Ground Development Finance
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Ground-up development finance refers to the finance of new construction projects from the ground up.
This type of financing is typically used for the development of commercial or residential properties such as office buildings, apartments, and single-family homes.
Ground-up development finance is typically provided by banks, private equity firms, and other financial institutions. It can be used to cover the cost associated with acquiring land, designing and planning the project and constructing the finished project.
One of the main advantages of ground-up development finance is that it allows developers to bring new properties to market, which can help to meet the growing demand for housing and commercial space.
If you’re a developer looking to finance your next project, ground-up development finance may be the right choice for you. Our team of experienced professionals will work with you to understand your project and help you secure the funding you need to make it a success.
What loan to value (LTV) can you get?
Development finance plans with the highest loan-to-value ration typically fund up to 70% of the land costs and 100% of construction costs, as long as the loan does not exceed 70% of the estimated value of the gross development value (GDV). However, these types of facilities, which offer high funding rations, are specialized, and typically come with higher rates, additional fees, and stricter underwriting criteria. To get the best deals, it is recommended to limit the ground-up development finance facilities to 60% of land costs and 100% of build costs.
An example of ground-up development finance
A plot of land with planning permission to construct ten, four-bedroom detached properties is available to purchase at £350,000.
The cost to build all ten properties will be £1,150,000.
The estimated value of each house is £250,000 meaning the Gross Development Finance (GDV) of the project is £2,500,000 (10 x £250,000).
Ground-up development finance can be used to fund 70% of the land purchase i.e., £245,000 and 100% of the build cost i.e., £1,150,000.
Therefore, a facility would be set up for £1,395,000 (net loan). The initial release would be for £245,000 for the purchase of the land.
The remaining £1,150,000 will be release in stage payments as per the schedule of works.
Interest is typically only charged on funds that have been drawn down.