DEVELOPMENT FINANCE MARKET REPORT

Following the long break we have plenty of news to share with you...

If we are to believe the media and some commentators, the coming months are going to prove difficult for the residential property market. A lack of mortgage availability is still a serious stumbling block despite continuing low interest rates. Another cloud on the horizon for both developers and house buyers is the new rules governing banks' capital requirements. The greater amount of capital the banks have to hold, the less they can lend. This could be another blow to developers and property entrepreneurs who are already being squeezed by the banks.

SPECIALIST LENDERS

The private, non bank lenders are largely unaffected by capital requirements and they have stepped in to the shoes of the high street banks who have virtually stopped lending to small property developers. These specialist lenders have a far greater understanding of development than the average bank. For this reason alone they can be recommended. They also have quick decision making processes which is refreshing given the months that many deals now take to complete through the big banks. Interest rates typically start at 1% per month and most funders are willing to lend up to 50% of Gross Development Value.

One small bank has made a promising debut, lending to SME developers. Of particular benefit is that they allow the developer to provide their contribution to building costs "on the drip". They lend 60% of land and 60% of building costs provided you can show that you have future cash flows that will be sufficient to make your 40% contribution to the building costs. The effect of this is to give you a higher LTV on the land loan.

We have a number of such lenders through whom we can source development finance, and we would be pleased to introduce your scheme to them.

SOLICITORS

It is tough enough to achieve a development finance loan offer these days but the pain can be further exacerbated by long delays in completing development loans. At CD Property Finance we have experienced this on a number of occasions. A period of 6 months to complete a loan is unusual but not unheard of.

One of the main causes of delay can be the lack of experience of the borrower's solicitor. It is imperative that any serious developer should instruct a lawyer who has considerable experience of the complexities of development funding. For this reason, unless your solicitor is highly competent in all aspects of property transactions we recommend that you seek the advice of CD Property Finance on who should act for you. We may well suggest using one of the lending bank's panel solicitors since they will be fully conversant with the lender's requirements. We can assure you that this will go a long way to avoid you losing the development opportunity and can in the long run save on legal costs.

Please feel free to discuss this with us.

PROPERTY INSURANCE, INCLUDING CONTRACTORS' ALL RISKS COVER

All property lenders insist on Contractors' All Risks cover for your project in addition to your compulsory insurances If you do not already have adequate insurance then, again, this can be the cause of long delays in loan completions.

CD Property Finance is happy to help you with all your general insurance requirements through our close relationship with one of the country's leading insurance brokers. Our experience is that they provide an excellent service and can place the most difficult risks, for example, where a project has already been started but no insurance is held.

LTD COMPANY BUY TO LET

We can arrange Ltd Company Buy to Let finance for both houses and flats. Maximum LTV is 75% for houses and 50% for flats. Rates start at 4.24% per annum.

Please contact us for more details.

Email: Chris@cdpropertyfinance.com

web: www.cdpropertyfiance.com

Summer Property Development Finance Update

It's been a busy time in the property finance world in the past few weeks, but there is a distinct imbalance in the market. Prime commercial and residential property are still selling well and funding is available for investments and for development in these areas. However, the secondary market in both sectors is struggling because of a lack of lenders willing to finance any property project carrying what they perceive to be undue risk. In the case of commercial property this may be because the property is let on short leases or where there are break clauses. For residential, there could be a multitude of reasons ranging from location to property type. Flats/apartments are still not popular even with the most active lenders.

As you will see below, we are finding that RBS Group is shying away from any new property projects presented to them for clients new to the bank and is reluctant to help existing borrowers. However, other banks are beginning to step in, cautiously.

I am also pleased to announce our tie up with one of Europe's largest independent commercial insurance brokers. They have the resources to help you make considerable savings on your property and related insurances.

DEVELOPMENT FUNDING

As you may know, CD Property Finance specialises in arranging residential development finance for its clients. Many of you will have facilities with the RBS Group and may be finding that they are reluctant to lend. RBS have generally been very supportive of developers in the past and we have an excellent relationship with the bank but unfortunately they now have to reduce their substantial property loan book. This means that they are very unlikely to take on new clients. For existing clients the picture is not good either and we are already seeing many enquiries from good borrowers who are being told by the bank that they must either reduce or repay borrowings.

We are here to help you. We have long established relationships with all the key lenders and direct lines into their property finance teams. This enables us to solve clients' funding problems. We do not pretend that development finance is freely available but if your scheme meets certain criteria we can probably help. Remember, housing is favoured and the bank will always want to provide enough finance to cover 100% of construction costs and interest. This often means that little can be advanced to buy the land so please bear this in mind.

If you have a project and it needs financing please do contact us.

GENERAL INSURANCE

Our new partner can arrange insurances for

Property Developers - Contractors' All Risks cover; buildings cover; liability insurance

Property owners and investors - Buildings cover; liability insurance.

Here is one example of a current offer:

Our insurance partner is offering great terms to SMEs that meet standard underwriting criteria and have been in business for 3 years or more and have had no claims for 3 years.

For businesses that meet these criteria, and are eligible for their Retailers & Office Policies they will give you a quote of 5% less than your current insurer’s premium.

We will soon have offers for discounted insurance for property developers and will advise you immediately of them. However, if your renewal is due shortly let us know and we will arrange for a quote.

Investment Opportunity

We are constantly looking at ways to help our property development clients, and to provide opportunities for our introducers.

For property development clients we are actively looking to bring investors to your schemes.

If you are an introducer, you and your clients are probably tired of achieving poor returns on money invested. In property development there are opportunities for sophisticated investors and high net worth individuals to achieve enhanced returns.

By way of background, by 2007 it became common for banks to lend up to 85% of the costs of a development project. Since the banking crisis there are not only far fewer property lenders, but those banks that are still lending have amended their criteria and now limit their lending to 60% to 70% of development costs. This means that there is a huge funding gap for most development schemes. This funding gap can be filled by investors.

CD Property Finance offers opportunities for investment funds, companies and high net worth individuals to invest in property projects.

Our property developer clients have the experience to identify profitable sites and CD Property Finance can arrange the development finance form the banks for such projects. However, it is often the case that schemes need some investor finance to ensure that it is adequately funded.

EQUITY FINANCE

We are always looking for equity partners for our clients. Projects to be funded include family housing developments, refurbishments, barn conversions and apartment schemes.

We can arrange development finance from a bank to around 70% of cost and equity partners are sought for the 30% balance of costs. The profits from the completed development are normally spilt on a 50/50 basis between the developer and the investor. The scheme can either be financed through a new company or the main development company, with an agreement setting out the joint venture terms.

MEZZANINE FINANCE
Often the developer client has some capital to put towards the project cost, but not enough to satisfy the bank's requirements. Typically a bank will lend 70% of costs and the gap can be financed, for instance 15% by the developer and 15% by a mezzanine lender.

If you are interested in becoming an investor or require finance, please contact Chris at CD Property Finance on 01428 684452.

CD Property Finance in this months edition of Housebuilder Magazine

Extracts from Housebuilder magazine 'Lending a Hand' - March 2010

Few involved in the funding game expect a wholesale return to the residential market from the big institutions in the short-term. Chris Dowdeswell, principal of CD Property Finance, another brokerage specialising in residential funding, says: “2010 is unlikely to see the high street banks returning to property development lending in any significant way. This is because the banks have extremely high property lending exposures and development finance is regarded as very high risk.”

“The lenders currently prefer family housing schemes, in traditionally popular areas, as opposed to apartments. Over the past 12 months, [we’ve] arranged funding for over a dozen such schemes with a variety of lenders,” says Dowdeswell.

With apartment projects, the lending criteria is, however, far more stringent to reduce risk. Chris Dowdeswell explains: “It’s possible to finance apartment schemes of up to about ten units but whereas bank finance of up to 60% of gross development value is available for houses, only 50% of GDV is available for apartments.”

What most developers want to know, apart from whether the housing market will recover is also whether the funding market will get easier going forward and Chris Dowdeswell is reasonably positive: “I would expect to see one or two more lenders gradually dip their toes back in the water towards the end of 2010 provided property sales and values hold steady during the year.” For most in the industry, that is a reasonable ambition.

For more information please contact Chris on chris@cdpropertyfinance.com
http://www.cdpropertyfinance.com/

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