27th Feb 2020

Development finance: What lenders want to know

An effective deal overview, is important to help generate a positive and swift response from lenders. It is an opportunity to provide lenders with the most important information as well as present the lending opportunity in a positive light.

Lenders often get a huge number of loan requests and by following the guidelines below you will be able reduce response times from lenders, requests for additional information and minimise terms variation between indicative offers to completion.

Many brokers and borrower have their own approach to writing a deal overview but at a minimum a development overview should include the following sections;

  • Your facility request
  • Borrower information
  • Development: About the project
  • Development: Sources & uses table
  • Exit or refinance strategy
  • Attachments

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Your facility request

Here you can concisely outline the debt quantum of the facility you are looking for and provide a summary of the project it will be used to fund, it will help set the scene for the lender to continue reading.

Please add requirement for facility type and development type (e.g. ground up / capex line / heavy refurb).

Example Development:

Opportunity to support JLF Developments with development funding for a build to sell project in Reading with GDV of £15m. The borrower is looking for a funding amount of £9.0m,senior debt facility for a 18 month term to cover 12 months to PC and 6 months sales tail representing a LTC of 75% and a LTGDV of 60%.

Borrower information

Include a section about the borrower

This is an opportunity to communicate to lenders that the borrower is a suitable counterparty for them to lend to.

What to include:

  • Your experience in the sector,
  • Capabilities to deliver the business plan
  • Ability to support the deal financially in times of stress including cost overrun guarantee or PG's
  • Borrowing structure
  • Details on equity partners

Previous similar projects or investments

Lenders will look to see track record of similar projects, we find the more projects of similar size and scale will help when explaining the story and credibility of the project to lenders.

What to include:

For Development deals please provide a full list of completed projects, highlighting the ones you feel are more similar, with location, number of units and sq ft developed. In addition to this brief financials outlining site cost, build cost and exit values on sale need to be included to show a track record of profitable projects completed.

Development: About the project

Financial Summary

What to include:

  • Purchase price including fees
  • Total build cost
  • Total estimated finance costs and additional fees
  • Expected GDV
  • Profit on cost %

Please note a detailed appraisal breaking down the costs and GDV is a minimum request from all lenders to be provided in the attachments section

Construction cost and contractor Information

What to include:

  • Who will build the project?

    • Experience
    • Previous project collaboration
  • Fixed price contract / JCT?

  • Development cost psf assumption and the level of congtingency

Location and situation

What to include:

  • An overview of location
  • Road links, stations in context to local market
  • Proximity to town centre,
  • Facilities, amenities and schooling

Site status

What to include:

Description of the current status of the site should include any demolition requirements, requirements including S106, CIL or affordable housing.

Planning status of the site and where available a link to the planning consent.

Unit description

What to include:

Property unit description will be required including size, beds, number of floors, as well as any additional details on fit-out and quality control measures of the build.

Timing

What to include:

Provide details on the overall timing of project from acquisition, first drawdown, construction & sales period.

Unit breakdown

Please outline the size, number of units and sales forecast for these

(Below is a table which a borrower can build up row by row and in general include the necessary columns)

Development: Sources & uses table

Lenders will look to ensure that a developer maintains 'skin-in-the-game' and the best way to show this is a summary sources and uses table. Below is a fairly easy to produce table that meets the standard required by lenders to respond on.

Sources and Uses

Sources and uses table

Exit or refinance strategy

This is where we will enable the lenders to understand how they will be repaid and help them better assess the risks involved in a project.

What to include Development:

  • Do you plan to sell the units or hold on completion?
  • If it is a sale will the sale be a block sale (e.g. for PRS) or partial sale through individual units?
  • What is the sales strategy and who is the target market?
  • Will you be using local and/or national agents?
  • What is the agent’s experience and capabilities?
  • If you plan to refinance, what will the NOI look like and anticipated debt yield?

Attachments

We have seen that lenders are able to provide a quick response and are more likely to respond with indicative offers when just a handful of required attachments are added to a deal. In general the feedback from lenders is that a minimum of a development appraisal detailing the costs from site purchase, planning costs through to build and sales cost are required and some sales value comparable (where applicable).

This will help you show the lender the feasibility of the project and the key assumptions used.

Files for Development:

  • Sales brochure for site acquisition
  • Corporate info on you as a borrower
  • Development cash-flow
  • Appraisal
  • Photographs

Now you know what to include in a development overview read our guide on how to access alternative lenders here.