Joint Venture Development Finance
Financing where you can access up to 100% funding for a new property development project.
What is joint venture development finance?
Joint Venture Development Finance is a finance product which allows you up to 100% funding for a new property development project. They are generally suited for a new build or conversion on a residential development or for a commercial property development (sometimes on a mixed use basis).
The advantage here is that you will not need to fund any element of the development out of your own pocket – the deposit contribution would be 0%. The lenders provide all the funding required for the development (land purchase, labor, materials etc). They are bearing all the risk therefore require a good share of the profits (generally 40-50%). Interest rates are generally much higher than most forms of bridging finance, and they usually seek to only fund developments that will only be given to a developer with experience.
Why would a property developer require 100% development finance?
Benefits of a joint venture finance arrangement for a property developer:
One advantage is that joint venture financing enables a property developer to undertake a development without using any of their own capital, which would benefit smaller property developers or those with their own capital locked into current development works.
A further advantage is that a property developer can share risk with another party and reduce some of the financial risk associated with a property development venture.
Thirdly, joint venture finance gives access to further resources and expertise, including marketing, sales or construction assistance.
How JV finance operates
If successful in its proposal, you would enter into an agreement with your JV funder in the form of a special purpose vehicle. This enables money to be drawn in installments throughout construction at agreed development milestones.
Once construction is complete you would sell as planned according to your exit strategy, pay back your loan and distribute your profits according to the agreed share split.
Backing for experienced developers with more projects than cash
JV finance will generally only be applicable to established developers that have undertaken and completed a similar project in the past with an acceptable net worth.
The cost to the lender of the equity investment would generally include an interest rate on funds as drawn, coupled with some form of profit split, or alternatively, a 50/50 profit share split upon project completion.
Eligibility criteria for obtaining joint venture development finance
If you have been lent money by lenders at 100% of cost, this means that the lenders have taken on all of the financial risk. For this reason most lenders apply a robust list of eligibility criteria:
The lender wants assurance that the project is achievable with a clear plan to execution.
The applicant has to have the experience and past success to demonstrate ability.
Developers need to be financially secure and able to provide evidence of financial standing.
The project is financially sound with a clear business plan and realistic forecasts.
The developer needs a strong team in place, this should consist of architects, builders and project managers.
The development will be assessed to ascertain that the project is feasible and profitable with a strong GDV target.
Why choose a specialist broker such as us:
Knowledge and experience: We know the joint venture development finance market and can advise on appropriate products and lenders.
Range of lenders: We have strong links with more than 700 lenders, which can include banks, non-bank lenders, private lenders etc.
Speed and efficiency: We manage the application, negotiation and due diligence processes on your behalf.
Tailored products: We can offer structured finance, mezzanine finance or alternative forms of funding if the JV finance is not available.
Cost effective: Because we have knowledge of the market we can offer the most cost effective solution for your needs.
What we need from you to proceed
To gain a full appreciation of the scheme and funding requirement we will need:
- Executive summary of the scheme at a high level
- Business bio of financial sponsors
- Valuation if available
- Development appraisal
- Copy of planning permission
- Cashflow / schedule of works
- Any CGI or drawings
- If leasehold then tenancy schedule and terms of the lease
- Exit strategy & GDV assumptions with back up reports
- Marketing and sales strategy