Senior Debt and LTGDV
Senior development debt funds site acquisition and construction via two tranches: land (drawn at completion) and construction (drawn in arrears against monitoring surveyor sign-off). LTGDV (loan to gross development value) is the primary lender metric — most senior lenders advance 60-70% LTGDV. At 65% LTGDV on a £2M GDV scheme, the maximum loan is £1.3M. Loan-to-cost (LTC) is a secondary metric — typically 80-90% of total project costs; the developer contributes the remaining 10-20% equity. Interest is rolled and compounded — no monthly payments; all accrued interest repaid at redemption. Term is typically 12-24 months; extension fees apply for programme slippage. Lenders include high street banks (larger schemes), challenger banks (Shawbrook, Aldermore), and specialist development lenders (Together, OakNorth, Roma). Personal guarantees from the principals of the borrowing SPV are almost universal.
Mezzanine Finance and JV Equity
Mezzanine sits between senior debt and developer equity in the capital stack: second charge on the site and/or charge over the SPV shares; 12-20%+ pa interest; higher arrangement and exit fees reflecting the increased risk. An intercreditor agreement governs the relationship with the senior lender — cure rights, standstill periods, enforcement hierarchy. Mezzanine enables a developer to reduce equity contribution from 35% LTGDV (no mezzanine) to 10% LTGDV, dramatically improving return on equity — but the higher cost must be modelled in the appraisal. JV equity is an alternative: investor and developer form an SPV; investor contributes cash equity; developer contributes site/planning/expertise; investor receives a preferred return (8-12% pa) before the profit split waterfall (typically 50:50 or 60:40 developer/investor). JV equity offers upside participation but carries more risk than secured mezzanine debt. A detailed shareholder agreement is essential: consent decisions; deadlock; drag and tag; developer default; exit triggers.
Development Appraisal and Lender Due Diligence
A detailed development appraisal is required before approaching lenders. GDV: total gross sales proceeds; independently valued by RICS surveyor; lenders commission their own GDV report. Total costs: land + build (BCIS benchmarks + QS cost plan) + professional fees + finance costs (all rolled interest, arrangement, monitoring surveyor, exit fees) + marketing + contingency (5-10% of build cost). Profit on GDV: profit ÷ GDV — most senior lenders require a minimum 15-20%; developers target 20-25%+. Profit on cost: typically 25-30%+ for a viable scheme. Lender due diligence requirements: full planning permission; detailed cost plan; professional team CVs; developer track record of completed schemes; SPV corporate structure; personal guarantees; step-in rights under the building contract. First-time developers face more restricted LTGDV limits and higher pricing.