Aug
27

Securing Property Development Financing

Posted by John Yates

It’s no secret that the global economy is at a moment where lending itself is relatively rare and hard to secure, let alone financing to develop a new property amid a global property market that has experienced nearly a half-decade of downward valuation. This climate, however, does not need to be the impediment that most property developers think it is. Indeed, with a bit of smart planning when looking to secure property development financing which can push forward a new property development, land developers can ensure that they’ll get the funds they need at a favourable rate — even in this economy.

Recent Bridging Finance : The Bridging Loans market will have financed more then £2bn in short term financing by the end of 2013.  Annaul lending has grown by 9% in the 1st quarter and by 39% the 2nd quater of 2012.

Property Development Finance

Securing Property Development Finance

The economy of property development is still strong, and the chance exist for magnitudes of success, as long as developers plan and present in a way which is most likely to help them secure the financing their dream property requires.

Leave the Big Banks Behind in the Pursuit for Securing Property Development Financing

Two things are true in the current economic climate: Property investments and developments can still be highly lucrative, and big banks are experiencing the kind of massive credit crunch which makes them unlikely to lend money to just about anyone who applies for such a loan. This has forced the vast amount of real estate developers and builders to leave behind High Street bank financing options and pursue loans from smaller, more specialised lenders. Indeed, these lenders are far more willing and able to lend funds designed for developing properties.

That’s because smaller lenders like Greenfield Capital, United Trust Bank, Commercial Acceptances, West One Loans, and Close Property Finance, among others, are highly specialised financial institutions. Instead of catering to a broad market that requires financial instruments ranging from deposit accounts to loans, insurance and liability products to investment strategies, these banks exist solely to finance property development throughout the country. That’s a relief to big time developers, too, who prefer to deal with a company that understands their unique needs and circumstances, and is therefore more willing to work with those things to ensure a robust and satisfactory lending product.

When looking to secure the proper commercial financing to develop a new property or redevelop an existing one, always leave the big banks behind and prefer to file applications with development lenders who make this industry their first priority and their top concern. The bigger banks aren’t looking to lend, anyway, and this will save a developer’s credit, good standing, and sanity, as well as keep their project on track and fully financially sound.

Applying for Property Development Finance

There’s really nothing more toxic when applying for property development financing than a poorly-designed plan of execution. In fact, it’s the number one way that an otherwise-qualified developer can find themselves without a single property development success in their portfolio. The key to winning over property development banks is to develop the kind of plan and presentation that can wow them and help to demonstrate that they’ll experience a good return on their investment. That, after all, is the only reason that such banks are wiling to lend money to property developers or brokers in the first place.

Brokers and property developers need to show why the development is needed, first and foremost. This will lead to all of the other key presentation items which will guide a proposal and a project toward success. The need for the project in question must be clearly defined and discussed during the opening of the presentation; doing so will pique interest and ensure that the bank’s interest remains high as the actual uses, requirements, and future of the project is discussed during the next part of the presentation.

Indeed, the next part of the presentation should focus not on just why the project is needed, but how it will meet those needs both in the near-term and throughout the much longer future after the project is completed. Remember, even property development banks and lending institutions need to know that they’ll get a good development that provides the developer with the long-term ability to repay the funds plus interest. A great idea must be followed up with strategies for long-term success, growth, and financial stability. If it isn’t any chance for securing a property development loan product will largely go out the window.

Make the presentation impressive and captivating, define the need and project the ongoing successes, and the financing will likely be pretty easy to secure. Banks simply want to know that they’re investing in something with a high rate of return, rather than taking a risk on something that might never pay off.

Property Development Finance Focus

In the traditional banking word, there is perhaps nothing more important than a consumer’s credit report and their credit ranking score. These two things are used by virtually every big bank to determine whether or not a consumer can have access to lending products; they’re also used to determine the size and scope of such financial products, as well as the interest rate which will be tied to them. In the world of property development finance, the requirements and reports are a little bit different. In this industry, a developer’s past projects count as his credit report, and his financial earnings and payments serve as his credit score.

Even with the most well-prepared presentation ever given, even at some of the smallest and most laser-focused property development finance firms, an inexperienced developer can easily run into problems. The simple fact of the matter is that limited experience in the development industry is like having little or no credit information when applying for a loan. The lack of experience indicates to the bank that their potential investment in a project is simply a very big gamble, and one they may not be willing to take. Especially in the current economic climate, financial gambling is pretty unpopular and not likely to happen for those developers without a good deal of property development experience.

This is when it becomes necessary for those new to the industry to work with a more experienced developer and create the kind of partnership that can convince the bank to foster the newer person’s experience, rate of success, and rate of return. Brokers will especially promote this process to their clients, as it’s the number one way to win the bank over and ensure that a great property gets the chance to live up to a new developer’s vision.

Ways to Secure Financing from Lenders

The real estate market might be perceived by some to be in decline or stagnation, but that’s simply not the case. Instead, all that has changed about the industry is that it has become more risk-averse in the past half-decade. New property developments are still going on virtually everywhere in the world; those developments, however, are now being done by more experienced developers with better plans and a more long-term vision for success in terms of finances.

When looking to develop a new property, or redevelop an existing one, be sure to deal only with those lenders who specialise in such lending. Don’t overlook the importance of experience or a well-crafted plan, as these are the linchpins to financial success both with the banks and with the actual property once it has been built. Following these steps, a property’s true potential can be realised with the backing of the proper financial instrument.


Property Development Financing Resource

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John Yates Managing Director of Greenfield Capital has 12 years commercial and residential property funding experience. John was responsible for managing the secured lending department of a high street bank and brings a wealth of experience in property underwriting.


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