residence, or in the case of Property Development the term used to classify the end product; i.e. I am developing a mixed site of Commercial Property and Residential Property. but was looking to develop their first, pure commercial propertyAn asset, normally to be held for the long-term and to produce an income, and / or Capital Growth. Examples include; Hospitality (hotels), Retail (shops), Leisure (pubs), Student Accommodation, Medical (GP Surgery), Light Industrial (Shed / Logistics), Heavy Industrial (Manufacturing Plant), HMO (House of Multiple Occupancy; e.g. Bedsit), Office, Care Home / Retirement and Educational (University / Private School).. Options were thin on the ground as the lenderA company or person that lends money to another. needed to take a generous view of the portion of ‘sweat equity’ that was in the deal.
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 : Richmond, Surrey
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 : 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 : £ 4.56m
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 : 70% 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). and 94% 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).
The Situation
Our client was referred to us by their existing bank, as 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 not something they could offer. They had made a 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 against the site, which they were keen to have repaid.
The site had been purchased 2 years prior to our engagement. Our task was to get the new lenderA company or person that lends money to another. to recognise the ‘sweat equity’ element of the deal.
The Challenge
The new lenderA company or person that lends money to another. was being asked to replace a 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 that equated to almost the cost of the land when it was purchased. Most lendersA company or person that lends money to another. prefer not to do this, as it means the client has little to no ‘real equity’ in the deal, thus increasing their perceived risk.
The lack of development experienceTypically used in Development Finance to document a potential Borrower's portfolio of previous projects. There are no definitive rules on how much experience is needed; essentially the more relevant experience you have the more lending options you will have open to you. As a rough rule of thumb we would suggest that most lenders are expecting a minimum of 3 similar projects. Whilst previous schemes will not be exactly the same, they need to be relevant. If you have completed 1x flat refurbishment, and 2x minor extensions on houses, and then want finance to build 80 flats from scratch, no lender is going to judge that as relevant Development Experience. For a guide on how to document that experience, please click here. on pure commercial assetsAn item of property owned by a person or company, that has a value and could be used as Security for a Loan., also counted against our client with most lendersA company or person that lends money to another..
The Outcome
We were able to work with a lenderA company or person that lends money to another., that allowed the current lenderA company or person that lends money to another. to be repaid, to fund 100% of the build process and professional costs, as well as refund some additional monies to the client that had previously spent on the planning process for the site.