For property developers, access to structured capital is the engine of growth. Development finance is distinct from standard mortgage lending; it is a short-term, asset-backed funding solution designed to cover land purchase and construction costs. Mastering the "capital stack" is essential for maximizing Return on Equity (ROE).

The Mechanics of Development Finance

Lenders typically facilitate loans based on two key metrics: Loan to Cost (LTC) and Loan to Gross Development Value (LTGDV). A typical senior lender might offer up to 65% of the GDV, provided it does not exceed 80% of the total costs. The loan is drawn down in stages (tranches) as work progresses, ensuring funds are used efficiently.

Structuring the Capital Stack

Senior Debt: This is the cheapest form of finance, secured by a first charge on the property. It forms the foundation of your funding.

Mezzanine Finance: Sitting behind senior debt, this "top-up" funding is secured by a second charge. It is more expensive but allows developers to reduce their personal cash input, allowing for greater leverage and larger projects.

Equity: The developer's own cash contribution. Minimizing this through efficient leverage increases the percentage return on your actual investment.

Lender Requirements

Institutional lenders scrutinize the "track record" of the developer. They require a viable appraisal demonstrating a healthy profit margin (typically 20%+ on GDV), a fixed-price construction contract, and a clear exit strategy—whether that be sale or refinancing onto a term loan.

Strategic Advisory

At Adamsons Development, we assist partners in structuring efficient finance packages. Our relationships with private equity and institutional lenders allow us to secure competitive terms for viable schemes.

Looking to fund your next project? Discuss your funding options with our team.