- 12th March 2019
- Posted by: DMM
- Category: Development Finance
For first time property developer there are a wide range of industry jargon to start getting one’s head around. Putting together your fist development project is enough of a headache without having to get a dictionary out when discussing development funding.
So for first time property developers whom don’t know their LTGDV from LTC or not sure whether a ‘rolled up’ loan is a good thing, the following breakdown may help!
Summary of the development industry jargon terms for first time property developers – Funding types:
- Senior lender: This will usually be the bank providing the bulk of your development funding. A senior lender may lend up to around 60% – 65% of GDV.
- Mezzanine facility lender: This will be a lender whom help top up your cash to ensure you can meet the equity requirements of your senior lender. This can be up to 70% – 75% of GDV. A property development mezzanine lender will typically take a second charge on your site for their security.
- Stretch funding: This is where a specialist property development stretch funder will combine both senior debt and mezzanine debt into one product with a blended interest rate. This can be a good option for a first time property developer as they may be able to reach 90% of costs funded (sometimes 100%) and only one bank to seal with.
- Joint Venture Funding: When a developer needs 100% funding then a joint venture funding partner may do so but in return for a substantial proportion of the profit. This might range from 35% to 60% of the development profit but could allow a first time property developer to get a project that may otherwise be out of reach.
Jargon terms for first time property developers – Loan Terms Jargon:
- Loan to Value (LTV): All banks will consider the proportion of their loan to the value (LTV) of your site both before development and against the final developed scheme, or Loan to Gross Development Value (LTGDV).
- Loan to cost (LTC): This the calculation of the total bank debt against the costs of developing the project. These costs may include site purchase and associated fees, professional fees and construction costs.
- Net Loan: This the capital amount being lent and excludes interest or fees.
- Gross Loan: The gross loan, or otherwise known as the gross facility, will the amount including all interest and fees.
- Rolled up interest: A property development loan will have a date by which the capital must be repaid and where the loan allows for ‘rolled up interest’ will mean it is also at this point when the interest must be paid. Alternatively, a ‘serviced property development loan’ will be where an agreement is entered into pay the interest on a monthly (or other agreed term) during the life of the loan.
- Term: This will usually relate to the total length of the loan and the point at which it must be repaid to the lender. A first time property developer will need to think about both the time required to build the project but also allow sufficient time to exit.
- Default rate: This will be the rate of interest that will apply if a loan is not repaid on time and will usually be 1% over the borrowing rate.
Disbursements: These are the costs that your solicitor will to pay on your behalf such as Stamp Duty, Local Authority Searches, Land Registry and so on.
- Valuation: This is an independent assessment of the value of a property development and will usually be instructed by the lending bank(s). A mezzanine lender may also want their own valuation carried out or may accept a readdressed copy of the senior lenders valuation. Note that extra costs will usually apply in either case. This valuation will be used by the bank(s) to determine how much they will lend.
Naturally the above terms are not the only ones that a first time property developer is going to come across but they should help when taking a first look at development funding.
If your a first time property developer looking for property development finance lenders then Developer Money Market can save you time and money.