RESIDENTIAL
OFFICES
LEISURE & HOTEL
INDUSTRIAL
STUDENT HOUSING
AQUISITION/ BRIDGING FINANCE
EQUITY
JOINT VENTURE
Equity is the financial input by the borrower into the project. Usually, this is in the form of cash but can sometimes be in the form of additional security. In most cases, lenders will require a set minimum level of equity for a project. This level can be reduced by introducing Mezzanine Debt, as already mentioned. It can also sometimes be reduced by the consideration of “soft equity” - soft equity takes the form of value created in the project usually via the gain of planning permission or by marriage value of more than one title. In some cases, a small amount of lenders will also provide some or all of the equity for a project.
A small amount of lenders in the market offer what is known as a JV Lending Structure. These structures vary in their specifics but essentially the borrower provides the project, in most cases, having gained the planning permission to add soft equity. The lender then provides the full costs of development and in some cases the land acquisition. The lender charges an interest rate on the funds and then there is a profit share arrangement on the project profit. While these structures have a high overall cost, they do provide an option for developers who do not have access to the required equity.
Bridging Finance is covered later in this document but it is often a key part of development finance. Bridging can be an effective tool when acquiring land for development when either time is of the essence or where the land requires an alteration of the planning permission before development funding can be sought. On some occasions bridging can be used to acquire land without planning or with planning pending.
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