Development appraisals

Industry debates level of detail lenders expect from developers

Initial development appraisals are “critical” in getting the basic dynamics of a scheme across to a lender, according to one specialist finance broker.


Development Finance Today approached a number of industry professionals in the development finance sector to ask how important detailed site analysis from developers was when securing funding.

What level of detail do lenders expect to see from developers when looking for funding?

“It honestly depends on the experience of the developer, the size and debt quantum of the scheme and the deliverability of it,” said Jordan McBriar, director at Adapt Finance.

“If a traditional development [lender] is being utilised, the level of detail does have to be quite substantial.”

Mark Dyason, managing director at Thistle Finance, said that developers should not even think about approaching a lender for development finance until all their ducks were in a row.

“Development loans are by default higher risk for a lender and they expect to see a well-presented site analysis – with accompanying financials – by default.

“Too little detail or a lack of structure in how you present your application can immediately switch a lender off.”

Paul Turton, head of sales of development finance at United Trust Bank, said that when a developer or their representative submitted a proposal, it was important to the lender that it could see a full breakdown of anticipated costs, not just a single combined construction and fees figure.

“This is especially important if the build is likely to incur any ‘abnormal’ costs for things like difficult ground conditions, contamination works or access issues.

“The more information a developer can supply from the outset, the more confidence we’ll have that they are experienced, know what they’re taking on and have a sensible approach to costing out any additional challenges.

“We are absolutely happy to consider funding projects with difficult or unusual sites as long as the developer can demonstrate how overcoming any problem areas is included in their budget and timeline.”

Chris Whitney, head of specialist lending at Enness, added: “The initial appraisal is – in my view – critical in getting the basic dynamics of a scheme across to a lender.

“This enables us to establish their appetite for funding that particular project.

“Personally, I prefer a two-stage analysis, with the first providing a high-level view of the scheme and then moving on to a full-detailed appraisal and cash flow.

“Fundamentally, if financing 80 flats in Huddersfield isn’t of interest to a lender, it’s pointless trying to talk them through the associated cash flows.”

How to ensure a smooth process

John McNamara, chief executive at Focus Commercial, added: “When it comes to development funding, the majority of lenders will want comfort that the applicant has been through this process and experience of a development project before.

“They will also want to know what specific projects the applicant has already developed.

“Some developers have experience of refurbishments only and [for] new ground-up developments, a different skill set is needed.

“Development lenders would rather have the applicant’s experience rather than the applicant’s credit score, as experience is key to getting the process and scheme completed.”

Joe Flaherty, director at Beaufort Capital Management, said that all the information supplied by the developer and their professional team was very useful as it gave them good insight into the developer’s thinking and the level of due diligence, alignment of interest and risk appetite.

“No lender (or developer) wants to see adverse findings from an environmental or contamination report on a site, but it’s fairly common, particularly in urban or brownfield developments.

“What’s crucial to the success of the project is the early identification and careful management of the findings.

“This should be in the forefront of the minds of the developer, lender, contractor and professional team from the outset.”

Chris Oatway, owner and director at LDNfinance, said that unsupported information was not much use on a site analysis.

“The classic mistake is a developer overestimating the GDV in order to make the numbers work, but this can be a costly and time-consuming mistake as a surveyor will need to verify the figures.

“Any developer who has completed their research and demonstrated their knowledge about the project will stand well in front of a credit committee and provide confidence that the developer they are backing has the necessary knowledge and experience to make the project a success.”

Tom Lee, head of structured finance at Pure Commercial Finance, added: “The importance of continually checking and reviewing information throughout the submission journey and into the development itself will mean that problems are raised early [along with] ways to overcome and gain comfort.

“With the work that is completed by broker and lender throughout the application process, with surveyors and solicitors involved, elements can be raised [and] accounted for in the offer.

“[This could] be a larger contingency, longer term [or a] request to choose a new contractor, so there is always head room to finish the scheme.”

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