£3.8m Development Finance for 14 Houses on the Exeter Growth Corridor

The situation

The client was a Devon developer with six completed schemes, mostly infill sites of five to ten units around Exeter and the Blackdown fringe, moving up to his largest project to date: 14 houses on a consented site along the eastern growth corridor, in the direction of Cranbrook, where the city's expansion has been running for over a decade. Total project cost came to £5.85 million, with land at £2.05 million, build at £3.1 million and the balance in fees, contingency and finance costs, against a GDV appraised at £6.2 million, and he needed a £3.8 million senior facility with his own £2 million of equity already committed to the land.

The corridor is a strong place to build. It is also a crowded one. Two national housebuilders have active outlets within three miles of this site, selling at volume, with sales offices, show homes and the incentive budgets that come with a plc balance sheet, and any lender looking at a 14-unit scheme in that setting is going to ask one question before any other: what happens to your sales rate and your pricing when the big sites up the road decide to shift stock.

Pricing the appraisal against the volume sites

A 14-unit developer does not win a price war with a national housebuilder. That was the starting point for the appraisal rather than an uncomfortable discovery at valuation, and we built the numbers accordingly: headline values were set below the advertised new-build pricing on the volume sites, because those advertised prices carry deposit contributions, upgrade packages and part-exchange deals that can be worth five percent or more off the true achieved figure, and the sales rate was assumed at one unit every six weeks even though the corridor's absorption data would have supported something quicker.

My advice to any developer building near a volume outlet is to take the housebuilders' live incentives into your own appraisal before the valuer does it for you, because the valuer will do it, and an appraisal that has already made the deduction reads as a developer who understands his market rather than one who has been marked down. The differentiation argument also had to be real. These were larger plots with garages and proper gardens, aimed at second and third steppers trading up out of the volume stock rather than competing head-on with it for first-time buyers, and we made that positioning explicit in the pack with a plot-by-plot comparison against what the national sites were actually selling.

What we have seen across corridor schemes like this is that the smaller developer wins on the product the volume sites do not build, and loses the moment his pricing drifts up to match theirs.

Why the high street could not do it

The developer's bank had funded two of his earlier schemes and offered terms here at 55% of cost, capped at £3.2 million, with a personal guarantee for the full facility amount and a credit process the relationship manager honestly described as twelve weeks on a good run. The £600,000 gap was one problem. The bigger problem was the bank's sales assumptions, which applied a blanket caution to the whole corridor without distinguishing this product from the volume stock, and which would have forced a term extension request before the scheme was even half sold.

We placed the case with a specialist development lender that funds the South West regularly and, more to the point, had recently been repaid on another corridor scheme, so their credit team already understood the local dynamics rather than reading them cold off a valuation report. Terms came back at 65% LTC on the full ask.

The structure

The facility completed at £3.8 million, with a day-one land tranche of £1.85 million and £1.95 million of build funding drawn monthly against works certified by the monitoring surveyor. Gearing sat at 65% LTC and 61% LTGDV, deliberately conservative for the corridor, and the money was priced in the high single digits annualised with an arrangement fee inside the usual 1 to 2 percent range and a non-utilisation margin on undrawn build monies, which on a £1.95 million build tranche drawn over fourteen months is a saving worth negotiating properly.

The 20-month term wrapped a fourteen-month build with a six-month sales tail. The tail was the argument. The developer wanted eighteen months in total, and I held out for twenty, because a corridor scheme selling into volume-housebuilder competition needs room to hold its pricing through a slow patch, and the cheapest insurance against discounting the last four units is two more months on the facility. We also agreed release pricing with the lender that stepped down slightly after the tenth sale, giving the developer flexibility at the back of the scheme without renegotiating mid-term.

How it completed

First enquiry to credit-approved terms took thirteen working days, including the lender's site visit. Valuation and the monitoring surveyor's report ran over the following three weeks, and the valuer's corridor adjustments landed within one percent of our own appraisal, which made for a short conversation. Legals took four weeks. The facility completed just over eight weeks from first enquiry, and the developer was on site within a fortnight of drawdown.

Sales opened at month nine. The first three houses went under offer inside six weeks, ahead of the appraisal rate, and the part-sales exit ran down the facility unit by unit with the retained pricing holding against the volume sites throughout.