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.
Louis Levine
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