Seeing the potential in the site and appreciating that the location was one with future development potential, he went on to successfully obtain detailed planning consent for a 73-apartment scheme. This resulted in the value of the site more than doubling to over £1m.
The scheme was then pre-sold to overseas investors via a well-established agent, giving a 10% discount off the proposed market value. More than half the units were pre-sold with deposits of up to 25% being taken. These deposits are to be used as cash flow for the build, which clearly reduces the facility amount required and therefore interest costs for the project.
The build contract sum was finalised at just over £7m with a longstanding local contractor who had an excellent track record.
Positive Commercial Finance put in place a senior debt development finance facility of £6m net, which, in addition to the sales deposits, covered the total sum required to complete the project, with a GDV of £10.49m. Fees and interest were also added to the facility.
The developers’ equity input took the form of the value in the land, and his actual cash contribution represented less than 4% of the total project costs.
The lender did not require personal guarantees given that they were comfortable with the security and the developers pedigree; so much so that they have already expressed an interest to do multiple schemes concurrently. The developer has options on two other sites, on which progress is now being made.
This was a great example of a lender taking a commercial, commonsense view – even when the developers ‘hurt’ money contribution represented a very slim percentage of project costs.