Joint Venture Property Development Finance In North England
The Scenario
A regional house builder, who had a successful 15 year history of property building in the north west of England, required a substantial amount of finance to fund their next development project.
The developer purchased a piece of land in Cheshire, which they intended to build a 13 house site on, by securing a long term revolving credit facility with a high street bank.
As a result of an unforeseeable policy change with the bank, the developer was denied a further extension of the facility to cover the cost of construction.
The Solution
In order to start construction and avoid any costly delays, a joint venture package was arranged for the developer.
The joint venture package was agreed as the following:
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The developer had to provide 5% of the total cost of the project - £169K
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The joint venture partner agreed to contribute the remaining 95% - £1.76M
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The joint venture partner would take first charge over the site until repayment
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Total facility - £1.94M
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Term of finance – 15 months
This joint venture facility was calculated on a peak cash flow basis for the acquisition and construction of Phase 1 of the site in Cheshire.
The finance provided allowed the developer to repay the facility from their existing bank and realise a land profit on day 1.
Financial Details
The full breakdown of the development appraisal can be found below:
| Gross Development Value (GDV) | £4,146,753 |
| Land (Including Fees) | £ 809,250 |
| Warranted Build Cost | £2,228,737 |
| Marketing & Selling | £ 125,000 |
| Monitoring Fee | £ 15,000 |
| Finance Fees | £ 26,500 |
| Total Costs | £3,204,117 |
| Gross Development Profit | £ 942,636 |
| Gross Margin On GDV | 22.70% |
| Interest Charge | £ 201,359 |
| Development Net Profit | £ 741,267 |
| Number Of Units | 13 |
| Total Internal Square Foot | 18,552 |
| Sales £/Square Foot | £ 224 |
| Average Unit Sales Price | £ 318,981 |
| Warranted Build Cost £/Square Foot | £ 120 |
| Project Duration | 15 Months |
The Outcome
The joint venture facility enabled the developer to finish the construction of the project and sell the entire 13 house site within the agreed term of finance.
|
Developer's Profit Share (60%) |
£ 444,766 |
|
Return On Investment |
263% |
On the back of this successful project, the developer and the joint venture partner have agreed to begin another development of 10 units just south of Manchester.
Alex Chambers
Senior Finance Broker
Bristol
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Luther Yeates
Finance Broker
Bristol
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James Palmer
Senior Associate
London
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Sam ONeill
Senior Finance Broker
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Robert Gibb
Senior Finance Broker
Bristol
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Adam Arnott
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Bristol
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