The market for Development Finance is broken, most of the Banks who were lending have pulled out of the sector and lots of projects have been left marooned, as funds have retreated. Current Valuations and Estimates of Gross Development Value (GDV) have all dropped, making a mockery of long standing plans for development projects.
So are there any sources of finance left for developers? Well yes there are, but they are very hard to access and the quality of the project and the applicant would have to be able to withstand intense scrutiny. Any project would have to generate very good margins and still to be able to work at the standard level of construction costs, that the Lender would use in their analysis of any project.
On top of this Lenders would want all applicants to be established developers with appropriate experience and a lot of their own money. So applicants who have property portfolios but who have never done a conversion or new build, will find it very hard to get support. Certainly anyone looking for the close to 100% of all costs including site, will go unsupported unless they are prepared to look at a joint venture route. Projects to develop flats are out of favour, due to difficulties in valuing new build flats in a saturated market, while houses are better regarded but funders want smaller developments and no single unit trophy projects.
Green shoots of recovery. Really
When is criteria not the critiera?
Has the house come down on the development market?
The Lenders that are left in the market are generally looking at going to 50% - 60% of the GDV, this will have to cover 12 months interest, 100% of the Hard’ costs and the balance could be used towards the site. Clients would generally have to cover their own legal and professional fees, architects and marketing costs and to have a good grasp of all the other costs involved. The projects that are the most practical to finance are ones where the site has little or no debt on it, which critically can give projects room to breathe in a difficult market.
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