Squarefoot Capital

Debt lenders see hundreds of opportunities every month and lend on a handful.

With every deal appraisal we see at sqft.capital - there is an opportunity for financial engineering and better presentation; making your deal more profitable or de-risked by the correct structuring of a spreadsheet and supporting information. Typically, this results in quicker and easier debt lending and at a lower cost or higher profit to you.

Debt lenders see hundreds of opportunities every month and lend on a handful. This means that their main job is to sift through all applications, identify the good ones and support them to their internal credit panel. This means that lenders see all types of presentation of deals - which ones do they support? The ones that are correctly and neatly laid out, show a clear numerical appraisal with supporting evidence and a clear business plan to make a profit - ideally this is all shown in a manner that is easy to read. By presenting a deal in this way, your scheme will quickly find itself to the top of the pile, well above the pile of fag-packet calculations. It is vital to note, lenders are not desperate to put money out of the door - their focus is to support profitable schemes from capable developers.

sqft.capital is building an evolving tech-platform to allow you to do all of this quickly, and for free.

All debt lenders have strict criteria they must hit in order to make a loan - and so many developers do not deliver this, meaning refusals to lend or long and arduous work getting information correct and ordered - all while under time-pressure of a seller.

Headline low-interest rates and high Loan To Values may sound appealing but do not equate to guaranteed lending. All lenders are competing with each other so have to appear more appealing than others, in order to stand out. They need to stand out to get leads sent into them. These headline rates are therefore not for the developer, but for the lender as a sales tool.

So what do debt lenders require from a developer?

From their perspective, they need to protect their money, reduce any risk of losses and have a predictable outcome (interest) allowing them to raise more money from their funders.

It is commonly thought that many debt lenders are a huge bank account which they are not - all debt lenders have to raise money themselves on which they have to pay a return so, in order to take a higher return from borrowers (property developers), they need to protect their loans to prevent default, and make their margin.

What is Senior debt?

Senior debt forms the largest part of development finance as it is the biggest tranche, usually lent by banks and specific lending institutions - most similar to mortgages. Banks that hold significant client money (from saving accounts etc.) look to then deploy that money it holds, in order to make a return on it. These deployments of funds will range from very low risk (but high security, such as bonds) to higher risk lending such as development finance.

Senior debt is generally defined as “last money in, first money out” and makes up the largest part of the costs of a project, typically 60% to 90%. The balance of the costs (the “shortfall”) will have to be made up by the developer, known as the equity.

The senior debt lender will have professionals produce reports on the value of the land/development, the costs of the proposed works and any legal matters around a sire or borrower. Once content with these, they will lend the money on a fixed interest rate (known as a “coupon”) which is usually between 4% and 12% - according to the perceived risk. This interest is usually rolled-up, so the borrower does not have to pay monthly (or “service”) interest like a mortgage but allows the developer to pay back the loan (“principle”) and rolled interest at the end of the project, out of the profits.

The senior debt lender will employ a Project Monitoring Surveyor (PMS) to give monthly reports on progress and sign off payments to contractors and professionals, as progress is made - ensuring the lender never pays out more than the developer has spent (to protect their security).

A total debt facility on a project will be split into sections:

The land loan - the amount of money that goes towards the purchase of the site.

The development loan - the sum of money to pay for all of the development of the site.

The interest facility (“retained interest”) - the amount of interest that the lender will roll-up (not need to be serviced monthly) to be paid at the end.

The fees - arrangement and exit fees.

sqft.capital exists for property developers only. We believe we can, through the right use of data and human oversight:

Give borrowers a clear picture of all lenders in the market, their lending rates and their capability.

Reduce the average duration of a loan arrangement from 134 days to under 3 weeks.

Reduce the costs of lending and associated fees by creating competition between lenders.

Traditional Brokers

Relationships - Have a select number of relationships with lenders, meaning a borrower only gets exposure to limited finance options with no awareness of how competitive it is.

Product selection - Typically only raises senior debt.

Optimisation - Sends your information onto a lender, hoping for terms.

Presentation - Forwards whatever information they have to a lender to organise and understand.

Indicative terms - Do not provide finance illustrations.

Fees - Expect a fee for making an introduction.

Data support - Do not provide data to support your deal.

Lunches - Love a lunch.

sqft.capital

Relationships - Allows borrowers access to the entire property development finance market and matches your deals with the most competitive rates.

Product selection - Specialises in debt, mezzanine, joint-venture equity, bridge and exit facilities.

Optimisation - Breaks down and analyses your financial model to ensure either highest profitability or lowest equity requirement from you.

Presentation - Presents all of your deal information in an easily readable and well organised manner to allow a lender to understand it quickly and offer terms.

Indicative terms - Provides a free deal modelling tool to illustrate the cost of debt, mezzanine or equity on a deal.

Fees - Earn a fee (that is reducing as more people use the platform) for sourcing the best finance products on the market for each specific deal, and pushing the deal to closure, while sourcing and integrating other funding such as mezz or equity.

Data support - Collect and provide data that supports your deal to a lender in order to ensure funding on the best terms.

Lunches - Don’t do lunches - we do deals

There is more to development finance than senior debt, and the headline rate.

sqft.capital exists to help you to source the right level of funding from the right lenders to structure.

sqft.capital is a platform solely for UK property developers to model deals and raise funding, quickly and consistently.

Check the latest infographic from Sqft.Capital-Property Development Deal

With every deal appraisal we see at sqft.capital - there is an opportunity for financial engineering and better presentation; making your deal more profitable or de-risked by the correct structuring of a spreadsheet and supporting information. Typically, this results in quicker and easier debt lending and at a lower cost or higher profit to you.

Debt lenders see hundreds of opportunities every month and lend on a handful. This means that their main job is to sift through all applications, identify the good ones and support them to their internal credit panel. This means that lenders see all types of presentation of deals - which ones do they support? The ones that are correctly and neatly laid out, show a clear numerical appraisal with supporting evidence and a clear business plan to make a profit - ideally this is all shown in a manner that is easy to read. By presenting a deal in this way, your scheme will quickly find itself to the top of the pile, well above the pile of fag-packet calculations. It is vital to note, lenders are not desperate to put money out of the door - their focus is to support profitable schemes from capable developers.

Check out the latest infographic from the sqft.capital

Sqft.Capital-The fastest way to development funding

sqft.capital is a platform solely for UK property developers to model deals and raise funding, quickly and consistently.

Property Development finance is traditional industry that relies a lot on human-to-human contact which lacks the efficiency that technology can provide. sqft.capital looks to put the power in the hand of the developer by first helping to model the capital stack that gives the developer the highest level of profit - and then introduce family offices, lenders and private equity who are geared up to fund profitable schemes. sqft.capital allows the developer to raise both their debt and equity in one place, quickly and consistently, instead of going to multiple lenders.

Check out here to know more about Model deal page

Property development and the associated financing comes with a huge amount of jargon. This glossary will help your understanding of the principal concepts and commonly used terms frequently used in the industry. Feel free to contribute: email us with terms you believe deserve to be featured.

Raising finance for property development quickly & consistently. Model deals & optimise your bridging loan for property development with our free tool & connect with lenders.

The UK property developer's platform to model deals, optimise profits and raise debt and equity, quickly and easily.

There is more to development finance than senior debt, and the headline rate.sqft.capital exists to help you to source the right level of funding from the right lenders to structure.

The products that sqft.capital has access to are:

Senior debt to super-stretched senior debt

4.25% - 12.00%

It is possible to access up to 75% LTV through non-standard lenders though cheaper debt is available with rates and lender’s appetites constantly changing. Gain live access to not just the best rates but the most suitable lenders.

Mezzanine debt.

14% - 25%

Rarely understood but very powerful to reduce the equity requirement needed to be put in and typically leaving more profit to the developer than having an equity partner.

100% development finance.

8% - 12% + profit share

Typically with family offices who are happy to lend, given first charge security.

Overview

Property development finance relates to any money or capital required to fund the development of a property or site of properties. It tends to run as its own industry within finance ranging from the smallest refurbishments to large scale multi-house sites.

The industry is considered “non-regulated” meaning that it does not have to adhere to the stricter lending criteria of, say, mortgages because property developers are considered professionals (whereas mortgages are used by homeowners - not business-related) - and development finances always requires lending to a corporate body - a company, as opposed to an individual.

There are various elements to property development finance, which are known as “tranches” (the French word for “slices”). These slices are defined by their risk and return - where a higher risk will generate a higher return and a lower risk will generate a lower return but have more security (probability of being paid back). These tranches are known as senior debt, mezzanine / junior debt and equity - each of these can also be subdivided to give specific types (such as “stretched” senior debt).

The correct use of each type of tranche can be used to generate the preferred outcome of the funding - from cheapest funding to highest potential profit. The property development industry - being driven by security and returns on lending, can and has traditionally been very difficult to infiltrate and rarely consistent to borrowers due to it’s levels of complexity and lack of ways to learn.

PROPERTY DEVELOPMENT

What is Senior debt?

Senior debt forms the largest part of development finance as it is the biggest tranche, usually lent by banks and specific lending institutions - most similar to mortgages. Banks that hold significant client money (from saving accounts etc.) look to then deploy that money it holds, in order to make a return on it. These deployments of funds will range from very low risk (but high security, such as bonds) to higher risk lending such as development finance.

Senior debt is generally defined as “last money in, first money out” and makes up the largest part of the costs of a project, typically 60% to 90%. The balance of the costs (the “shortfall”) will have to be made up by the developer, known as the equity.

The senior debt lender will have professionals produce reports on the value of the land/development, the costs of the proposed works and any legal matters around a sire or borrower. Once content with these, they will lend the money on a fixed interest rate (known as a “coupon”) which is usually between 4% and 12% - according to the perceived risk. This interest is usually rolled-up, so the borrower does not have to pay monthly (or “service”) interest like a mortgage but allows the developer to pay back the loan (“principle”) and rolled interest at the end of the project, out of the profits.

With every deal appraisal we see at sqft.capital - there is an opportunity for financial engineering and better presentation; making your deal more profitable or de-risked by the correct structuring of a spreadsheet and supporting information. Typically, this results in quicker and easier debt lending and at a lower cost or higher profit to you.

Debt lenders see hundreds of opportunities every month and lend on a handful. This means that their main job is to sift through all applications, identify the good ones and support them to their internal credit panel. This means that lenders see all types of presentation of deals - which ones do they support? The ones that are correctly and neatly laid out, show a clear numerical appraisal with supporting evidence and a clear business plan to make a profit - ideally this is all shown in a manner that is easy to read. By presenting a deal in this way, your scheme will quickly find itself to the top of the pile, well above the pile of fag-packet calculations. It is vital to note, lenders are not desperate to put money out of the door - their focus is to support profitable schemes from capable developers.

sqft.capital is building an evolving tech-platform to allow you to do all of this quickly, and for free.

All debt lenders have strict criteria they must hit in order to make a loan - and so many developers do not deliver this, meaning refusals to lend or long and arduous work getting information correct and ordered - all while under time-pressure of a seller.

Headline low-interest rates and high Loan To Values may sound appealing but do not equate to guaranteed lending. All lenders are competing with each other so have to appear more appealing than others, in order to stand out. They need to stand out to get leads sent into them. These headline rates are therefore not for the developer, but for the lender as a sales tool.

So what do debt lenders require from a developer?

From their perspective, they need to protect their money, reduce any risk of losses and have a predictable outcome (interest) allowing them to raise more money from their funders.

It is commonly thought that many debt lenders are a huge bank account which they are not - all debt lenders have to raise money themselves on which they have to pay a return so, in order to take a higher return from borrowers (property developers), they need to protect their loans to prevent default, and make their margin.

Any debt lender or bank will have to process all deals through a credit panel for “sanction” - which is commonly a board of directors and shareholders of the lender and their investors.

Money doesn’t grow on trees - unless you plant them on your new development’s sun deck / oasis / city garden. A rather over exploited concept is that property development is a license to mass-print the aforementioned lifestyle-tokens. Let’s start this content by hoofing that alluring concept into touch before we look at how to make money.

Residential property development can be very profitable, however equally costly if not approached with vigilance. In this blog series over the coming weeks, we reveal our 15 key lessons that are the result of experiences in the recent past. These lessons have been learned the hard way, sharing our experiences so you don’t have to make these same mistakes. Hard work, determination and the sqft.capital deal modelling tool coupled with these rules to live by will lead to that long and profitable property development career you dreamt of.

Property development can make money - it can make very good money. So can putting all of your life savings onto black. So, can having the audacity to call 'hit me’ when your holding a pair of faces (the difference is here that you have an 8% chance of success - guaranteed – knowing these odds however should give some real perspective as to your next move).

Before advancing and after processing this blog series, it is highly recommended that before you chose this direction in life (as it is a committed direction, not a hobby):

1.    You must establish why you wish to do it, and

2.    What you wish to accomplish from it.

The intention of this long-form content is to assuage fears about this business, confirm doubts, dissuade gambling and make you a ton of money. If that is actually what you want.

Deciding why you want to be a property developer (or what skills you have that mean you might be any good) is a step many jump over. The appeal of finding an old wreck and turning it into a stunning home is the belief many have of what property development is. The truth is that development is about making profit in a safe and risk-assessed manner. Having an ability to spot that wreck will make you no money (and very likely lose you lots) but assessing potential profit after costs on an average house will give a chance of success. As such, getting into this business without a love of spreadsheets is dangerous.

Residential property development can be very profitable, however equally costly if not approached with vigilance. In this blog series over the coming weeks, we reveal our 15 key lessons that are the result of experiences in the recent past. These lessons have been learned the hard way, sharing our experiences so you don’t have to make these same mistakes. Hard work, determination and the sqft.capital deal modelling tool coupled with these rules to live by will lead to that long and profitable property development career you dreamt of.

"Would you like the idea of flying to Milan to identify a new piece of furniture for your new development? Or would you prefer to crunch spreadsheets?"

This question can be the crux in determining whether you lose money (big-time), drawn even or make serious dollars. To make money (more specifically a minimum profit, which is the primary intention of any business), property developers must be totally focused on numbers, and this is where the sqft.capital modelling tool becomes invaluable.

Numbers means a constant projection of every deal that changes daily with fluctuations in costs, timescales, debt, projected GDV etc. Your head needs to own these numbers because no one else will, and in doing so - YOU MUST NOT BE UNREASONABLY OPTIMISTIC. This sounds like huge pessimism but this mistake puts more developers into trouble more than any other.