Securing development finance on complex cases in the current environment



Boris Johnson has urged the country to “build, build, build” as a way of encouraging economic recovery following the national lockdown, and there are plenty of opportunities for developers, particularly given the more flexible approach to planning applications.

However, there are also more challenges, with many lenders taking a more forensic approach to underwriting cases. It is still possible to secure finance for even complex deals, but there is much greater emphasis on working with the right lender.

By way of example of the scenarios that can be possible in the current environment, here are two case studies of loans we approved at Alternative Bridging Corporation this July.

£1.25m loan at 100% of development cost

A well respected firm of ground workers own a significant land holding on which they have obtained planning permission for a phased residential development.

The site falls into three parts: the first is already under construction, the second is a plot for 15 houses, and the third is a significant site for future development.

We have previously provided a bridging loan for the third phase and have now provided finance for the development of the first stage of the 15 plots, providing 100% of the development cost with a loan of £1.25m. We were able to do this as the two loans have been cross collateralised to generate the developer’s equity in addition to the senior debt.

Advance payment for timber frame

The developer, an experienced contractor, is constructing a single, executive home using a timber frame system, and needed to make an advance payment to the timber supplier, while also funding the cost of the access road and foundations.

We were able to refinance an expired loan secured against a development site and provide 100% of the construction cost, including advance funding for the frame to be supplied and fitted. In this case, we were able to take addition security in lieu of equity investment.
 
These are two examples of cases that were not straightforward but possible because we were able to work together with the developer to identify a pragmatic solution to the problem. It was also important that the case was packaged properly when it was originally presented to us, as this made it clear that the fundamentals of the proposition were all sound, despite some of the hurdles.

It is still possible to secure development finance in complex situations in the current environment, where there is a strong case to do so. It’s therefore important to make sure that an application for finance includes well-communicated reasoning for the funding as well as realistic exit scenarios.

With these in place, there is no reason why this shouldn’t be a period of opportunity for developers.


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