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Struggling To Raise Development Finance?

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UK commercial finance brokers, Commercial Financial brokers Nottingham

THE ART AND SCIENCE OF DEVELOPMENT FINANCE

The world's financial systems are in a mess. Chaos, fear and uncertainty rule the day. Banks are in free fall, savers are panicked, businesses cant get the loans and funds they need to survive, let alone grow. How then is the beleaguered developer going to fair in this new world order? How is any property developer, be it commercial or residential, going to get the support of his or her bank in times like these?

First thing to ask is; are there any development funds actually out there? The simple answer is, well, yes, but only under exceptional circumstances. Finding and getting money for property development has become a bizarre mix of art and science and those who know the mercurial minds of lenders and who understand their new fears will find a way through to an offer of lending support.

Second thing to ask is; what type of borrower do lenders want to talk to right now? Short answer to this is "people or companies who are already customers and/or known to them from previous dealings". This is the era of the well-understood friend. People who have borrowed from a lender before, and have paid back on time, kept their lender in the loop when things were changing and dug in with innovative marketing ideas to move stock thats who the banks want to talk to right now.

The two types of lender who banks run away from right now are; (1) customers seeking refinance for their current projects via changing banks and (2) customers who have new proposals, but want other banks to take a look and make an offer. If you drop into either category, youll find it almost impossible to find a sympathetic ear from any lender. These types of loans simply generate fear and uncertainty these days, rather than the greed response from a year or so ago whereby either proposition would have been viewed as an opportunity to increase market share.

There is a small exception to the category (2) above, of a customer with a new proposal seeking a new lender. If you're a developer with a great proposal, seeking to borrow no more than 65% loan to cost (rather than loan to value) and you've got a good story why your current bank will not back it e.g. they have no money left, then there is the thinnest of chances that some lender somewhere might give it a look-see, But if by some miracle that lender steps forward with an offer, youll probably not like it much. It will be belts and braces, with personal guarantees, collateral warranties, fixed price cost overruns, and 2.5% - 5% over 3-month LIBOR.

And lastly, we need to ask what property types do banks and other lenders seek to avoid like a dose of the Black Death? This is dead easy (excuse the pun) apartments; plain and simple. New build are poison, conversions are poison plus. This means that small high density planning permissions and their associated values are going to plummet to earth. It also means that developers will need to re-apply for planning with lower density housing schemes, producing lower GDV, again causing land values to fall markedly. Although as someone once famously said "theyre not making any more land" the new truth is that whatever is out there is suddenly worth a whole lot less than it was a few months ago.

Developers are only now coming to realise this, which has wide implications for any developer's ability to finance new sites. Hail the era of the professional broker as the developer's friend.