Ground-up Development Finance
We arrange ground up development finance up to £250m, funding experienced developers and investors for site acquisition, ground up residential and commercial development.
Our specialists help package up your proposal so they achieve the best financing options from private equity firms, specialist lenders, family offices & private investors.
Whether you're seeking debt or equity based finance, we can help you achieve up to 100% LTGDV (loan to gross development value) with additional security and 100% of build costs. Contact us first for a no obligation quote. We're ready to help.
Our ground up development finance service
- Market-leading property development finance from £200,000 to £250m
- Monthly interest rates from 0.44% pm with interest rolled-up options
- LTGDVs up to 65% (up to 100% finance if additional collateral is available)
- 100% Build costs
- Terms up to 24 months
- Debt and equity options
Ground up development finance uses
Typically the finance we arrange is for residential development, but we can also source finance for semi-commercial and commercial.
Development finance:
pre-planning finance, financing Land purchases, ground-up development and exit finance
Development finance lending criteria
| Loan to gross development value (LTGDV) | 65% maximum (100% with additional security) And 100% Build financing |
| Loan term | 3 to 24 months |
| Loan amount | £200,000 up to £250m |
| Interest options | Rolled-up, retained or serviced |
| Interest rates | From 0.44% |
| Decision | Immediate decision in principle |
| Completion | From 3 days to 3 months (Depending on type of finance required - call us today for more info) |
| Early repayment fees | None |
| Availability | Secured on assets in UK & Europe Individuals, Companies, SPVs No credit & adverse credit considered |
| Exit strategy | Sale or refinance |
A guide to Ground-up Development Finance
Ground-up development refers to the process of constructing a new building from scratch, starting with an undeveloped plot of land.
This guide aims to provide you with an in-depth understanding of ground-up development, including its definition, the process of building a new structure, the major challenges associated with it and the options you have to finance your development.
Whether you are a developer, investor, or simply interested in the construction industry, this guide will offer valuable insights into ground-up development.
Contents
What is Ground-Up Development?
Ground up development involves the construction of a building or structure on a vacant piece of land that has no existing infrastructure, previous construction or where the land has previously been developed, that development has been demolished and the site cleared.
New build is another term, increasing in popularity in the UK since the government began using the term to refer to Ground up development.
Ground up development typically entails various stages, including planning, design, permitting, construction, and completion.
This type of development offers the advantage of complete control over the design and layout of the building, allowing for customisation to meet specific needs and requirements.
How much new housing is needed?
It’s difficult to put a precise number on the amount of new housing needed in England, but it's a lot - hundreds of thousands of new homes are needed.
With 202,610 new builds in the UK completed in 2022 the UK is still experiencing a huge shortfall in their housing requirements by some 137,390 dwellings per year.
According to one estimate commissioned by the National Housing Federation (NHF) and Crisis from Heriot-Watt University, around 340,000 new homes need to be supplied just in England each year, of which 145,000 should be affordable.
Some of the prominent regions with significant new build housing activity in 2022 include the Northwest, the Southwest and London, and areas surrounding major cities such as Salford. Milton Keynes and Edinburgh.
How do You Build a New Building from the Ground Up?
There are several phases to a new build construction, whilst there are nuances between sites and projects the basics phases of new build development remain similar.
Feasibility Study: Conduct a thorough analysis of the site, including assessing its suitability for development, zoning restrictions, market demand, and financial viability.
Site Acquisition: Purchase the land or secure a long-term lease, ensuring legal and ownership issues are properly addressed.
Design and Architecture: Engage architects and designers to create detailed plans and specifications for the building, considering factors such as functionality, aesthetics, sustainability, and compliance with local building codes.
Permits and Planning Approvals: Obtain the necessary permits and planning approvals from local authorities, including zoning, environmental, and construction permits.
Demolition & Site Clearance: Clear the site to allow other remedial, treatment or demolition works to take place before the actual construction works begin. It involves clearing a site of any existing structures, rubbish, decontaminating any areas of the land, usually through removal of the contaminated soil and so on.
Groundworks & Utilities: There are several stages to groundworks, these include: Site Investigation and Survey, Excavation, Laying Foundations, Installing Drainage Systems, Service Connections, Backfilling and Compaction and finally laying the Ground Floor Slab.
Construction: Hire a principle construction contractor and subcontractors to carry out the scaffolding, bricklaying, carpentry, plumbing, electrical, glazing, roofing, plastering including the 1st fix & 2nd construction work, adhering to the project timeline, quality standards, and safety regulations.
Builders Clean: Hire a cleaning contractor to deep clean the property and remove all waste from site.
Interior Finishing: Complete final fix interior work, including painting and decorating, flooring, walls, electrical and plumbing installations, fixtures, and fittings.
Exterior Landscaping: Enhance the surrounding areas with landscaping, parking lots, walkways, and other amenities.
Commissioning, Inspections and Certifications: Conduct commissioning of any boilers, heating, plumbing or electrical equipment and conduct inspections at various stages of construction to ensure compliance with building regulations and obtain certifications for occupancy.
Completion and Handover: Finalise all legal and administrative formalities, obtain a certificate of occupancy, and hand over the building to the owner or end-users.
What is Ground Up Development Finance?
Ground-up development finance can be either a type of secured debt-based lending or equity-based lending which provides financial assistance to developers for projects involving the construction or refurbishment of a property from the ground up.
The finance can be used to purchase of land, as well as the construction of the building itself. The finance is typically secured against the property being developed or refurbished, as well as any other assets that may be available. In the case of equity finance, development finance offers developers to sell a share of the future profits of the development by various financial mechanisms, in order to avoid leveraging the debt-based financing opportunities.
The debt-based types of Ground Up Development Finance are:
Senior Debt Finance
Senior debt finance is the most common form of property development finance, providing funds for the purchase of land, construction and/or the refurbishment of property.
The funds available are agreed between lender and borrower, and the borrower is typically required to place a security against the loan (typically the resulting property asset being developed). This finance type is typically the most secure type of property development finance and the lender will have a first claim on the development’s cashflow and proceeds from sale.
Stretched Senior Debt Finance
Stretched Senior Debt Finance is a variant of the above senior debt finance, except that it is typically provided at higher loan to value (LTV) levels and can incur higher interest rates than traditional senior debt finance. These higher loan amounts and interest rates serve to increase the risk for the lender and thus, are provided only to more established or experienced property developers with strong track records and impeccable credit histories.
Mezzanine Finance
Mezzanine Finance is a hybrid form of debt and equity finance, where the lender provides both a loan and equity investment to the borrower, with the loan being subordinate to the more senior security provided by the lender. In return for providing the loan to the borrower at higher LTVs and typically at a higher interest rate, the lender receives shares in the borrower’s business.
Subordinated Debt Finance
Subordinated Debt Finance is a form of debt finance where the lender provides the loan but takes a ‘second seat’ to the more senior debt provider, in terms of loan repayment priority. This type of funding is only provided to borrowers who have obtained first-charge debt from a senior lender and the subordinated debt lender will take a lower priority in repayment terms. Typically, the subordinated debt lender will also be provided with equity in the borrower’s business.
The equity-based types of Ground Up Development Finance are:
Preferred Equity Finance
Preferred Equity Finance is a form of finance which provides an equity investment in the borrower’s business with certain predetermined rights (‘preferred’) over the deliverers of the equity in terms of repayment, dividend payments etc. The terms of the preferred equity arrangement are pre-agreed and often provide the lender with greater control over the project than is possible through traditional equity investment.
Equity Finance
Equity Finance is a form of investment used in property developments whereby the investors place funds in the form of equity allowing them to take a share of the profits and any potential losses resulting from the development. As the lenders are taking a greater risk in this form of finance, they are typically compensated in proportion to the risk taken.
Joint Venture Finance
Joint Venture Finance is a form of development finance where two or more parties come together to provide funds for a property transaction. The joint venture partners pool their resources and funds to purchase assets or finance developments and typically receive a proportion of the returns. This form of finance is often used when a development is too large for a single investor or group of investors to finance on their own.
You can also get a mixture of both debt-based and equity-based Ground Up Development Finance and this is called 100% Structured Finance
100% Structured Finance is a form of 100% of the property development cost being provided by the lender, who lends on the basis of the end value of the development (when complete) rather than the inherent risk of the development itself. The lender will typically place more stringent requirements on the borrower and will likely require additional security (e.g. additional land or assets) in order to justify the loan.
What are the Benefits of Ground-Up Development Finance?
Ground-up development finance can be a great option for developers who are trying to finance a project from the ground up, and it offers a range of benefits but the primary advantage is that it is flexible. Ground-up development finance is one of the most flexible types of financing with multiple options to choose from depending on the developers' unique project, financial position and desired outcome.
Ground-Up Development Finance Criteria
Ground-up development finance is a more expensive type of finance and is usually only available to experienced developers with a good track record. As such, ground-up development finance typically has more strict criteria than traditional mortgage finance.
Criteria:
1. Experience: Most lenders will require developers to have experience in developing projects of a similar scope and size, as well as a good track record of successful projects.
2. Financial Status: Most lenders will also require developers to demonstrate financial stability in order to be approved for the loan. This may include demonstrating a good credit score or providing evidence of income/capital.
3. Business Plan: Lenders may require developers to provide a detailed business plan outlining their plans for the development project, as well as their financial projections and strategy for the success of the project.
The 5 Biggest Challenges with Ground-Up Development
Financial Considerations: Ground-up development requires substantial capital investment for land acquisition, design, construction, permits, and other expenses. Securing financing can be challenging, especially for inexperienced developers or in a volatile market.
Regulatory and Permitting Hurdles: Navigating through the complex web of regulations, permits, and planning approvals can be time-consuming and costly. Delays in obtaining necessary planning can significantly impact the project timeline and budget.
Project Management: Coordinating multiple stakeholders, such as architects, contractors, subcontractors, suppliers, and consultants, requires effective project management skills. Ensuring seamless communication, adherence to timelines, and quality control can be demanding.
Market Risks: Ground-up development projects carry inherent market risks, such as changes in economic conditions, fluctuations in real estate demand, or shifts in the competitive landscape. It is crucial to conduct thorough market research and feasibility studies to mitigate these risks.
Construction Challenges: Managing the construction process involves dealing with potential issues such as unforeseen site conditions, weather delays, labor shortages, and material price fluctuations. These challenges can impact the project schedule and budget, necessitating proactive planning and contingency measures.
We're property and development finance experts who arrange both simple and complex financing for ground up/new build developments, sourcing and securing you the best deal from UK specialist lenders, private equity firms, investors and family offices.
Get expert assistance today, we're on hand to answer any questions about ground up development finance.
Call our friendly team on 01202 612934, we're ready to help.
