The return of Mezzanine finance for property developers

We know developers are finding that the banks have reduced senior debt levels to 50% to 55% of GDV thus requiring more cash from the developer. This increased cash requirement often means that a good scheme cannot be started. To help solve this problem we have made arrangements with half a dozen mezzanine finance providers (or "top up" lenders) who between them can cover a wide spectrum of developments and finance needs. Under the section OUR FUNDERS we show you how this might help you to prosper in 2010.

Our Funders

1 - £50,000 - £100,000 - These lenders prefer to put finance into projects at the outset but can also assist should cash become short during the course of a scheme e.g if the bank lender does not honour its original agreement to finance all the build costs. This does not mean that these lenders will lend on problem schemes and there must still be a very healthy profit in the development once it is completed. Sites in the south of England are preferred.

2 - £100,0000 - £500,000 - These mezzanine lenders prefer to finance developments from the outset. They will only lend on housing schemes and prefer to finance schemes in the south of England

3 - £500,000 - £3,000,000 - There is a good deal of flexibility where larger loans are needed. Some of our funders prefer family housing whereas others will put funding into high value single units in top quality locations across the country and will also consider lending on apartment schemes.

The common denominator for all the lenders is that the developer must have good experience and the scheme must have strong viability. Most of these lenders will need some cash contribution from the developer.
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We wish you a happy and relaxing time over the Christmas break and hope to work with you in 2010.

Best wishes,

Chris

CD Property Finance

http://www.cdpropertyfinance.com/

Benefits of using a broker to arrange property development finance.

1. Benefits of using CD Property Finance as your broker.

In these uncertain times for property developers there really is only one certainty - it will not be straghtforward raising the finance for your development! We all know the reasons for this - the banks overstretched themselves and are now clamping down hard on the property sector.

However, do not despair. As a broker with over 25 years in property development finance Chris Dowdeswell of CD Property Finance has retained very close relationships with the banks and investors that really count. This means that Chris can still source attractive finance packages on competitive terms. If you instruct CD Property Finance to work on your behalf you will benefit from:

1 - Our market knowledge of which banks are lending and on what types of projects, and where.
2 - Access to other funding sources, such as cash rich investors.
3 - Preferential rates - we negotiate hard for our clients!
4 - Our knowledge gained over 25 years of what information lenders need to be presented with and how it should be presented. CD Property Finance thus gives you a head start over other developers and helps you jump the queue for the banks' attention (and their money!).
5- Personal service from Chris Dowdeswell A.C.I.B

2. Hampshire case study

In June a high street bank business manager known to Chris Dowdeswell for 10 years called us to say that they had been asked to lend an experienced developer about £100,000 to finsh off the construction of two small houses in Hampshire. The bank - one of the ones we all now have shares in! - told us that their credit department had refused to lend even though the £100,000 loan represented only 30% of the value of the completed houses. Could CD Property Finance help?

We immediately knew that we could and arranged to meet the client within a couple of days. We gathered all the information we knew our lender would need and presented it to them straight away. The lender met the developer within a few days and offered all the money they needed to complete the two houses. The developer was able to draw down his funds within four weeks of meeting the lender.

Our developer client was extremely grateful for our service and advised us that if CD Property Finance had not been able help he would have had to close the site down and lose much of his own money.

3. West Sussex case study

A valued client obtained an option to buy a site in West Sussex. He was able to achieve a planning consent for 3 detached houses and approached Chris Dowdeswell for a loan of £1,000,000 to develop the site. Despite the difficult prevailing conditions we were able to arrange the loan with a bank whose senior director we had known for over 20 years.

This strong relationship led to the bank lending 82% of the total cost of the development - an unusually high percentage in the current economic climate - with the bank taking a small share of the profits of the scheme.


4. What are the different finance types?

Development finance may appear quite complex but the elements can be simply be broken down depending on the loan structure required by the client. The most commonly used are:

Bank finance (see below) + Developer cash = 100% cost

Bank finance + Mezzanine finance (see below) + Developer cash = 100% of cost

Equity finance (see below) = 100% of cost


5. DEFINITIONS

Bank finance - usually around 65% of the cost of the project, secured by a first charge over the development site.

Mezzanine finance - usually about 20% of the cost of the project secured by a second charge over the site

Equity finance - 100% of project cost, often in the form of a joint venture between the developer and the investor. Profits are usually split 50/50.

For further information, please contact chris at chris@cdpropertyfinance.com or visit our website www.cdpropertyfinance.com

Property Development - Oven ready development projects available

Perhaps it is a sign of improving times in the property market that we are now able to offer to our clients a very exciting new opportunity to establish or grow your business through refurbishing and developing residential property.

CD Property Finance has teamed up with a former Development Director of a major house builder who can offer profitable small developments to suitable applicants in a variety of locations around the UK.

The main features of this scheme are set out below:

Primarily single unit refurbishment and development schemes using Permitted Development Rights so that planning consent is not required.

Maximum Gross Development Value of £500,000

Up to 100% development funding available - client must have clean credit history.

Up to 75% funding through buy to let on completion of project, if required

Each project to show minimum of 25% profit based on Gross Development Value.

It is not essential that the client should have direct experience of the construction industry


Our partner provides a full service right from the start and this only concludes with the sale or refinance of the developed property. The service includes:

1 - Property finding and appraisal

2 - Arrangement of funding

3 - Architectural design

4 - Quantity surveying and project management

5 - Assistance with sales and marketing


Chris
www.cdpropertyfinance.com

Property Development Finance Autumn Update

It is 12 months now since the collapse of the banking system. This time last year the economies of the G20 countries were on the brink of meltdown. Thankfully, the crisis was addressed and 12 months on there are positive signs emerging that we may be over the worst.

Property and funding markets remain severely affected, however. Property development finance and commercial mortgages in the UK are being rationed as the UK banks that have emerged in one piece try to reduce their exposure to property without turning off the tap altogether. Foreign banks have practically disappeared from the property development finance arena but some are still active in the commercial property investment sector.

This means that the banks that are lending are being highly selective over who they will lend to and on what projects. It is the prime sector that has driven the recent increases in transactions and values. Banks will focus on deals for prime schemes for the forseeable future because they cannot afford to risk further substantial losses from property lending.

With only a handful of banks doing any serious lending. new funders are emerging. These include family owned enterprises that have accumulated wealth over the years and understand property risks and rewards. There are also some new funds from overseas looking to lend into the UK property market as they see good returns, particularly from mezzanine finance and equity.

We expect this trend to continue, but with all funders chasing the same small pot of prime borrowers and schemes.

Property Development Finance UK - R.I.P?

There is a crisis in property development finance in the UK.

Property developers and house builders are being starved of cash by the major banks and this means that the UK population is being starved of new homes.

Even the most experienced and best connected property finance brokers are struggling to place deals which 18 months ago a number of banks would have been competing for. We are not talking about highly speculative schemes for inexperienced operators but very profitable, well located developments that experienced developers can put cash into.

Still the banks won't lend, because they have branded all forms of development as "very high risk" without actually looking at the individual profile of the deal. This is in complete contrast to their attitude before 2008 of barely assessing risk before lending, just because another bank was in the background competing for the business.

To illustrate the point, only one of the major high street banks will consider funding developments for new customers and even they have decided that they will not fund ANY developments of flats/apartments anywhere. How extraordinary is that, and what an indictment of the mess the banks have got themselves into.

There are a few smaller banks still lending, and thank heavens for them. They are doing their best but of course are overwhelmed by enquiries which is leading to log jams and long delays for approvals and drawdowns.

The picture for commercial mortgages is not too different. The banks will find every reason not to lend rather than approach a proposition with an open mind.

All this would indicate that there is a huge opportunity for new banks to come in to property lending in the UK and to write excellent, low risk, high reward business at a time when there are signs of improvement in the property market and the economy as a whole.

When Will UK PLC Emerge From Recession?

The news today that France and Germany recorded growth in their economies in the last quarter should be good news for the UK.

However, it should also embarrass our banks.

A chronic shortage of credit in the UK is causing our economy to remain fragile and in recession. Those responsible for this lack of credit are primarily the High Street Banks - Barclays, Lloyds, RBS and HSBC. It is their over cautious and negative lending policies that are putting thousands of businesses under every month. The banks have forgotten that they owe their very existence to these people that run these businesses and who they are making suffer so cruelly.

Something that the French and German banks have not forgotten.

UK business will not forget this harsh treatment by the banks they depend on to create the economic growth so badly needed.

Property Development Finance Case Study

Our developer client had identified a site and agreed a loan facilty with his bank. The basis of this facility was that the developer would put in all his funds first, with the bank then providing their share. The client bought the site with his own funds and started building. Once he had injected all his funds he approached his bank again to activate the agreed facility to complete the development. At that stage the bank refused the request, as their policy had changed. This left the developer in a desperate situation with a part completed site with no prospect of finishing the work through no fault of his own. No other high street bank was interested in helping him.

Fortunately, the client was referred to CD Property Finance and we quickly identified that the situation was retrievable. We introduced the client to a specialist property lender who could see that there was little risk in lending to complete the project as the site was free of charge and the ultimate LTV (Loan to Gross Development Value) was likely to be at a level of well under 50%. The lender very quickly provided the necessary funds and the developer is now bringing the scheme to a successful conclusion.

For more information contact Chris at CD Property Finance.
Email: chris@cdpropertyfinance.com
website: www.cdpropertyfinance.com

Money Saving Insurance For Property Owners

CD Property Finance is now an Introducer Appointed Representative for Business Money Insurance Services. This means that all our clients, whether property developers, investors or business owners, can now enjoy great insurance rates and top quality service from the experienced and helpful team at BMIS.



BMIS has a great general insurance product range and provides cover that is typically 10% to 15% cheaper than others without sacrificing the comfort of using high quality insurance names.



Working with BMIS, we can provide business insurance cover; liability insurance and contractors' all risks insurance; property insurance; commercial motor insurance; plant insurance and personal insurance.



All you need to do to benefit from this service is to either contact Chris Dowdeswell at chris@cdpropertyfinance.com or go online at http://www.bm-is.co.uk/ and quote PROMOTIONAL DISCOUNT CODE: BMIS1017.



Try it and see how much you can save!

Property Development Finance for part completed schemes

We have some good news for our beleagured developer clients:
Do you need?
1 - Finance for Part Completed Schemes.
OR
2 - 100% Finance.
OR
3 - Mezzanine Funding
We have been inundated with enquiries in recent weeks from house builders that find dealing with their bank a thoroughly depressing experience. Existing bank clients are still having their loans called in and new ones are met with a quick refusal or, even worse, a long, slow NO. If this is happening to you, we are here to help and there may be a little light at the end of the tunnel.

Best Wishes,

Chris
chris@cdpropertyfinance.com
www.cdpropertyfinance.com

100% Development Finance - Alive and Well

Just when we all thought that the days of 100% development finance were over for good, CD Property Finance has located a funder that has the appetite to lend to developers that have got a great scheme but no cash.

There are restrictions, of course. No flats, for instance. Maximum loan £1.25m. Maximum number of houses is five, and these must all be "family" homes and not very high end luxury houses. The lender will fund schemes in England and Wales only.

This is a great opportunity for experienced developers to get a scheme started that would otherwise remain dormant.

CD Property Finance welcomes your enquiries.

All the best

Chris Dowdeswell

CD Property Finance

VAT - PITFALLS FOR HOUSE BUILDERS

We have linked up with Wilkins Kennedy, Chartered Accountants for this important advice for house builders:

CAN’T SELL A NEW-BUILD HOUSE? TAKE CARE BEFORE YOU RENT IT OUT

If you are a house builder having trouble selling a new home you might, quite logically, be tempted to rent it out until house prices pick up again.

However, under HMRC regulations, you might be letting yourself in for some complex potential VAT problems.

Due to the current slowdown in the residential property market, some house builders are deferring their intended sales of dwellings and temporarily letting instead, and so becoming partly exempt.

As you are probably aware, if a new house is sold freehold or on a long lease (over 21 years in England; 20 years in Scotland) you can reclaim all of the VAT incurred on your building costs.

However, for short leases or lettings, HMRC can insist on a claw-back of some of the VAT incurred on building and development costs.

Put simply, the reason for this is that VAT on freehold sales is rated as zero, so you can recover all the VAT, whereas short lettings of new property are VAT exempt – so you have no right of VAT recovery.

How to check your position
For many house builders the amount of ‘exempt input tax’ related to their temporary lets is small (known as ‘de minimis’) and as a result they can continue to recover all of their input tax; but they must check to avoid VAT mistakes.

If you are in a large building firm you may already be partly exempt and familiar with operating a partial exemption method. However smaller building firms may not be so aware of the intricacies surrounding the whole area.

The ‘de minimis’ is a simple check which is based on the expected time period you will letting your building as a proportion of the economic life of that building, which for VAT purposes is ten years.

How de minimis works
Your exempt input tax is determined by applying the proportion to your total input tax. Provided your exempt input tax does not exceed £625 per month on average (up to £7,500 per year) and is not more than half of your total input tax, then your exempt input tax is ‘de minimis’ and you can recover it in full. What’s more, the ‘de minimis’ test applies to the total input tax incurred - including for example any input tax on general overheads such as bookkeeping costs.

However, if your building or buildings do not qualify for de minimis exemptions, you will almost certainly have to do one or more of the following:

* adjust the VAT previously recovered on your submitted VAT returns
* restrict the VAT to be recovered on your current and future VAT returns
* both adjust your past VAT recovery and restrict your future VAT recovery.

So, for example…
Let’s assume you have recovered £20,000 input tax on a house that you originally expected to sell for £300,000. Because of market conditions, at the end of the tax year you decide to defer the sale by letting for two years and so become partly exempt. A simple check for de minimis is:

£20,000 input tax x 2 year lease divided by a 10 year expected economic life of the building (the standard) = £4,000 exempt input tax

The £4,000 of exempt input tax is de minimis because over the tax year it does not exceed £7,500 or 50 per cent of your total input tax. So there is no need to adjust the VAT previously recovered on your VAT returns. If the input tax was incurred over more than one tax year, the de minimis test should be applied to the input tax incurred in each of the tax years separately.

A word of warning
The starting point for the repayment of VAT when you rent a house is the moment you decide to rent it – not when you sign leases – so you could be liable to VAT even though there is no rental yet coming in.

It’s well worth seeking advice
Naturally this article is only an outline of the VAT situation on letting new houses. If you are not familiar with all the complex issues that lie behind the legislation, simply call Bob Southey on 01483 306318 quoting CD Property Finance.

Commercial Finance Newsletter

Just to let you all know our latest Commercial Finance Newsletter was published last week. In this edition we offer advice on how to structure your business plan and give you a summary of the current lending available from UK banks.

If you would like to sign up to our monthly newsletter, please contact us by emailing newsletter@cdpropertyfinance.com. (We won't pass your details on to any third parties, it's only for use by CD Property Finance for the distribution of our newsletter).

We have also had two articles published on www.articlesbase.com:

- UK Residential Property Development Market View
- Summary of current UK bank lending for businesses

If you have ideas of articles you would find useful, please do let us know.

Housebuilder Article - Cash Barriers

We are pleased to announce that Chris Dowdeswell of CD Property Finance features prominently in the latest (May 2009) edition of the Housebuilder. This is the official journal of the National House Builders Council who provide the vast majority of new build home warranties.

In the article 'Cash Barriers', Suzie Mayes considers the type of lending now available to developers. She finds from speaking to people like Chris Dowdeswell that while there has been some improvements, getting finance is still a very tough task.

Chris provided comments for use throughout the article. Here's a quick snippet of these words of wisdom:

"If a developer owns their own site with little debt against it, there is a good chance of securing funding because the LTV will then be typically below 55% of gross development value (GDV) which is often acceptable by lenders" Chris Dowdeswell, principal, CD Property Finance.

"If we can see prices stabilise in the next three months, there may actually be some light at the end of the tunnel" Chris Dowdeswell, principal, CD Property Finance.

You can find the full article in this months Housebuilder magazine on pages 46- 49. We would love to hear your comments.

UK Property Market View

There are rumours of greater buyer activity in the residential market but I am sure you will agree that the messages are very mixed. Some developments seem to be selling reasonably well whereas others, for whatever reason, have hardly seen a viewing for months. Our view is that we are in classic early/mid recession "one step forward, two steps back" mode.

This is what happened in the last recession. In spring 1991 everyone was expecting a significant upturn but it was not for another 18 months that the true recovery started. This followed a prolonged period of lower interest rates. Let's hope that the promised increase in new mortgage lending transpires and that one or two more development funders emerge. These two factors should drive the market towards normality again. In this newsletter we have a piece on VAT that is important for developers that are holding completed properties until the upturn.

We also have the excellent news of an established lender returning to the market and who will consider lending on profitable small schemes. As always, your feedback and loan enquiries are most welcome.

Regards,

Chris
www.cdpropertyfinance.com

First Blog from CD Property Finance

This is our first blog at CD Property Finance. We will be posting articles and comments on relevant news stories concerning property development finance and commercial mortgages.

We hope this will be of interest and we look forward to hearing you questions and comments.

Chris Dowdeswell.
www.cdpropertyfinance.com