Development exit – rescued in the nick of time
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In this week’s blog, our bridging and development specialist, Simon Deeming, tells us about how he found clients a way through a tricky borrowing situation…
“We were recently engaged by two directors of a construction company who had borrowed £4.2m on a high-end residential development project. Their existing finance was coming to an end and the incumbent lender wasn’t prepared to extend the facility because the company had experienced some recent financial difficulties. This meant that they would be forced into punitive terms and an accelerated sales campaign, potentially leading to a loss on their 2-year project.
This was not an unusual situation. Covid and its economic consequences has caused budgets to be exceeded and cashflow issues towards the end of many development projects. In turn, many lenders in this space have been left exposed with unfinished projects at high LTVs making them rather heavy handed with clients; refusing to consider refinancing and following through with penalties and default rates which, in my opinion, only exacerbate the problems.
Our clients prioritised their payment obligations to merchants and sub-contractors at the expense of their own personal finance leading to credit issues. With some small works remaining to get to practical completion and with a slow property market there was limited appetite amongst lenders for such a high value loan nudging the 70% LTV threshold.