Property finance

Positive Commercial Finance: The impossible deal?

We were approached by an experienced developer who owned a parcel of land in the North East that had outline planning consent for a sizeable residential development of detached houses.

The land was unencumbered and provided a significant equity contribution from the developer, which was a good starting point. However, there were several other factors that presented quite a challenge. 

The developer lived overseas. He planned to live in the UK during the course of the build to project manage, but would then return to his main residence abroad. His last few developments were also overseas, so there were no schemes in the UK that the lender could actually see or feel in order to gauge his experience or the quality of the past projects he had delivered. 

As he was putting the land into the deal, the developer did not expect to have to give any personal guarantees, and as he was living overseas, he would not be able to refinance any of the units, so therefore he also required an extended term to give him sufficient time to sell all the units at market value. 

With all these unusual factors and requirements, it was clear from the outset that the panel of lenders who might consider such circumstances would be very slim. We identified a lender who was willing and able to conduct their own due diligence around the project, the borrower and his development experience, but ultimately relied purely on the land asset as their security. 

With the facility in place, the developer then obtained detailed planning consent allowing the lender to advance the first tranche of funds to kick-start phase one of the development. 

The £2.5m facility included:

65% of total project costs, plus interest roll-up
50% loan to GDV
24-month term 
No personal guarantees.

This was a great example of a specialist development finance lender taking a commercial decision where the equity in the land provided sufficient coverage and therefore minimal risk. 

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