What is Stretched Senior Loan Finance?
Stretched senior loan finance for development lending will usually provide up to 75% of the Gross Development Value (GDV) or 90% of total project costs. Its usually the lower of those two figures. These senior loan development lending products are only available to well experienced, professional developers because the developers cash contribution will be a small percentage of overall costs. The enhanced higher risk associated with higher levels of funding is reflected in a higher interest rate compared to more conventional Senior debt finance.
A stretched senior debt facility can allow a developers’ equity to go further. Developers usually uses stretched senior lending by developers who may have a number of developments in progress at the same time and so have a limited amount of capital to put to use.
A stretched senior debt loan is an alternative to using a “structured” funding package which might consist of Senior Loans and Mezzanine Loans. Often the loan amounts available across the two types are comparable, but with Stretched Senior one lender provides the whole loan, whereas with a mezzanine lenders participation there would be two lenders to deal with, and possibly two lots of professional fees to pay.
What can Stretched Senior Debt used for?
It is not uncommon for a developers to want to borrow and leverage as high as they can as it allows them to take on more developments at the same time. Often new development opportunities present themselves to property developers and investors at any moment in time. As such the borrower would need to keep the cash or equity invested into each scheme to a bare minimum to allow them to have cash reserves for new projects. Nearly all developers are attracted to development funding options which can provide as much of the project development costs as possible. Whilst there are many Senior Debt loans offering up to 65% of the GDV, or 80% of project costs, a Stretched facility can provide up to 75% of the GDV, or 90% of project costs.
Stretched facilities are predominantly used for residential developments, however there are a number of lenders who can also consider Mixed Use schemes, Commercial Schemes, Student Accommodation, Nursing Homes, Hotels, industrial schemes, and so on.
What are the Key Features of Stretched Senior Debt?
- Up to 90% of Total Project Costs
- Up to 75% of the Gross Development Value, or
- Exit fees on a case by case basis.
- Arrangement Fees from 1%.
- Interest Rates from 6% per annum.
- Minimum loan size £250k, with no maximum loan size.
- No profit share.
- Up to 36 months.
What are the Stretched Senior Debt lending criteria?
- Experienced Developers only.
- First Charge basis only.
- Detailed planning consent has to be granted, though it is possible to arrange a bridging/ acquisition facility for sites with Outline planning.
- To be monitored by the lender’s appointed
- Multi-unit schemes preferred.
- Available for property development schemes in England, Scotland and Wales
- Personal Guarantees are required from most lenders, however there are a small number of lenders who do not require PG’s
What information would I need to provide?
- Applicant company name & number.
- Directors & significant shareholders CV’s or Biographies.
- Full site/ property address.
- Copy of the planning consent.
- Financial Appraisal (can exclude finance costs) and Cash-Flow.
- Detailed build costs.
- Schedule of proposed Accommodation.
- Details of the professional team (contractor, architect, structural engineer, CDM coordinator etc).
- Procurement Method (For example, Design & Build or Construction Management?).
- Any comparable sales information (or agent’s opinions) to support the proposed GDV.
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