Property Development Funding Update

Abortive Planning Permission Costs: This can be an extremely expensive exercise for developers. Frequently the cost of a planning application will deter a developer from progressing a project. In turn, we can now offer an insurance policy facility which will reimburse a developer the abortive costs of a planning application on the proviso that if initially declined the application goes to appeal.

 

The approximate cost of such a policy is 10% to 15% of the sum assured. Senior Debt Funding - We now work closely with a wide range of senior debt providers who can advance up to 70% of gross development value or 90% loan to costs. The types of development securities include residential developments, hotels, nursing homes and warehouses. We are able to arrange funding throughout the U.K and Southern Ireland. Mezzanine Funding - We liaise with many mezzanine funders who will support a project from 85% to 90% of project costs. 

Mezzzanine/Equity Funding: We have an investor who will provide mezzanine finance behind senior debt to fund up to 98% of project costs. In return, the investor will require 50% of the project profits. The minimum loan is £500,000 and the maximum loan is circa £10 million. The types of securities are residential developments, hotels, warehouses and nursing homes. The investor will fund throughout the U.K and Southern Ireland. 100% Funding on a Joint Venture Basis - We have various contacts including family offices who will provide 100% of project costs on a profit share basis. 

Assisted Living/Supported Living/Social Housing: This is a growing market. We have recently funded 125 units spread over 7 sites. The developer arranged a Housing Association to manage the units and a care provider to provide care support to the tenants/patients. This office also provided the long term owner of the project i.e. the exit strategy. Large Project Funding - We have the capabilities of arranging large project funding. Recently, we have been involved with the new build of a 370 key hotel and gym in London, 300 apartments in Birmingham, 1000 apartments in Leeds, 263 student accommodation project in Edinburgh and 125 units for assisted living in the north west. 

Forward Funding: We are working with specialist investment funds that will forward fund large projects. These include hotel new builds, 300 PRS units, 1000 B.T.R apartments. The forward funder will acquire the asset to retain it in the longer term. The agreement typically works with an upfront land payment (at which point the land is transferred to the investor so that it can be charged to a lender that is funding the forward funder).

 

The development costs will be covered through monthly draw downs with a payment at PC of normally between 10- 15% of costs which represents the development profit. The forward funder takes over the asset at PC and all of the stabilisation risk. The developer takes responsibility of all costs of the development. Typically the forward funder will want to have an input in the choice of the contractor, the spec etc to ensure the building is delivered to their requirements. 

The price the investor will pay for the development will be based on an investment appraisal as if the building was completed today. It depends on which part of the country and the residential team will be able to advise on the difference between the open market and the investment GDV. The benefit for the developer is that they don't have to raise finance and have a guaranteed exit and profit payment if they deliver the scheme on time and budget. 

Exit Strategies: In the current climate, many lenders and investors have been reluctant to fund a project unless the exit strategy is clearly defined. With this in mind we have started to work with the following: Assisted and Supported Living Purchased by Real Estate Investment Trusts Social Housing Purchased by Pension Funds Student Accommodation Purchased by an Investment Fund Nursing Home Upgraded Purchased by a Real Estate Investment Trust Build to Rent Purchased by an Investment Fund. I hope that the above demonstrates our philosophy of "cradle to grave" support for our developers.