Background – Setting the scene and how the development began
Work continues on a four-phase residential apartment development in Cornwall after ASC secured a development exit loan on behalf of our developer client.
In 2017, our client purchased a former bus depot in St Austell with planning permission to convert the site into 24 houses and six flats. Following the purchase, he submitted a new planning application and was granted permission to build 52 apartments in four blocks.
Using his own money and a private loan, the developer completed the construction of the first block of apartments. With the sale proceeds from this first phase he began building the second block in the development.
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Challenges – Funding pressures and obstacles that threatened progress
When the second phase was nearing completion, the developer approached ASC to help secure a loan to finance the rest of the build and repay the private loan. He needed to borrow £1.75 million – £1.35 million to repay the private loan, £200,000 to finish the second block, and £200,000 to begin work on the third phase.
We secured an agreement from a lender to provide a £2 million development exit loan (the required amount plus fees and interest). However, a potential issue picked up by the lender during its due diligence threatened to scupper the loan.
Solution – How ASC worked to overcome the issues and secure finance
To keep the transaction on track, we arranged a meeting between the developer, his architect, senior management at the lender – and us. The outcome was that we were able to alleviate concerns by demonstrating to the lender the likelihood of our client obtaining a slight variation in the planning consent, to improve the scheme’s profitability. Following this meeting, the lender agreed to proceed with the facility, subject to a restructuring – releasing the money in stages rather than in a single advance. This has the benefit of less interest cost to the borrower as interest is not charged on undrawn funds. It was a great outcome all round.
Outcome – The results and benefits achieved through ASC’s support
Developer exit finance is available for (near) physically completed development schemes where the developer wishes to “cash out” before sales are completed. In this example, the value of an experienced broker can be measured in the practical approach taken by the lender in making a commercial decision to support the application.
At ASC, we only work with tried and trusted lending partners, so you can rely on us to select the right lender for your circumstances.
