Property Finance Success Story: Funding an £8million development
Development can mean high profits - but to achieve those profits a high scale of funding will be required. At Rangewell, we recently helped fund a development with a total budget in the region of £8million.
TL:DR - Thanks to the pandemic, the number of lenders willing to finance property developments reduced substantially and those that would lend would only do so at a higher rate of interest. We found an accountant's developer client the funding he needed by carefully structuring the deal they needed - a £2million loan towards the cost of buying the site and, using the land as security, providing a 100% loan to cover the cost of the building work, with staged payments.
When large sums are involved, lenders have to be cautious. Even those who are prepared to fund whole developments may have a ceiling on the amount they can lend on a single project. Others may be reluctant to offer funding for certain kinds of development.
Those that will lend may require a high rate of interest.
Getting the deal you need for your plans - and turning your ideas into profits - requires expert support.
Without in-depth knowledge of the lending industry, it can be extremely difficult to find the lenders who can provide the most competitive rates for specialised funding such as Development Finance. At Rangewell we have the necessary knowledge.
We recently helped an Essex-based developer accountant find a solution for a borrower who was planning a major development - which required a total of £8,000,000 in funding.
In the current climate, such a high-value loan, may be difficult to arrange - and the developer realised that he would need help to secure the funding he needed at a rate which would allow him to retain sufficient profits.
“I found a brownfield site in a bustling Essex town. The county has become very popular thanks to the good road and rail routes into London, and good sites for development have become hard to find. But I was certain that the location was ripe for a profitable development of luxury homes.”
The site would be ideal for the development of two blocks of luxury flats, with apartments and penthouses, and the developer had outline planning permission for 35 new homes. The costs were substantial - it would cost £3.5million to buy the site, and building costs would be a further £4.5 million.
“I needed to find the funding - and, of course, I needed it to be competitive. But the problem was that thanks to Covid, most lenders were simply not lending. The only lender I could find who was interested was only prepared to offer funding at 7% - and even then, they were reluctant to offer as much as I wanted.”
Property Development Finance is aimed at experienced property developers
Property Development Loans are a type of short-term lending that, at the lower end of the scale, allows a developer to finance renovation or refurbishment of a property. However, in theory at least, there is no upper limit to Development Finance, and much larger development loans may allow the funding of large-scale development projects, including the build of entire new estates.
All lending is arranged on an individual, project-by-project basis. Projects fall into three broad categories:
- Small-scale loans to cover light refurbishment
- Lending to cover renovation and major conversion projects
- Funding for ground-up development, starting with an empty plot of land
Lower-cost projects can be covered by a relatively straightforward loan, while for light and heavy refurbishments you might want a 'refurbishment bridge’ finance option, which funds 6–24 months of building costs and may include the option to convert into a mortgage once work is complete.
Ground-up development may be funded in a number of ways. The key point to remember is that his type of property funding is always arranged on an individual basis. For more extensive projects, more complex finance arrangements will be needed.
Funding is often sought by those who already own land and who will offer it as security to raise funds to cover both land purchase and building costs.
Lending for property development can include a roll-up of interest and associated costs into the loan, which would be paid off once the development is sold.
How much can you borrow?
Lenders will often provide up to 60% of the Gross Development Value, or GDV, of a development project and may expect at least 40% equity of the GDV to be funded by the client with the acquisition of the site.
Funding will then be provided on a phased basis to cover the costs of development or re-development. Very large multi-unit block developments, however, may require pre-sale of each phase before funding can progress to the next stage of the project.
But if an experienced developer wants to buy a plot of land and build on it, a lender might finance 50% of the plot purchase and 70% of the build.
Finding a solution
We looked at the deal that the client was wanting, and saw that his project was, in fact, very viable.
We knew that many property development funders had shut up shop until the post-Covid future became much more clear - but we did know of one that might be interested and still prepared to lend.
We approached them with full details of the project and were able to get a positive decision.
The deal we arranged
We were able to negotiate funding at 6% - substantially lower than the developer’s only other quote - and to cover his entire lending needs. We were able to do this by providing a carefully structured deal.
This would provide a £2million loan towards the cost of buying the site - in effect 60% loan to value. With the land as security, it would then be possible to provide a 100% loan to cover the cost of the building work, with staged payments.
The total funding advanced would be £6.5 million, with a 15-month term, and with all interest to be rolled up and repaid at the end.
“The funding was exactly what I needed and we started work immediately. It looks as though we were right about the desirability of the project. The first 10 units have already been sold off-plan, effectively covering the costs of the finance we took out - and letting us look forward to some very worthwhile projects with another 25 to sell.”
Why we were able to help
At Rangewell, we work with all the lenders in the UK market, and not only do we know which are most suitable for a particular type of deal or a particular sector, we know those that can offer the most cost-effective solution for an individual need.
We were able to secure the funding required by our client at just 6%
£8,000,000 at 6% over 15 months
Getting the right deal for your business
Finding the right lender for your development project can be crucial to its success and profitability. That’s why it is important to speak to the Rangewell team without delay. Our team is made up of industry specialists. Whatever your line of work, we have someone who understands the challenges you face - and the ways to answer them.
Our team includes experts in Property Finance, and our service is personal. |It lets you talk to a property funding expert who understands your challenges sector to find a solution that is planned around your business needs.
We will discuss your plans then call on our network of lenders, which includes virtually every name in the UK market, to get the funds you need quickly.
And when the solution requires going the extra mile and out of the box thinking - you can rely on us for that too.
Just call us and one of our experts will be able to discuss your options and work out the most cost-effective ways to provide the funding you want - whatever the challenge your business plans present. And, in most cases, our services are absolutely free.
Property development costs less with help from Rangewell
- Individual arrangements tailored to your circumstances
- Adverse Credit – no problem
- Repayments geared to your revenue stream - including interest roll-up
- Understanding the funding challenges for your sector
- Personal service
Talk to Rangewell – the business finance experts