Equity finance for property development, or equity development finance, is a form of debt funding.
Equity developer finance allows investors to top up the deposit, that provides the funding needed, to carry out a property development project above the senior debt development finance that is secured.
When can equity finance be used?
Investors can lend up to 100% of funds for a percentage of profit so that a developer can buy and build a property with no, or a small amount, of cash input whilst retaining full ownership.
Equity development finance can be used for both residential and commercial development projects to help increase scale, or to complete multiple projects simultaneously by reducing the amount of direct equity the developer needs to put into their schemes.
Equity finance is also useful for existing developers who lack cash or have equity tied up in other projects. By securing the funds they need means their development or property refurbishment becomes a reality. Generally, developers would be expected to invest a minimum of 30% whereas an equity finance agreement may allow up to 100% of the finance to be raised. This minimises the developer risk and may increase return on investment.
Who can get equity finance for development?
More often than not, equity finance is available to experienced developers who can provide evidence of successful projects, self-funding for cost-overruns (if required) and knowledge of property development. However, there are occasions when novice property developers can benefit from equity finance if they have sufficient industry experience. Seeking guidance from a specialist adviser will confirm a client’s eligibility.
Equity finance works by creating a profit share or shareholder agreement alongside a development management agreement for the Special Purpose Vehicle (SPV) that is created for the specific project. This ensures the investors investment capital is protected and the terms are clearly laid out for both parties to agree.
How long does equity development finance last?
Developer equity finance typically lasts between 12 and 36 months.
Why would a property developer use equity finance?
If timescales are tight, developer equity finance is a straightforward agreement for securing funding. It can provide reassurance at the beginning of a project when there is uncertainty, but allows for the facility criteria to be met so the project can proceed.
Why use a broker to source equity finance for property development?
A broker is a very useful resource when sourcing developer equity finance. As experts in the field, brokers have unprecedented access to a range of independent investors who offer more competitive rates than when going direct. Not only that, brokers offer professional advice about structuring facilities that work for you.
At LDN Finance, our team have been in the specialist property finance industry for over 20 years. Through our extensive network we have access to some exciting opportunities. To learn more about how we’ve secured equity finance for property development previously, check out our equity developer finance case study. Alternatively, to find out what we can do for you, get in touch with our specialist team.