The newest member of the Arc & Co. team Thomas Berry, has published a 3-part series about Bridging Finance:
Part 1: Bridging Finance
Part 2: First and Second-Charge Bridging
Part 3: Bridging to Acquire Land
PART 1: BRIDGING FINANCE
Over the next three weeks, I will be publishing a series of articles exploring the intricacies of bridging finance and the variety of uses. Bridging finance is a very useful tool and can provide solutions to problems that on first glance, will be difficult to solve. There is a lack of awareness surrounding the bridging products on offer and the solutions they can provide, and I want to provide more insight into this.
Use: Development Exit Bridge
Problem : You have a number of units left to sell and the end of the loan term is fast approaching
In the current climate, developers are finding that the speed of new build sales has slowed down. By the time your development facility needs to be redeemed, there is a strong possibility that a number of units will remain unsold. Depending on how many of the units have sold to-date, you may be in a position where the current loan-term versus the sale of the units is not running parallel.
Solution: At Arc & Co. we can implement a development exit bridge loan to facilitate a longer sales period for the client; ultimately eliminating any risk of a default rate.
Problem: You’ve spotted a new development scheme whilst completing a current project
Whilst securing the remaining sales on a current development project, it is very common for a developer to spot a new opportunity which they are keen to secure. However, liquid cash can be limited due to your equity being locked into the current development project.
Solution: At Arc & Co. we can design and structure a bridge loan to enable the release of capital from your current project, allowing you to fund your next project. By opting to refinance the current project, this allows you to utilise the embedded equity at a much faster rate and to go on to secure the next project.
PART 2: FIRST AND SECOND-CHARGE BRIDGING
Scenario: Adding value through enhanced planning
A lot of the clients that we work with are looking to add value to their development schemes through gaining enhanced planning. However, a good percentage of bridge lenders do not take the increased value into account.
Solution: Through our many years of experience working with developers in such scenarios, we do place an increased value on gaining enhanced planning and understand the ‘doors’ that this can open for the developer. We work with a number of second-charge bridge lenders who are willing to consider the increase in value and then leverage off this. Alternatively, developers can instruct a first-charge bridge lender who will recognize the increased value in the land and leverage up to 90% of the purchase price - subject to this not exceeding 70% of the enhanced value.
Scenario: Market uncertainty?
Due to the current market uncertainty, first-charge bridging lenders are reducing their exposure levels. This is making it difficult for us to find solutions for developers who are looking to amend their current, stretched senior development facilities.
Solution: A second-charge bridging specialist can gear up to 75-80% Loan-to-Value (LTV) to enable the developer to exit the development facility. Typically in this scenario a first charge lender would fail to achieve the above figures in order to remove the development facility.
PART 3: BRIDGING TO ACQUIRE LAND
1. You want to gain a competitive advantage
The speed at which bridging finance can be put into place can give you a competitive advantage during the land acquisition phase. Land in prime development areas can be snapped up very quickly, so it is important that you are quick off the mark. It may take a long time for the traditional financing process to go through, which means there is a risk of losing your land acquisition to another buyer.
2. You don’t have planning permission yet
When buying land using bridging finance, you aren’t subject to the same demands that traditional long-term finance places on you. This means that you can make the purchase regardless of whether planning permission has been granted, utilities are in place or you have access to the premises. For example, bridging allows you to purchase the land and make any changes or apply for permissions that you need for your development finance thereafter.
At Arc & Co, once we have a good understanding of the clients past experience and the premise of the intended project and providing that the lenders is comfortable and can see a good exit strategy. It is possible to facilitate a bridge loan to acquire land with or without planning.
If you would like to discuss about a bridging requirement, please contact:
+44 (0) 20 3205 2192