Development Finance
Senior Debt
Senior Debt is the foundation on which all development finance capital stacks are constructed. Ensuring the best senior debt solution is therefore essential to the success of any development project. We work with a full range of providers from high street banks and challenger banks through to niche development lenders and debt funds to ensure the best fit with both the client and the project requirements.
Stretched Senior
Stretched Senior is senior debt with an increased loan to cost and/or loan to value. Stretch senior has the advantage of increasing the available funding, without the need for mezzanine finance. This can have the advantage of reducing the overall blended cost of the debt package and also producing a smoother more cost-effective solution due to the removal of any additional charges or legal fees associated with a second lender.
Mezzanine Debt
Mezzanine Debt or 'Mezz' provides a facility that reduces the gap between the senior debt and the equity required to be injected by the borrower. Mezzanine debt is a useful tool to increase loan to cost and loan to value, where a borrower does not have the available capital to meet the equity requirements of the senior lender. Typically, mezzanine debt will take a second charge security position behind the senior lender.
Equity
Equity is the financial input by the borrower into the project. Usually, this is in the form of cash but can sometimes be in the form of additional security. In most cases, lenders will require a set minimum level of equity for a project. This level can be reduced by introducing Mezzanine Debt, as already mentioned. It can also sometimes be reduced by the consideration of 'soft equity' - soft equity takes the form of value created in the project usually via the gain of planning permission or by marriage value of more than one title. In some cases, a small amount of lenders will also provide some or all of the equity for a project.
Join Venture
A small amount of lenders in the market offer what is known as a JV Lending Structure. These structures vary in their specifics but essentially the borrower provides the project, in most cases, having gained the planning permission to add soft equity. The lender then provides the full costs of development and in some cases the land acquisition. The lender charges an interest rate on the funds and then there is a profit share arrangement on the project profit. While these structures have a high overall cost, they do provide an option for developers who do not have access to the required equity.
Acquisition / Bridging Finance
Bridging Finance is covered later in this document but it is often a key part of development finance. Bridging can be an effective tool when acquiring land for development when either time is of the essence or where the land requires an alteration of the planning permission before development funding can be sought. On some occasions bridging can be used to acquire land without planning or with planning pending.
