Any Credit HistoryMarket Leading RatesJoint VentureMezzanine FinanceQuick DecisionExpert AdviceDevelopment ExitNo Monthly PaymentsDevelopment finance is a flexible and cost-effective facility for funding large-scale property development and construction projects. But what happens when a first-charge development finance loan falls short of covering the full costs of the development?
This is a common issue that developers face, but one that can be addressed with mezzanine development finance. Whether you are facing an unexpected shortfall or simply looking to minimise your own capital investment, mezzanine finance provides the ideal solution.
Mezzanine finance, aka mezzanine funding, effectively enables developers to 'top up' their first-charge development finance facility.
By combining senior debt with mezzanine finance, it is often possible to cover up to 100% of the project's total costs. For example, a development finance loan of 80% LTV could be taken out to get the project off the ground, followed by a 20% LTV mezzanine finance facility to cover the remaining capital requirements.
Along with planned applications like these, mezzanine finance can also be a useful facility when faced with an unexpected financial shortfall at a critical juncture.
Our experienced development finance brokers can assist in securing stretched mezzanine, or super mezzanine development funding.
All mezzanine finance solutions are bespoke and tailored in accordance with the unique requirements and budgets of the applicant. Lenders consider each application by way of its individual merit, highlighting the importance of presenting the strongest possible case.
Our goal is to pair property developers from all backgrounds with competitive finance products from approved lenders without fuss. The relationships we have built with the UK's best mezzanine finance specialists enable us to negotiate unbeatable deals for every client we work with.
When looking for development finance it is important to identify the type of project being planned by the developer in order to access the correct funding product. Types of works can include:
New builds nearly always require development finance loans. Once the project is completed, developers may use development exit finance as a more cost-effective solution, but this cannot be done before the project is watertight.
For this type of project, refurbishment finance is typically the correct type of loan to use, however if the project is larger than the norm, development finance may be a better alternative.
A refurbishment loan, which is a type of bridging finance, is generally used for property renovations. It can be used for various improvements including, installing a new roof, general structural changes, building an extension, refurbishment, and decoration.
Property investors or developers may want to buy property which needs development or completion work still doing and are unable to get funding from their bank. This is a typical scenario when a bridging loan is a suitable alternative.
Development finance loans are typically paid in one of the following three ways:
The total loan amount is paid in full, using the profits, when the project is complete, and the properties have been sold.
This usually happens when the developer wants to keep the development for either personal use or for rental purposes.
This type of short term loan is often used to fund a new development project before the current project is sold. It can also be used to give developers a bit of breathing space to complete minor works and find buyers.
No, although mezzanine finance can be useful when faced with an unexpected financial shortfall. Mezzanine finance is typically taken out by a developer at an early stage, as a means by which to supplement (or top up) their primary first-charge debt. With mezzanine finance, the investor can minimise their investment of their own capital in the project.
However, mezzanine finance can also be taken out at a later stage, if and when a project's costs are likely to exceed initial projections. Mezzanine finance can therefore be used similarly to a bridging loan, though is most often taken out at an early stage of the project.
Interest rates, commissions and borrowing costs in general vary significantly from one provider to the next. However, full fees associated with mezzanine finance are usually payable in the form of a lump-sum exit fee, at the time the balance of the loan is repaid.
Some lenders charge a flat monthly rate of interest, while others charge commissions based on profits earned by the developer. Elsewhere, a mezzanine finance product may be charged on the basis of a percentage of the total value of the development.
It depends entirely on the nature of the project and the requirements of the developer at the time. However, bringing equity investors on board can lead to complications, conflicts and disruptions, given how they will almost always want some say in how the project is run.
For more information on the potential pros and cons of equity partners or to discuss any aspect of mezzanine development finance in more detail, contact a member of the team at UK Property Finance today.
Having access to funds for property development purposes allows borrowers to take on bigger projects than they would usually be in a position to finance.
The purpose of the facility is to provide the developer with additional time to sell their completed development, while keeping costs as low as possible.
Qualifying for finance as a first-time developer can be challenging. This is why it is advised to seek support of an independent broker at the earliest stage.
Our products are suitable for large and small hotel development projects of all types, from repurposing existing properties to building new hotels from scratch.
Joint venture development finance works similarly to conventional development finance. However, no deposit needs to be paid and rates are typically higher.
Mezzanine finance, aka mezzanine funding, effectively enables property developers to 'top up' their first-charge development finance facility to access extra funding.
No Personal Guarantee (PG) development loans are effectively a form of unsecured funding for major property development and construction projects.
Whether your goal is to maximise the value of a property you plan to sell or to boost rental income long-term, a refurbishment finance loan could be just the thing.
Senior debt development finance is the primary source of funds in the form of a first-charge loan. It is considered a lower-risk facility on the part of the lender.
Stretched development finance can be the perfect choice for investors and developers looking to stretch their own equity as far as possible with borrowing for up to 90%.
'Light refurbishment' is used for cosmetic upgrades and minor improvements. 'Heavy refurbishment' is used to raise funds for structural improvements.
Commercial property development finance can be used to fund, build or develop a property or be used to expand your current business property or space.
Permitted development funding emerges as a financial solution tailored to specific projects where prior planning permission is not needed.
No matter the scale or scope of your ground-up development, lets work together to breathe life into your vision.
Working with developers nationwide, we provide access to flexible funding enabling the inception and realisation of high-value student accommodation projects.
Build to Rent is a property development strategy crafted specifically to cater to the rental market, diverging from the traditional focus on long-term home ownership.
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