Bridging the gap to development finance

NACFB Article – Bridging and Development Finance February/March 2013

Alan Margolis and Noel Meredith – United Trust Bank

It is easy to consider Bridging Finance and Development Finance as completely separate products, aimed at borrowers with different funding requirements. Indeed, the Bridging and Development Finance departments at United Trust Bank are set up to run as two distinct businesses. However, one of the key advantages of dealing with a lender such as UTB is that when required, the two disciplines work well together combining the two products to provide a bespoke funding solution for property developers and investors.

Although the Development Finance and Bridging teams are expert in their own fields, they have a mutual understanding of each other’s products requirements. The BDMs are attuned to the lending criteria required by their colleagues in other departments. It’s this close working relationship between divisions which enables them to recognise suitable opportunities to provide bespoke funding for borrowers.

In one particular example, United Trust Bank was approached by an experienced developer who wished to acquire a waterfront site in a coastal town with outline planning permission for a development of 14 apartments and a commercial unit. Ordinarily you might expect a developer to immediately seek development finance. However, the planning and preparation for the development was, at that stage, insufficient to be able to put together a credible proposal for development finance, especially bearing in mind the scale of the project.

Alan Margolis, Head of Bridging at United Trust Bank, explains:

“In order to make progress the developer needed finance for, amongst other things, a full ground investigation, architects fees, quantity surveyors, a structural engineer, a project manager, hoardings and site security and they approached us for bridging finance to cover these pre-build costs. Given that the site was to be the principal security for the bridging loan, and the bridge was a pre-cursor to a development loan, the bridging team worked closely with the development finance team to ensure that as many mutual issues of concern were addressed before the bridging facility drew down.

“After looking at the overall proposition   and consulting with the Development Finance team, the Bank agreed a bridging facility and  took first charges over both the site and the customer’s own residence supported by a personal guarantee. This represented a LTV of only 17%, but the issue here was not the amount of security but the timescales to secure the site and allow for the development proposition to be worked up.”

Over the following six months, the developer completed all of the necessary investigations and preparations and finalised a robust development finance proposal. This included providing a Structural Engineer’s report, a detailed build specification for the apartments and commercial unit and enlisting the services of an experienced main contractor. With the customer now ready to move into the development stage they submitted their proposal for a substantial development finance facility.

Noel Meredith, Director of United Trust Bank and head of the Development Finance Department continues: 

“The developer had used the bridging facility effectively and over six months had completed a thoroughly professional job of planning a high specification waterfront development of 14 upmarket apartments enjoying stunning sea views. These are going to be very desirable properties when finished to the highest standard and together with the commercial unit the development had an estimated GDV of £8.2m.”

“For the build stage the developer needed a facility of just over £4.4m representing around 54% of GDV. Having progressed from initially approaching us with nothing more than an attractive site, the developer now had a well prepared and fully worked through proposal for a substantial loan. Having worked closely with our colleagues when they were agreeing the bridging finance we were now able to make the smooth transition from a £387,000 bridging facility to a £4.4m development finance loan. The build is now underway and the development should be completed in around 15 months.”

The Bridging and Development Finance teams at United Trust Bank were able to combine their expertise to provide a bespoke funding solution to the developer. Having two highly skilled teams working closely together under one roof, United Trust Bank regularly demonstrate to their customers a creative and flexible approach enabling developers to swiftly acquire sites and carry out their development projects.