Commercial development finance glossary
The key commercial development finance terms, explained in plain English.
The terms you will meet most when funding a commercial scheme are GDV and loan to GDV, loan to cost, senior, stretch and mezzanine debt, JV equity, and stabilisation and exit finance. Each is defined below in plain English, using commercial examples.
The terms that matter
These are the terms you will meet when funding a commercial scheme. The definitions use commercial examples throughout.
- GDV (gross development value)
- The market value of a completed commercial scheme, usually derived from its rent and the investor yield, not from residential unit sales. The basis for the loan-to-GDV cap.
- Loan to cost (LTC)
- The proportion of total project cost a lender will advance, usually 65 to 70 percent for senior debt on a commercial scheme.
- Loan to GDV (LTGDV)
- The loan as a share of the finished commercial value, usually capped at 60 to 65 percent. The facility is the lower of LTC and LTGDV.
- Senior development finance
- The first-charge loan funding most of a commercial build at the lowest cost in the structure.
- Stretch senior
- A single higher-leverage facility (around 75 to 80 percent of cost) from one lender, removing the need for a separate mezzanine tranche.
- Mezzanine finance
- A second-charge tranche behind the senior lender, lifting combined leverage to around 85 to 90 percent of cost.
- JV equity
- Risk capital funding part or all of the equity in a commercial scheme in return for a share of profit rather than interest.
- Development exit finance
- A cheaper facility refinancing a completed commercial scheme while it sells or lets, cutting the rate and releasing equity.
- Stabilisation finance
- A facility bridging an operational commercial asset (PBSA, care home, hotel) from completion to stabilised income before a term refinance or sale.
- Pre-let
- A lease agreed before completion. A pre-let to a strong covenant transforms the funding terms on offices, logistics, retail and other commercial schemes.
- Monitoring surveyor
- An independent surveyor who certifies build progress and cost at each drawdown to protect the lender.
- Day-one equity
- The capital a developer contributes at the start: total cost minus the maximum loan.
- Profit on cost
- Gross profit as a percentage of cost. Lenders typically look for around 15 to 20 percent on a commercial scheme.
- Rolled-up interest
- Interest added to the loan and repaid on exit rather than serviced monthly during the build.
- Drawdown
- A staged release of construction funds, paid in arrears against the monitoring surveyor's certification of work done.
Commercial development finance glossary: common questions
What is the difference between LTC and LTGDV?
Loan to cost caps the loan against total project cost; loan to GDV caps it against the finished commercial value. The facility is the lower of the two.
How is commercial GDV worked out?
By capitalising the rent the completed asset will achieve at the investor yield for that sector, rather than from residential unit sale prices.
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