Senior development finance
The main facility that funds land purchase and construction for your commercial scheme.
What senior development finance is
Senior development finance is the primary loan that funds a development scheme. It sits first in the capital structure, ahead of any mezzanine or equity, secured by a first legal charge over the site. The facility funds the land purchase and the construction costs, drawn in stages against a monitoring surveyor's certificates as the build progresses.
Lenders size a senior facility against two tests. Loan to cost is the share of total project cost the lender will fund, typically up to 65 to 70 percent for an experienced developer. Loan to gross development value caps the loan against the finished scheme's value, usually at 60 to 65 percent. The lower of the two figures sets the facility.
- Funds land and construction in one first-charge facility
- Lowest cost of capital in the development stack
- Staged drawdowns against surveyor certificates
- Interest usually rolled up and repaid on exit
Indicative terms
- Loan size£1m to £100m+
- Loan to costUp to 65 to 70%
- Loan to GDVUp to 60 to 65%
- Term12 to 36 months
- RateFrom around 9 to 12% pa (scheme dependent)
- Arrangement feeTypically 1 to 2%
Indicative only. Terms vary by lender, scheme and borrower and are not an offer of finance.
Who it suits
- Developers funding ground-up commercial schemes
- Conversion and heavy refurbishment projects
- Experienced developers seeking competitive senior leverage
Discuss senior development finance
A view on fundability within one working day.
How the facility is structured and drawn
Appraisal and terms
We model the scheme's cost, value and margin and agree heads of terms with the senior lender, setting loan to cost, loan to GDV and the rate.
Land drawdown
The land tranche is released at completion of the purchase, against the agreed site value and any planning conditions.
Staged build drawdowns
Construction funds are released in arrears, in stages, against a monitoring surveyor's certification of work done on site.
Exit and repayment
The loan, plus rolled-up interest, is repaid on sale, on letting and refinance, or through development exit finance once the scheme completes.
Who senior debt suits and what lenders assess
Senior development finance suits developers with a viable scheme and a credible delivery record. Lenders assess the developer's track record on comparable projects, the strength of the professional team, planning status, the build contract and contingency, and the realism of the exit. A clean appraisal with a sensible margin over cost is the foundation of any senior facility.
How much you can borrow against a scheme
Senior development finance funds up to 65 to 70 percent of total cost, capped at 60 to 65 percent of gross development value, with the lower figure setting the facility. A scheme with a strong margin between cost and finished value can borrow more of its cost; a tighter scheme draws a lower advance. Where the senior cap leaves too large an equity requirement, stretch senior or mezzanine lifts total leverage.
Rates, fees and the cost of senior debt
Senior development rates for commercial schemes typically run from around 9 to 12 percent a year, scheme and borrower dependent, with an arrangement fee of about 1 to 2 percent and an exit fee on some facilities. Interest is usually rolled up rather than serviced monthly, which protects cashflow during the build but adds to the loan-to-cost calculation. Monitoring surveyor and valuation fees are payable by the borrower.
Senior debt versus stretch senior and mezzanine
Senior debt is the cheapest layer but the most conservatively sized. Stretch senior reaches higher leverage from the same single lender at a blended rate. Mezzanine adds a second tranche behind the senior charge to lift total leverage further. We model all three and place whichever structure funds the scheme at the leverage you need for the lowest blended cost.
Senior development finance: common questions
How much senior debt can I raise against my scheme?
Most senior lenders fund up to 65 to 70 percent of total cost, capped at 60 to 65 percent of gross development value. The lower figure sets the facility, so a scheme with a strong margin between cost and value can usually borrow more.
Do I pay interest monthly on a development loan?
Usually not. On most development facilities interest is rolled up into the loan and repaid when the scheme is sold or refinanced, which protects cashflow during the build. The rolled-up interest forms part of the loan-to-cost calculation.
When are funds released?
Land is funded at completion of the purchase. Construction is released in stages, in arrears, against a monitoring surveyor's certification of work done, keeping the lender's exposure aligned with build progress.
Can a first-time developer get senior development finance?
Yes, though leverage is usually more conservative and lenders look for a strong professional team and a fixed-price build contract. An experienced project manager or main contractor can offset a limited personal track record.
What happens if the build overruns?
Facilities carry a contingency and a margin within the term. Where an overrun threatens the term, development exit finance can refinance the scheme onto cheaper money while it completes and sells.
Discuss senior development finance
Send us your scheme and we will come back with a view on fundability and likely terms within one working day.