Property Development finance: is it still available?

Yes, although, as you might expect lenders are more cautious, if a lender has a fiver to lend, it will look very carefully what it lends the money on, who it lends the money to and moreover, how much he charges for the money!

Property Development finance is still available to both the seasoned professional, for larger projects, as well as the first timer, that does not have a track record, but has a good sound, small scale proposal and the skills to see it through.

Although, in effect Property Development Finance is a two stage bridging facility, it is very different to Bridging Finance.

Bridging finance lenders are concerned with day one value of the security, how the interest will be dealt with and “exit” strategy. They will lend up to 70% of day one value usually, however at this loan to value, interest has to be serviced.

Lenders that specialise in development finance want to know the day one value of the building/plot, the build costs and the gross developed or end value (GDV). Generally these figures are verified by a surveyor, in conjunction with a quantity surveyor for larger projects; in the form of a development appraisal.

There are two types of funding, Loan to Cost and GDV funding.

Loan to Cost funding is generally a little less pricy as the lender takes on less of the risk. Normally the loan is in two parts, up to 70% to purchase the land/buildings and up to 65% of the build costs( can include Architects and other soft costs); the good part is that interest on the facility can be “ rolled” in, providing that the overall loan/s do not exceed 65% of the gross developed value. Generally, this type of funding is the province of Banks.

“GDV” funding is known to be a little “sportier” in terms of risk, as the lenders will advance up to 70% of the purchase price of the land/building and 100% of build, including the “soft costs” and interest roll up; to a maximum of 65% GDV/end value.

As the developer is not putting any “hurt money” in for the build, he is shifting the risk toward the lender, in there eyes. As a consequence, this type of riskier funding is not provided by the banks (although based on the bank’s current performance in the capital markets, you wonder why!). In the current market, this type of finance is available to experienced developers through specialist funders; at a cost.