Property development finance to convert hotel into block of 9 flats

The client: A newly established SPV limited company whose directors are experienced buy to let property investors who have branched into property development. Their new focus is on building and converting properties into residential units either for rent or resale.

The project: The directors were in the process of converting a four-storey, former hotel into a block of nine self-contained flats. They had bought the property for cash with a combination of their own funds and an unsecured loan, then subsequently applied for and received planning permission to create four one-bedroom and five two-bedroom flats which they planned to sell on.

The finance: The clients required finance to complete the conversion and to repay the unsecured loan; however, after receiving a tentative agreement to lend from a high street bank, they had begun works, only for the finance to fall through.

Although experienced landlords, the clients are relatively new to property development, which meant that the choice of lender was somewhat restricted. We put together a comprehensive proposal for our clients which included a comprehensive breakdown of their income streams, details of their previous experience as landlords and developers, plans and a schedule of works for the development in question, and a breakdown of the loan exit strategy including onward sale prices for each unit.

We then approached a lender with which we have a good relationship, that specialises in both commercial mortgages and property development loans. After discussing the case and negotiating hard on the clients' behalf, the lender agreed that the strength of the application and the clients’ experience were a good risk and made an offer. The clients agreed to the following terms:

Property Details

Property purchase price: £450,000

Build costs: £450,000

Gross development value: £1,450,000

Loan facility: £550,000

LTV: 38% (of GDV)

Rate: 7.75% fixed

Term: 18 months

Facility fee: £15,000

Exit fee: £11,250

Consultant: Steve Bedford, 01732 471609

Here are some more examples of commercial and development projects I've helped clients to finance recently.  Do get in touch if you'd like me to give you a quote for your next project. My direct line is 01732 471609.

11th April 2017