Property Development and Exit Case Study


An experienced property investor with a portfolio of buy-to-let (BTL) properties which the client had grown 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.