IN A PERFECT WORLD - COLIN SANDERS - FIBA MAGAZINE
02.06.23
IN A PERFECT WORLD...
By Colin Sanders, Chief Executive Officer, Tuscan Capital Limited.
In a perfect world, development projects run like clockwork: units are sold off in a timely fashion, and construction projects run on time.
The reality is that development projects are still being hit by delays from a range of macroeconomic factors, including the repercussions of the Covid-19 pandemic, Brexit, and the invasion of Ukraine on the availability of building materials and labour.
Indeed, RICS’ most recent Global Construction Monitor, which covered the first quarter of 2023, reported that building material costs remain the most frequently cited impediment to market activity across the globe. While the share of respondents viewing material costs as a barrier has eased back in each of the last four quarters, it is still very high at 75%, indicating that this issue has not gone away, despite the World Health Organisation (WHO) stating in May that Covid is no longer a global health emergency, (effectively marking an end to the pandemic).
Of course, even without these large and unexpected factors, the reality in life is that things rarely go to plan; delays are inevitable with projects, which is why a number of short-term lenders offer development exit finance as a solution to this problem. It is a bridging finance product specifically tailored towards developers struggling to meet timescales.
For example, at Tuscan Capital, our development exit funding is available close to or on practical completion, providing developers with time to complete the scheme and sell the units. With this product, the borrower is saved on having to pay development finance extension fees. In addition, it can facilitate cash releases for other projects or repayment of investors involved in the borrowing entity. Another benefit is that the client can repay the loan in stages as they sell off units, minimising the amount of interest payable.
Case study
Development exit loans can be used on all manner of projects and not just vanilla cases. For example, we recently completed a £3.7m development exit loan facility for a holiday let scheme in Devon.
The client, an experienced developer, had obtained planning permission to demolish a former hotel and develop 15 flats on the site in a commanding prime position on the seafront in Hope Cove, an Area of Outstanding Natural Beauty (AONB) near Salcombe, South Devon.
The security consisted of nine units with restricted holiday let use, as well as a manager’s flat within a newly developed three-storey building overlooking the cove. The development also included five residential flats which did not form part of the security and were sold off on long leasehold titles.
Tuscan Capital provided a £3.7m gross loan on a property value of £5.4m at a loan to value (LTV) of 70%. The funds were used to clear the current development finance facility, with the excess paying off the client’s business partner.
The borrower was working to some very tight timeframes, but we could see that the business model was viable and that the ultimate exit for our facility was going to be a commercial term re-finance. We concluded this was realistic and that it was only a matter of time before the client established the revenue streams. The loan allowed the borrower to repay the development facility before its expiry and repay an investor.
Development exit is a perfect example of a product designed for an imperfect world. It offers breathing space to developers who are having to deal with costly delays. At Tuscan Capital, our quick, solution-led development exit finance creates time and saves money; what broker and borrower doesn’t want to hear that?
Read the May edition of FIBA Advantage Magazine.
For more information or to get in touch with the team, please contact us:
Call Us: 020 7846 9030
Email info@tuscancapital.co.uk
View our Regional Offices:
London Office
Birmingham Office
Manchester Office
A range of case studies demonstrating examples of previously completed loans can be found here.