Place10: A certain debt ratio

Pre-2008 it is fair to say the development funding market was highly competitive with a wide range of lenders, including the High Street banks, chasing a finite number of transactions resulting in highly leveraged debt deals on arguably senior debt pricing, David Rainford, property finance director of Cowgill Holloway writes.

While appetite for residential development funding is firmly back on the table the landscape has changed with reduced High Street lending market and the risk-reward equation having been rebalanced on the developer’s shoulders. The bridging lenders who filled the void immediately following the crash remain as active as ever with quick decisions enabling developers to take advantage of opportunities albeit the funding market is now populated by a myriad of specialist lenders providing funds across the capital stack from stretch senior to mezzanine and joint venture finance.

Alongside this we have seen property and pension funds together with overseas investors actively targeting our key cites in the North for both large scale commercial and PRS investment albeit some of the players have now made their debut investments and suspect will want to see these delivered before expanding their portfolios.

Not surprisingly many of the Southern funders still prefer transactions in London and the Home Counties but certainly over the past 18 months there has been a shift in appetite further North and pricing has become more competitive helped by the growth of peer-to-peer funded platforms and government funding options such as the Greater Manchester Combined Authority Housing Investment Fund.

Loan to cost funding at 80-90% is now widely available for the right schemes and right developers with margins starting at around 6.5% and rising to c10% a year. At the other end of the spectrum fully funded JV options will typically require profit shares of between 40-50%, dependant on scheme profitability, albeit the benefits to a developer’s return on capital and ability to accelerate build programmes or capitalise on other opportunities are clear.

In summary, the options available to developers today are both greater and more diverse, giving a more sophisticated spread of solutions to get schemes off the ground.

• To take part in the Place10 series reflecting on the decade since Place North West was first published in August 2007, send your stories and memories to news@placenorthwest.co.uk headed ‘10’.