What is 100% Development Finance?
100% development finance, also known as joint venture (JV) development finance is a method of developing property without using your own money. As the lender provides all of the money needed to complete the project, profits are usually shared on the sale of the site.
Generally speaking, the profits usually end up split on a 50/50 basis. Some lenders will charge interest on funds drawn own and split profit in your favour slightly. Others will charge no interest and simply split 50/50.
Where interest is charged on the debt, it is usually allowed to roll up, meaning there is no need to service the debt. JV development finance is designed to cover 100% of all purchase and build costs of the project. This means that site acquisition and build costs are both covered fully.
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Criteria
100% development finance is usually only available to experienced property developers. Applications for first-time developers can be considered but would have to be very strong to be accepted as an exception.
Outline planning permission is required for an application to be considered by a joint-venture development finance lender. For any JV application, the lender will be unwilling to take any planning risk.
The lender will be keen to see a strong return on their investment. As such, they will not usually consider a joint venture for a site with a GDV below £1m. As a percentage, the lender would want to see a margin of at least 30% on the scheme.
Any lender willing to offer 100% development finance will only lend when the debt is supported by a personal guarantee (PG). Different lenders will take a different view on the level of PG, but most will accept a capped PG.
How it Works
When taking out JV development finance, the issue of ownership is usually one that confuses people. Usually, the property will be placed in a special purpose vehicle (SPV).
This is a Ltd. company set up purely to own the asset and hold the liability. The SPV will usually be owned by the funder, with a guarantee in your favour.
The Benefits of Joint Venture Development Finance
Using a JV development finance lender instead of using your own funds allows you to develop quickly without having to tie up your own funds. By taking this route, although profits are shared, more projects can be taken on, meaning your potential profit can actually grow.
By taking on an SPV with the lender, you would also save significantly on legal fees, with only one set of legal fees being payable.
Where projects are located nearby, cost savings can be made by sharing resources between your sites.
How Are Joint Venture Development Finance Applications Assessed?
Joint venture property development lenders are taking all of the financial risk of the application and will want to see a reward for doing so. As such, applications are subject to strict underwriting on the following basis:
- Experience: This is crucial, as lenders want to ensure you have a track record of delivering the sort of scheme you are looking to build out.
- Profit: Funders will assess the likely profit in two ways:
- Firstly, they will judge the uplift in total cost of at least 30% for the scheme to be viable. It goes without saying, but the higher the margin, the more attractive the proposal.
- Secondly, potential JV partners will generally only get involved in sites with a GDV over £1m. Sites above £2,000,000 tend to be the most attractive due to the increased potential profit.
- Exit: Another key point is exiting the loan. Demand must be strong for the finished units. Your scheme must be able to demonstrate saleability. Location of the site tends to go hand in hand with this point.
Profit Sharing
100% development finance is offered on a profit share basis, with an agreed split on completion shared. Traditionally, profits are usually shared on a 50/50 basis, although we are often able to secure 60/40 in your favour for strong applications.
Call us Today or Enquire Online
Our team has a huge amount of joint venture development finance experience and relationships with all the top lenders. By working with us, you can access the whole market through one simple, quick enquiry.
We manage the whole process for you, meaning you can focus solely on the upcoming build while we negotiate with multiple funders on your behalf to secure the best terms.
Enquire online now or call us on 01922 620008 to get a free personalised 100% development finance quote.
About The Author
This content was produced by our Commercial Lending Director, Gary Hemming. Gary has over 15 years’ experience in financial services and specialises in bridging loans, commercial mortgages, development finance and business loans. He is widely respected in his field and regularly provides expert commentary for specialist trade publications, specialist business press as well as local and national press.
Gary Hemming CeMAP CeFA CeRGI CSP -
Commercial Lending Director
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