£11.5m Development Finance for 18 Units in Beaconsfield

The situation

The client was an established Home Counties developer with a track record across South Buckinghamshire and Berkshire, moving up in lot size after a run of successful smaller schemes. The site was a former care home and its grounds in Beaconsfield, held under a consent for 18 units, ten family houses averaging around £1.45 million and eight apartments averaging just over £500,000, giving an appraised GDV of £18.6 million supported by sold evidence from the old town and the surrounding streets.

Total project cost came in around £17.7 million. Land at £6.8 million, build at £8.7 million, with professional fees, contingency and finance costs making up the balance. The developer was contributing £6.2 million of equity and needed an £11.5 million senior facility to complete the land and fund the build through to practical completion.

Beaconsfield is about as resilient as premium Home Counties markets get, grammar schools, the Chiltern line into Marylebone, and a buyer pool that is less rate-sensitive than almost anywhere outside prime London. None of that makes an appraisal bulletproof. Premium pricing brings its own risk, and on this scheme the risk lived in the unit mix.

The unit-mix problem

A £1.45 million house does not sell on the same clock as a £500,000 apartment. The apartments on this scheme had a deep buyer pool of downsizers and commuters and would move quickly at launch, but the houses sat in a price band where one or two sales a quarter is a genuinely good result, and an appraisal that assumed the houses would sell like the apartments would have been fiction. Fewer, bigger, slower-selling units concentrate the risk: each house was carrying roughly three times the debt of each apartment, so a slow quarter on the houses moves the whole facility.

What we have seen across the premium schemes we fund is that nine times out of ten the number that kills an appraisal at credit committee is the sales rate, not the build cost, so we stress-tested it before any lender did. My advice to any developer working above the £1 million unit price is to model your sales rate from Land Registry completions in the actual price band and postcode, not from the agent's launch-weekend optimism, because the lender's credit team will run exactly that check and the appraisal needs to survive it.

We modelled the scheme at three sales rates, with the slow case assuming the apartments cleared in the first six months of the sales period and the houses sold at five per year. Even in that case the facility redeemed inside term with margin, and that piece of work, done before the case went anywhere near a lender, is what let the facility complete at full gearing rather than with a haircut.

Why the high street could not do it

The developer's bank offered a facility capped at just over half the requirement, at a lower LTC, with amortisation triggers tied to quarterly sales targets on the houses. Sales-target covenants on a premium scheme are a trap. Miss one quarter because two buyers are slow on conveyancing and the facility is technically in breach, with the lender holding repricing rights, on a scheme that is otherwise performing exactly to plan.

The specialist lenders who fund £10 million to £30 million Home Counties schemes every month understand that premium stock sells lumpily, and the right ones structure for it rather than covenanting against it. My role was to take the sensitivity work to the lenders whose credit appetite matched the scheme, and the facility we completed carried no sales-rate covenant at all, just release pricing and a term long enough to let the houses sell at the pace that market actually runs at.

The structure

The facility completed at £11.5 million, split as a day-one land tranche with the build funding drawn monthly against monitoring surveyor certificates. Gearing sat at 65% LTC and 62% LTGDV, the facility priced in the high single digits annualised with an arrangement fee in the standard 1% to 2% range, and interest rolled up within the facility across the term.

The 24-month term was the structural decision that mattered. The build programme was 16 months, and we built an eight-month sales runway on top, weighted for the houses rather than the apartments. Release pricing was tiered by unit type, with the apartments releasing at a higher multiple of their allocated debt in the early months, so the quick apartment sales pay the facility down fast and buy patience for the houses to sell at full value rather than being discounted to hit a date.

The monitoring surveyor was appointed at credit approval, reviewed the appraisal, the build contract and the programme before completion, and certified each monthly drawdown against work completed on site. On a £8.7 million build that discipline is not optional, and the developer's QS was reporting to the surveyor's format from month one.

How it completed

First enquiry to credit-approved terms took three weeks, longer than a smaller scheme because the lender's credit team visited the site and interrogated the sales sensitivity work line by line. Valuation and the monitoring surveyor's initial report ran concurrently over the following month. Legals took five weeks, with the collateral warranty package across the professional team the slowest item, and the facility completed a little over twelve weeks from first enquiry. Demolition of the care home started within a month.

The apartments launched off plan at first fix. Five of the eight were reserved before practical completion, which is exactly what the release pricing structure was built to capture, and the early redemptions took the pressure off the house sales from the first month of the tail.