Client
An experienced property investor and property development professional with a portfolio of buy-to-let (BTL) properties assembled over several years. The main development experience was property refurbishment prior to renting out properties to tenants.
Investment property
A derelict, former church in the North-West which was acquired for just over £200,000 as a speculative investment. The plan was to obtain change of use and planning permission for a development of several apartments.
Property design
An architect was retained to develop options and present the development appraisal to the local authority. Eventually the planning authority approved an agreed scheme for 9 x 2-bedroom apartments with parking and landscaping. The architect estimated the gross development value of the scheme at £1.2m.
Build costs
Three building contractors were approached by the architect, and tenders received. The cost breakdown of the scheme was as follows:
Site clearance, preparation & security £ 85,000
Demolition & strip out £ 75,000
Main works £150,000
1st fix £125,000
2nd fix £ 65,000
External works £100,000
Contingency £ 20,000
Total build cost £620,000
Development finance
The client appointed Blueray Capital to secure development funding for the scheme. We packaged the client credentials, property details & financial information and selected relevant lenders from our panel for whom the scheme would be a good fit in terms of size, property type and location. We collaborated with the client to shortlist lenders from whom one was selected to proceed to valuation and due diligence.
The development funding package
The indicative offer from the lender included the following terms
Gross Loan Amount: £640,000
Less deductions
Arrangement fee, retained interest, monitoring fee
Loan Facility £560,000 (available for monthly drawdown)
Term 18 months (12 months build & 6 months marketing)
Exit fee 0.5%
Repayment Bullet repayment of gross loan
Additional costs
Acceptance fee (non-refundable but deducted from arrangement fee)
Valuation report, monitoring survey report & legal costs
Valuation and due diligence
Three RICS approved property surveyor firms were proposed to the client, with their fees, and one was selected to prepare the valuation report and confirm the gross development value of the completed scheme. Following a site visit this was prepared and submitted to the lender.
The lender-appointed monitoring surveyor (MS) presented an assessment of the scheme, build costs and program to confirm the achievability of the program and suitability of the nominated contractor.
Credit sanction
The lender was able to present the application to its credit committee who sanctioned the indicative offer and presented the client with a final offer.
Blueray Capital consulted with the lender, surveyor and MS during the process, covering off any queries or requests for additional information.
Following acceptance of the final offer the lender’s solicitor drew up legal documents and once completed the facility was available for draw down.
Monthly monitoring
The client appointed the contractor who mobilised on site and commenced work under the supervision of the architect who functioned as project manager.
On a monthly basis the MS visited the site and agreed completed work packages with the contractor. The MS provided a report to the lender which facilitated a draw down of the facility directly to the contractor. It should be noted that the facility did not include the VAT element which the client needed to factor into her project cash flows.
Project completion
On completion of the development project the lender provided a redemption statement to the client with the final amount for repayment. This was lower than expected as the marketing period had been less than expected.
Lender refinance
The client had determined to rent each of the nine apartments to tenants and had engaged the services of a local agent. This had been a successful process with all nine units being let within 3 months of completion.
The client appointed Blueray Capital to obtain a Ltd Company BTL mortgage to re-finance the development lender 3 months prior to completion. Blueray Capital managed this process and secured a £900,000, interest-only mortgage over 15 years for the client. This fully repaid the development finance lender, other project debts and provided a healthy surplus for the client’s next project.
