We explain the benefits of phasing, what phasing means, how it helps preserve equity and enables you to scale-up to bigger developments sooner.
In this guide, we explain the main points brokers and property developers need to cover to help ensure that when a lender has 25 new enquiries in their inbox, yours is the first they go to.
- Case Overview
- Developer CV or Track Record
- Development Appraisal
- Property Schedule
- Professional Team Directory (The Power Team)
- Supporting Documents
When building the Brickflow software, we spoke to dozens of development finance lenders and asked them how many enquiries they were receiving for each loan they completed. There were various answers, but the number most agreed on was 1 in 25.
That means a staggering 96% of development finance enquiries received by lenders go nowhere.
When lenders are pushed on why this is, there are two main reasons:
- A mismatch in criteria between what a borrower wants and what the lender can offer – either the borrower or the project don’t meet the lender’s criteria, or the loan the lender can offer is too small or too expensive for the borrower
- Terrible presentation of project information
Brickflow deals with the first point by searching lender criteria and only showing lenders that match the broker and their clients requirements – ensuring brokers and developers have a much better chance of approval.
On the second point, once brokers select their lenders on Brickflow, they are guided through the process of how to build the perfect lender presentation. After all, a good presentation is more than a development appraisal and property schedule.
All lenders will tell you that good presentation is critical and can be the difference between whether your project gets the funding it deserves, or not.
In this guide, we explain the main points you need to cover to help ensure that when a lender has 25 new enquiries in their inbox, yours is the first they go to.
This is the summary of the project and sets the scene for the lender. It should be a high-level overview of all that you know about the project and it must really sell the lending opportunity to your lenders. First impressions count, and this summary should pique their interest and make them want to read on.
What you need to cover:
Background on the developer and the other shareholders. Highlight the developers and other shareholders’ strengths and why they are capable of delivering this project. Reference previous developments where relevant.
Explain the role each shareholder will perform e.g. The developer has an estate agency background and therefore is strong at land procurement and sales.
Their business partner, John, is a Chartered Construction Manager with 15 years’ experience and will deal with contract administration and site management through the construction phase.
Site acquisition – is it through an agent or privately? Is there an option agreement in place? Who was responsible for the planning? Is there a planning uplift and do you want the lender to take a view on sweat equity? If so, what is / was the price on acquisition, what has been spent and what is the land worth today?
As part of the above, touch on the history of the site and the current condition. Is there any historic relevance? Does the site have any protections that need to be considered? Is it in a designated regeneration area? Is the land cleared and ready to go? Has planning been approved, does it need revising?*Who are the professionals? Include and add to the following (where relevant):
- Building Control
- Ground works / Civil Engineers
- Interior Designers
- Planning Consultant
- Main Build Contractor (use a shortlist if not finalised)
- M&E Engineers
- Quantity Surveyor
- Party Wall Surveyor
- Project Manager
- Selling Agents
- Structural Engineer
Exit strategy – the most important thing to any lender is how they are going to get their money back. It’s the first question they ask, so a coherent exit strategy is really important.
While some developers will say, “we might sell, we might let, we’ll just see how the market is when we hit PC”, in our experience this is not what a lender wants to hear. They want clear direction and to understand the plan. If it’s a larger scheme, they may want to see an agent employed before a spade goes into the ground.
Where will the show home or flat be and how soon will it be delivered? Will there be an agent on site constantly? If it’s a smaller site, will the developer have a website for the project?
Who are the agents and what is the budget and sales strategy? All lenders prefer sales as their repayment method, and while it’s fine for the developer to keep some or all of the units, this should again show it has been thought about.
What is the demand for rental? What are the monthly rentals? What loan size is achievable on those rentals? Does that still repay the lender the project goes over time and budget?
Deposit – where is it coming from and how much of it has been provided by the borrower?
Lenders know a lot of developers raise deposits from external investors, but they all want some of that deposit has come from the developer. Lenders want to see skin in the game.
Everyone wants to see the same outcome: successful delivery of the scheme on time and on budget. Part or all of the deposit from the developer helps ensure that.
As a guide, most lenders will want to see 50% of the deposit to be coming from the main shareholders. Some lenders will accept less. We have seen 25% quite often, and on a few occasions less than that. If you are borrowing from investors, then you need to disclose that and confirm the payment terms.
Any interest or profit share should be deferred until the end, and only be paid after the main development lender is redeemed. If their money is a loan rather than equity, then it would need to be subordinated in favour of the main lender(s).
Developer CV or Track Record
We call this the ‘Developer Profile’ on Brickflow. The system asks a series of questions, which is the information lenders need each time. Every lender will ask for this and the vast majority of developers do not have it up to date or in a format that lenders want.
On Brickflow that information is stored and automatically updated as you complete projects. So, never again will you have to complete another developer track record template. Result!
If you want to complete your own version, the key points are these (for each shareholder):
- How many years development experience does the borrower have?
- How many projects has the developer completed?
- What type of projects were they – commercial or residential?
- What the borrower do before becoming a property developer?
- Highlight whether the developer worked in any relevant industries, such as a builder or QS? For how long and who for, what kind of projects?
- Any professional qualifications (construction or otherwise)?
The above provides background and context.
A good development appraisal should allow the reader to walk from start to finish and understand the scheme without any guidance from the developer.
It needs to include the address and must detail every cost. We see all sorts of formats and there is no right way or wrong way, but ultimately it needs to include the following:
- The address
- Purchase price
- Purchase costs (stamp duty, legal costs, etc.)
- Main contractor build costs
- Contingency (list this separately so the amount is clear – most lenders currently want to see between 7.5% and 10%)
Itemise other costs:
- Planning / architect
- Building Control
- Ground works / Civils (if not included in the main contractor cost)
Lenders also want details on previous schemes. Lenders will run high-level due
diligence on these, so make sure the info is relatively accurate (we know it can be difficult when the project was completed 10+ years ago).
Detail should include:
- The borrowers role – developer (shareholder) or employee?
- Project type – new build / conversion / PDR / refurb
- Acquisition date
- Acquisition costs
- Was development finance used? If so, which lender?
- Gross Internal Area (sq ft or sq m)
- Build costs
- Project time scale (in months)
- Sold or retained on exit
- Description of works - notes on what exactly was done
List as many of these as possible and put the most relevant to the current scheme at the top. For example, if both houses and flats were developed and this project is flats, list the schemes that were flats first.
- Project manager
- Quantity surveyor
- Landscaping (give this some proper thought – it will cost more than £25k to landscape communal gardens around a block of 50x flats)
- Party wall
- S106 (don’t double count this by putting it in as a cost and also reducing your GDV)
- Marketing (make sure the budget is realistic based on the details in the case overview)
- Agent fees (for sales)
- Legal fees (for sales)
- GDV (Gross Development Value)
- NDV (Net Development Value - GDV minus marketing costs, agent fees, legal fees, lender exit fee)
- Developer profit (make sure it is 20% or more (pre-finance) as otherwise the margins will be too fine for most lenders)
Cashflows aren’t needed to get funding agreed for most developments. The only time they are needed is when a development is phased, so they can see the peak debt amounts and understand the development funding requirement throughout the scheme.
At the simplest level a cashflow is the anticipated monthly build costs. The monthly costs and the build schedule aren’t normally available until much closer to drawdown and after the appointment of the main contractor and other professionals. Lenders assume a straight line draw on build costs for the purposes of loan approval, which should always more than cover the build cost loan requirement as in reality the draws on the build loan start lower and increase over the term.
After the loan is approved and the lender QS is appointed, they will want a cashflow to work to. This always changes through the project, so everyone accepts it is a working document.
The Property Schedule or Schedule of Accommodation is a list of the end property units that are being built.
For houses, the following should be included:
- The property description – detached, semi-detached, terraced, etc.
- Number of bedrooms
- Number of bathrooms
- Tenure (normally freehold for houses)
- Area in sq ft or sq m
- Sales price
- The property description ¬– single storey, duplex, triplex, etc.
- Number of bedrooms
- Number of bathrooms
- Floor number
- Does it have outside space?
- Tenure – leasehold or share of freehold?
- Lease length
- Area in sq ft or sq m
- Sales price
Also include the number of blocks in the development and how high the blocks are. Why? Because some mortgage lenders have restrictions on block density and height, so if it is more difficult for an end buyer to get a mortgage on, then it is more difficult to sell. This in turn means there is more risk for the development lender and they will adjust their loan accordingly.
Professional Team Directory (The Power Team)
The team can be listed in the case overview, or simply referred to. It’s good practice and makes it easier for any lender assessing the project to see them all in one place, in one document
List them out with their name and contact details, but more importantly ensure to include their website address and if there is already a working relationship. Lenders love to see team members who have successfully worked together before.
Therefore, column headers might look something like this:
- Job title
- Company name
- Contact number
- Email address
- Company website
- Has the developer and team member worked together before?
- (If yes) How many projects?
Perhaps include a small biog on them as well or paste in a biog link from their company website or from LinkedIn.
Analysing comparables is a hugely time-consuming process for lenders and valuers, so any work you can do to help in this regard is appreciated. It’s also exceptionally good practice.
Don’t just speak to one agent or merely have a quick glance at for sale listings on one website and then decide to go ahead. There are so many resources out there and the developers job is to study them and bring them together
- Sold prices more than those listed for sale. Sales listings are useful as a guide, but the actual sale price is a better indication of what’s going on.
- Concentrate on those that have sold in the last 6 months – prior to this is not current or relevant. For larger properties that is sometimes more difficult, but up to date sales prices may be the most accurate.
- A lot of the portals now have good analytics e.g. average sale times, percentage of asking price achieved, the number of similar properties on the market, etc.
- What are other developers doing in terms of style of finish and layout? How are they marketing these properties and why are some selling quicker than others?
- What’s all this data saying? If there are 75x 2 bed flats available within the development postcode with an average listing time of 12 weeks, does the area really need an additional 20x 2 beds that the developer has planning to build?
Once comparables have been found, list them out. An Excel sheet is fine. Make sure the following are included:
- The address
- The property type
- Sold price
- Sold date
- Weblink for the property
- Comments as to whether this is a good comparable or not
On top of the comparables, at Brickflow we always suggest included letters from agents explaining the local market dynamics and the expected demand for proposed properties.
They will normally include some ideas around marketing strategy as well.
This is great for the lender as it gives them local context and softer information which the raw data might not be able to give. But speaking to agents is also great for the developer.
Every agent is a useful resource as they’ve all had different experiences with sites over the years. Even if they can’t say exactly what to do to achieve 100% sales above asking price on the day of practical completion, they should definitely be able to tell advise on what not to do. They’ll all have horror stories of the developer that didn’t listen and couldn’t sell their scheme, so they are a very valuable resource.
These are a really key part of the presentation and allow the lender or investor to fill in any of the gaps.
The following are not essential, but will provide a better chance at getting the outcome wanted:
- Planning permission
- Design & Access statement
- Floor plans / elevations / technical drawings.
- Brochures of previous projects – it shows what the developer is capable of.
- CGIs / mock-ups of the end development – we all respond well to visual aids, so anything to help visualise the end product is very helpful
- Build schedule - the build term is in the appraisal, but it is a different level of professionalism if the build stages can also be shown
- Cashflow – an accurate version won’t normally be available until nearer to drawdown, but an outline version will put the application ahead of most developers
- Site tour video – this is one of our favourites and will really set the application apart. Fancy equipment isn't neccessary, a mobile phone recorded video with commentary is great
- CVs – for the developer and rest of the team
A good project appraisal should be suitable for both lenders and investors, and that is because the lender is essentially an investor in the scheme. They are offering to put money into the project for a fixed return and all they really care about is how they get their money back. It’s no different for an investor, the only difference is that the individual investor might sit in the equity slot within the capital stack and want a higher return.
The key point to remember is that a lot of the time the lender or investor is lending into an area that they probably don’t know as well as the developer does. They need to be given good information, painted the picture and sold the vision of the project.
It’s easy for anyone to design CGIs showing what the end scheme will look like (and they are a massive help), but it is the breakdown of the stages and the key personnel which will decide whether that scheme is delivered or not.
Going through the above process step by step for each project not only results in a good presentation for lenders and investors, it also, importantly, de-risks the project for the developer themselves. They are looking at themselves and their team and identifying weaknesses. They are looking at the end properties in the context of the wider market and asking themselves what they need to do to sell them and stand out.
All of these steps are built into Brickflow for you. From lender feedback, we know that by following this process you will give them the information they want to see to help them make a quick and confident credit decision.
First impressions count, so don’t be the person that emails in a spreadsheet with a few numbers on it, as you won’t be taken seriously.