Mixed-Use Development Finance For A Commercial & Residential Project

What was the situation?

The client was seeking development finance for a mixed-use project located in London. The property comprised a commercial unit on the ground floor with two existing flats that required refurbishment. Additionally, the project also involved the construction of three new-build flats on top of the existing structure.

This ambitious project required substantial funding at 65% of the estimated £2.5mn GDV, and the client had only limited equity to contribute. They needed a financing solution that would maximize the available loan amount to make the development viable, given their financial constraints.

What was the issue?

The developer faced two significant challenges that were hampering their ability to secure appropriate financing:

Firstly, they had a bankruptcy on their credit history, which was creating hesitation among potential lenders. Importantly, this bankruptcy wasn’t due to the developer’s financial mismanagement but resulted from one of their previous banking partners going into administration – a circumstance largely beyond their control.

Secondly, time pressure was mounting as the property vendor was becoming increasingly impatient. The developer had already invested considerable time in the project planning and pre-development work, and there was a risk of losing the opportunity if funding couldn’t be secured quickly.

What was the process?

Recognising the urgency, our team took a strategic approach focused on lenders who could appreciate the nuances of the situation. We identified a lender who had recently re-entered the development finance market and was actively seeking to deploy finance to new opportunities, making them more receptive to cases requiring flexibility.

We used our development expertise to present the project in the most favourable light, emphasising the application’s key strengths:

1. The advanced stage of due diligence already completed on the construction aspects.
2. The comprehensive build costing carried out by the client’s chosen contractor (specialists in this type of mixed-use development).
3. The contractor’s ability to mobilise quickly with minimal lead time.
4. The relatively short build program of just six months.
5. The developer’s proactive approach to marketing, including plans for immediate off-plan sales.
6. A carefully designed program to discharge all pre-occupation conditions quickly, ensuring finished units would be ‘buyer ready’ as soon as construction completed.

By presenting this detailed evidence of the project’s viability and the developer’s readiness, we were able to overcome concerns about the historical bankruptcy. Our approach enabled us to negotiate a short-term facility that maximised the net day-one loan amount, working within the client’s limited equity constraints.

What was the solution?

We successfully secured an attractive development finance package at 65% of the goss development value (GDV), with a 15-month term.

This financing solution provided several critical advantages for the client. The high loan-to-GDV ratio meant they could proceed with the project despite their limited equity position, and the 15-month term gave them sufficient time to complete the 6-month construction phase and allow for a marketing and sales period afterward, without creating undue pressure.

The client was particularly pleased with the level of service and support we provided throughout the process. Our in-depth development knowledge proved invaluable as we assisted in preparing and presenting the detailed information the lender needed for their credit approval process.

By understanding both the technical aspects of the development and the lender’s requirements, we were able to bridge the gap between the client’s circumstances and the financing solution they needed.

Need some help securing a development finance for mixed-use properties? Our experts are on hand to assist. Call 020 3903 9875 to speak to an adviser, or use our online contact form.