Overview
Our client was an incredibly experienced developerAn individual or entity that buys and improves property, or builds entirely new properties, that are typically sold at completion of the project., looking for certainty of funding, so that he was able to build up a pipeline of new sites and build-out existing schemes on his own termsThe period of time agreed between Lender and Borrower, at the end of which the Loan should be repaid or an extension negotiated. Also known as Loan Term., rather than having to wait for the cumbersome decision-making of lendersA company or person that lends money to another..
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 : National
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 : Revolving Credit FacilityA loan that enables the Borrower to increase or decrease the Loan quantum, within Lender agreed parameters, during the course of the Loan Term. In property lending we usually arrange these facilities for Property Developers or Bridging or Development Lenders, so that they can add additional properties or qualifying loans as collateral. / Bridging & Development
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 : £30m
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 : 65% 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 80% 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 a property development industry veteran, with over 25 years 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.. Their frustration was the granular nature of their existing funding. Dealing with a new lenderA company or person that lends money to another., or taking a new, separate 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 from an existing lenderA company or person that lends money to another. each time they wanted to acquire a new site, or advance the build of an existing site, was proving time-consuming and curtailed the deal-making instincts they had as a business.
The Challenge
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. is the riskiest of all loansWhen 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, hence all lendersA company or person that lends money to another. like to keep a close eye on their borrowersThe person, persons, or commercial entity applying for the Loan from the Lender. and their individual schemes. To get a lenderA company or person that lends money to another. to trust a client to make decisions on sites with less scrutiny is extremely difficult.
The Outcome
A revolving-credit facility of up to £30m over a 4-year loan termThe period of time agreed between Lender and Borrower, at the end of which the Loan should be repaid or an extension negotiated. Also known as Term., allowing our client to build his business, by taking advantage of the certainty of funding to allow quick manoeuvring on new and existing stock.
The streamlined underwritingThe process of assessing a Loan Application and deciding whether the Lender wants to make a Loan to the Borrower. See Underwriter., valuation and legal process for new deals, meant the lenderA company or person that lends money to another. committed to approving new loansWhen 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 within 48 hours of receiving the valuation report.