7. Development Finance

Question 1

What are the two main methods of funding?

Answer 1

1. Debt finance - Lending money from a bank or other funding instritution
2. Equity finance - selling shares in a company or joint venture partnership or own money used

Question 2

What is a LTV?

Answer 2

Loan to value ratio - typically in the reigon of 60%,

Question 3

Why might lenders adiot a LTC rather and a LTV?

Answer 3

Loan to cost rato may be adopted in difficult markets (e.g. 60%)

Question 4

What is interst calculated on?

Answer 4

A rolled-up basis - i.e. added to the loan as the project proceeds

Question 5

What is senior debt?

Answer 5

The first layer of borrowing which takes precedence over secondary/mexxanine funding

Question 6

What is Mezzanine funding?

Answer 6

Additional funding for the additional monies required over the normal LTV lending

also known as “secondary funding”

Question 7

What are swaps (rates)?

Answer 7

A form of derivative hedging rate for interest swaps

A swap rate is the market interest rate for fixed rate, fixed loan terms

Question 8

What are other methods or arraning finance?

Answer 8

Joint ventures - 2 or more parties joing to develop
Forward sales - where completed scheme pre-sold to either an investor or occupier