Property Development Finance, Bridging Loans, Mezzanine & Joint Venture Finance. FCCF | Development funding - right valuation of a development project is key to securing appropriate funding

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1 April 2008

-	fccf broker deal for Northampton based developer

1 April 2008

-	fccf broker deal for Middlesex based developer



Development Funding

	Obtaining the right valuation of a development project is key to securing appropriate funding. Most developers want maximum funding at the cheapest price and many lenders will allow land equity in lieu of valuable and often limited cash resources when calculating what the clients ‘stake’ should be. The residual land value of the project will be affected by a number of factors including: GDV: usually not too contentious and fairly easy to determine. BUILD COSTS & PROFFESSIONAL FEES: often contentious and the involvement of a third party QS (often required by lenders on large and highly geared projects) may add value. INTEREST: the interest rate, term and phasing of a development will affect land value. Phased developments (often required by banks) on larger schemes, whilst taking longer, will often have a smaller interest cost than non-phased schemes (as peak borrowing will be lower) and this can result in an increased residual land value. DEVELOPERS PROFIT: The valuer (Chartered Surveyor) will need to include a figure in the appraisal. This will be based upon his knowledge of the local and national market and what potential third party purchasers will pay for the site. It will also be influenced by which lender is instructing the valuer as each will have their policy on what is acceptable. The figure for developers profits may range from 12 to 20% ROC (Return on Cost) and clearly such a range will significantly affect the residual land value. At fccf we have knowledge of lenders specific requirements and we work with the lenders, Chartered Surveyors, QS firms and our clients to construct a valuation which is acceptable to all parties in an effort to structure a win win deal.


Bridging & Commercial Mortgages

	All status/prime lenders will instruct the valuer (Chartered Surveyor) to assess the value on a MARKET VALUE (MV) basis as defined by RICS (Royal Institute of Chartered Surveyors) This is defined as the estimated amount for which the property should exchange on the date of valuation, assuming: a willing buyer and a willing seller. that, prior to the date of valuation, there has been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of the price and terms for the completion of the sale. However a number of non-status/self cert lenders will ask the valuer to comment not only on the MV but also with a RESTRICTION in the time allowed for sale and this can range from 90 to 180 days. Depending upon the property type, location, planning use, condition, demand etc. the MV and RESTRICTED MV can be substantially different. Wherever possible we at fccf use lenders that operate on a MV basis, whilst of course taking into account our clients requirements in terms of amount, price, timescales etc.


Trading Businesses

	Businesses that trade from a property that is intrinsic to their operation (hotels, pubs, restaurants, nursing homes, etc) will if they are successful accrue an element of ‘goodwill’ (often calculated as a multiple of annual profits) and may expect this to be included in the valuation, in addition to any value of the ‘bricks and mortar’ of the property. Status/prime lenders will instruct the valuer (specialist firms such as Taylors, Pinders, Christies) to value the ‘whole’ business including ‘goodwill’ and they will lend against this valuation. However non-status/self cert lenders will only lend against the ‘bricks and mortar’ value of the property.