Structuring development finance for a first-time developer’s mixed-use conversion

Property experience helped, but development track record was still a gap.

The client was an experienced estate agent and property investor who had acquired a mixed-use building earlier in the year. Since purchase, they had already carried out meaningful works, including roof repairs, damp remediation and a new entrance, improving the condition and estimated value of the asset.

The opportunity was to create three residential units around the existing commercial premises: two above the shops and a third to the rear. The property had previously held planning permission for a larger six-flat scheme, but the client chose a more conservative three-unit approach. A revised application relating to the rear unit had been submitted with support from a planning consultant and was still progressing.

• No completed development track record This was the client’s first development project, which narrowed the pool of lenders prepared to rely on sponsor experience alone.
• A mixed-use and evolving planning position The security combined existing commercial units with proposed residential development, while part of the planning position remained subject to a revised application.
• Build costs needed to withstand scrutiny An independent consultant had prepared a deliberately cautious cost schedule, including allowances for potential material inflation and conservative VAT assumptions.

The strength of the case therefore sat in the wider picture: local property knowledge, practical planning experience, an established builder, architect and planning consultant, and a project appraisal designed with contingency rather than optimistic assumptions.

Combine immediate liquidity with funding that follows the build.

Elizabeth structured the recommendation around a development finance facility with two distinct components: an initial advance against the existing asset position and a separate development facility released as construction progressed.

The aim was not to maximise leverage. Keeping overall borrowing at a more conservative level helped balance the client’s first-time developer status against the strength of the asset, project margin and professional team.

Keep the development self-contained and preserve flexibility elsewhere.

Other routes were available. The client had access to wider property assets, including an unencumbered residential property, and additional borrowing against those assets could potentially have increased available capital.

Elizabeth’s recommendation instead concentrated the borrowing within the development. That avoided adding unnecessary debt and administration elsewhere in the portfolio, while leaving other assets available for future opportunities or unforeseen project needs.

The client’s cautious appraisal also mattered. Higher headline costs can make a scheme appear less attractive on paper, but conservative assumptions may provide a more resilient basis for lender assessment than a budget that leaves little room for inflation, VAT treatment or unexpected works.

A funding route designed to carry the project from existing asset to completed investment.

The recommended facility was designed to give the client usable capital at the outset without exhausting working reserves, then provide further construction funding as value was created through the build.

The proposed exit was to refinance the completed residential units onto longer-term investment finance. That route was supported by the expected income-producing nature of the finished units and the wider mixed-use asset, including one occupied commercial unit and another intended to be let after renovation.

Understanding development finance for a first project.