Property Development

Overview

The market for property development finance is a sophisticated one with many products on offer. The costs of the different finance packages vary according to the gearing – the higher the gearing, the higher the cost of funding.

The list below gives an idea of the rates and terms for the different types of products available. Be aware that this is only an indication, the actual terms you will get for a deal depend on many factors.

Loan of 70-75% of overall costs in a “2+1” deal
from a large bank
This is the cheapest development funding available. “2+1” means you will pay 2% over bank base rate in interest plus a 1% arrangement fee. Some lenders also require an exit fee. Some lenders require “monitoring fees”. To qualify for this funding, you need to be able to put in at least 25% over the overall cost of land/building acquisition and construction costs, the bank will lend the rest. Many banks are repositioning their cost structure for this type of funding and we are able to source your development proposal with the most competitive lenders.

65-70% of land/building acquisition + 100% construction costs
With this type of deal, you are only required to put in 30-35% of the cost of acquisition of the land or building for your development – the lender will fund the rest. There will be monthly fees of 1-1.5%. Some lenders may also charge an exit fee.

Up to 100% of overall costs
Higher gearings of up to 100% of overall costs are available. Different lenders calculate fees in different ways. It can be calculated as a percentage of sale values. It is sometimes covered by charging a higher rate on the amount borrowed over 75% of costs – the rate charged on this portion can be 25-30%. It is sometimes charged by way of a monthly fee of between 1.5 – 2% per month.

Joint Ventures

If you lack funds but are an experienced developer with a good project, we can arrange for a joint venture partner to provide the funding. In this case, the partner will provide the funds and you will do the project. Following the sales, you will split the profits according to your agreement. You will probably have to give away between 25% and 50% of the profits depending on your agreement and the profitability of the project.

Mezzanine Finance

This kind of funding fills the gap between bank funding and the amount required for your development. At a typical rate of 2.5% per month, this is high cost funding but it does enable you to fix the cost of the funding and not give away a share of your profits as you would in a joint venture or where an exit fee is tied to sale values. This kind of finance is useful in the early days of a development company when cash is short or when you have several projects in the pipeline and need to spread your available cash widely.

Most of the above funding options are available for residential projects and pre-let or pre-sold commercial developments. Some lenders will lend on residential projects only.

We can help you determine the best approach for your project.

The products and services promoted here are not part of the Openwork offering and are offered in our own right. Openwork Limited accept no responsibility for this aspect of our business. These products are not regulated by the Financial Services Authority.

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