Understandably, some of the more cautious developers in the market prefer to develop a site once they know it has been pre-sold. Indeed, a certain level of pre-sales are required for a number of development finance lenders to consider a scheme. This is even more relevant for schemes with a commercial element – a pre-let will often be a condition of the loan. Speculative developments can still be funded, but when the number of units involved reaches double figures, it is more likely that pre-sales are a pre-requisite, particularly on apartment schemes.
A developer client had agreed to purchase a site in Manchester city Centre. The site had outline planning for the construction of a tower block to contain 130 apartments, with a retail element on the ground floor. Naturally given the quantum, the proposed lender wanted the comfort that a significant number of these units were (or would be) reserved following planning consent being granted, and before construction started.
We arranged presales on all 130 units with investors, via a well-established property investor network. The investors paid a 10 per cent deposit on each apartment which could then be used by the developer to help fund the development. The investors were of course given a significant discount but the project still offered a good level of return, and the developer (and the lender) had peace of mind with the building being “sold”.
The loan facility was on a “stretched” senior basis at 90 per cent of costs, with total costs around £12,000,000, priced at 15 per cent annualized. The developers’ financial contribution was further reduced with the use of the deposit monies.
In addition to “just” providing the development finance facility, a good specialist broker can also assist with other aspects of a scheme to really make the project work for the lender and developer. Often we see proposals stutter where the developer struggles to find a contractor who can meet the requirements of the lender, or deliver the project in the required timeframe, and at an agreeable price (good contractors are always busy!). There are even companies out there who will approach a number of relevant contractors for all aspects of the development, including asbestos removal, strip-out, main works, M&E design and so on.
It won’t come as a surprise that a good broker will have contacts with contractors, warranty providers, insurance brokers and all other professionals involved in the chain, so don’t be afraid to ask! John Waddicker Director Positive Commercial Finance
Understandably, some of the more cautious developers in the market prefer to develop a site once they know it has been pre-sold .
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