Well, it’s fair to say the development finance sector is buzzing with activity at the moment, and now we’ve got the election behind us we can only expect increased appetite from both developers and lenders alike.

With that increased activity comes vigorous competition from developers for well-located sites in areas where demand can be evidenced. It’s not an uncommon event then that we see the same project being presented by two different developers, both trying to get “in principle” funding in place to enable them to bid with confidence.

Speed and reliability of any indicative offer from a lender can be key to enable a developer to agree to purchase a site or property. Competition for strong sites can be fierce, and so the ability of a lender to be able to assess, visit & commit in a short time-frame can be the difference between the developer securing the site & project, or not.

Increased competition brings further pressure on lenders to accommodate developers’ requirements. A few years ago, the active development lenders were more likely to cherry-pick the best propositions, but now that luxury might have long-since departed given the funding options available.

In amongst the various offerings from development finance lenders, we are seeing an increased willingness in lenders to vary the fees structure, with no exit fees or early redemption penalties in particular proving to be a more regular occurrence. Whilst set up fees and arrangement fees are usually expected & understood to be part of a facility, some developers are more resistant to paying exit fees, and if you are that way inclined, exit fees based on the Gross Development Value as opposed to the facility amount, can be even more difficult to swallow.

For some, it’s the principle of the exit fee as opposed to the impact on the overall cost of the facility. Indeed, some developers don’t seem to mind paying a higher interest rate in lieu of an exit fee. If a developer is confident in getting the build done quickly and the development loan redeemed swiftly, then a higher interest rate with no exit fee might prove more attractive than a lower interest rate with an exit fee.

This level of lender flexibility makes a developers’ decision easier when assessing the options and deciding who to “partner” up with. Product diversity & innovation from the specialist lenders is becoming a key thing to consider in making that choice. “Service over cost” is another factor which can be pivotal, and that’s always going to be something which can reaffirm a decision.
 
John Waddicker, Director of Positive Commercial Finance