Finance for Architect-Developers

Architects play an important role in the development process – not just at the initial design stage but also during construction as they follow workflows such as the RIBA Plan of Works. Despite this, their fees are proportionally low compared to the full value of a completed project. 

Entrepreneurial architects are now exploring roles as architect-developers, where they become responsible not only for the design – but also for every other stage of the building. Though there are increased risks and responsibilities, the potential financial benefits are compelling.

If you’re an architect and you want to develop a project, you already have most of the skills and knowledge required. The main challenge you likely face is in raising the appropriate finance to fund the completed build. Many ambitious architects are put off by this process and either opt to self-fund or abandon the idea altogether. 

Rangewell can help you make your goals a reality. We act as your expert partner in all things finance – helping you understand the ins and outs of property development finance, identify the right lenders and negotiate finance on your behalf to secure the capital you need to make your project a reality. 

What is an architect-developer?

Architects are traditionally undercompensated when you look at the overall value of the projects they are involved in. As new regulations such as the Building Safety Act place more responsibility on architects as Principal Designers to remain involved throughout a building’s lifecycle, it’s easy to see why growth-minded architects want to extract more value from their projects. 

Stepping into the role of developer means having to deal with additional problems – but many of them are things architects are already trained to deal with. Though you may specialise in the design stage, your work experience and training means you’ll be more familiar than most with planning permission, procurement models, contractor liaison, construction site planning and compliance. 

In fact, because architects are so fundamentally linked to the vital early stages of development projects, it seems clear that architect-developers will become more common provided they can find the right financial support. 

What are the benefits of being an architect-developer?

• Eye for opportunity: architects know potential when they see it and can quickly assess a site’s potential value without having to bring in external consultants. This gives you an upper hand when it comes to making opportunistic purchases that other developers may hesitate over. 
• A familiar process: with involvement in the planning, design and even commissioning phases of a construction project, architects have deep insight into the practicalities behind a finished building. 
• Win planning consent: architects have a unique opportunity to identify land without planning consent, then design an exciting project that fulfills local requirements and ‘ticks’ other boxes such as sustainability goals – which they can then submit to local authorities to win consent. 

What is development finance? 

Development finance is a unique type of loan that is structured around the construction process. With maximum term lengths generally extending to 24 months as a maximum, it is a short-term option when compared to other forms of property finance such as mortgages. 

Development finance is used to fund the costs associated with the construction process, including materials and labour. Having an estimate for the total cost of the development is therefore vital in determining the size of loan you apply for, known as the LTC (loan to cost). 

Unlike a finished building, the lender can’t secure their investment against a tangible asset. They instead have to base the offer on the estimated finished value of the project, which is known as the GDV (gross development value). This is why you’ll need to pay a much higher deposit than you would on a traditional mortgage – though as an architect you may be able to demonstrate factors that improve a lender’s trust and subsequently improve the offer you receive (more on that in our next section). 

When you approach lenders for development finance, they’ll assess your credit history, development experience, business plan and construction plan. They’ll weigh up the LTC and GDV before determining the loan offer – including which interest rate you’ll be given and what securities you may have to offer. 

How architect-developers can get a better finance offer

No matter what type of finance a lender offers, there are always similar concepts at play: the ratio of perceived risk against the value of the project or asset. To put that simply – a lender looks to assess how likely you are to repay the loan and whether the property/asset offers adequate security in the event of a default. 

As an architect, you have a unique opportunity to help demonstrate the value of a construction project. With skills, experience and insight into the development cycle you can improve project estimates, construction timescales and building plans to improve the perceived value of the finished project. 

Lenders typically look into your experience, background, credit history and key details around the development such as:

• Details of planning permission and documentation 
• Drawings and project plans 
• Your experience as a developer, if any
• Details about the contractor and development timeline
• Your assets and liabilities
• Estimated gross development value

Architects who take the first steps into development have an advantage compared to other new developers – they have genuine expertise in other aspects of the construction process which has value to lenders because it shows them you can competently manage the most important parts of the construction cycle. 

Is development finance the only option? 

Development finance isn’t the only option for architect-developers. Other loan types may be more appropriate depending on your goals. 

Bridging finance, for example, offers rapid cash loans that can be used to secure time-sensitive purchases such as buying property at auction, which you can then refinance into a development loan to fund a conversion. You may also need to refinance your development loan towards the end of the project in order to spread the cost further. 

Get a better development loan with Rangewell

Realistically, the only thing limiting most architects from entering the world of property development is finance. Architects occupy a strong position throughout the development process and have a vested interest in completing each project to the highest standard. When combined with a potentially lucrative financial reward by acting as the developer, it’s easy to see why architect-developers are growing in number. 

If you’re interested in stepping into the development role and maximising profitability from your projects, talk to Rangewell. We act as a third party between you and the lender, working on your behalf to improve your application and secure the best possible rates and terms to support your project.