Is Mezzanine Lending still Available for Property Development?

In the dim and distant times before the credit crunch, mezzanine lending was readily available to give property developers access to 100% finance for their projects. Mezzanine funding is not cheap, at 100% level of funding the mezzanine lender would expect a 50% share of the total profits.

Is mezzanine lending still available? As usual the answer is both yes and no. Yes it is still available but now normally at only up to 85% to 90% of the total project costs. The development scheme has to have a minimum of 25% profit and the developer has to be very experienced in completing successfully developments of a similar nature. For extremely profitable developments in prime locations 100% funding may be available, but this would be the exception than the rule. These days all lenders like to see the developer to put money into the project, this is generally known as “hurt money”. The reasoning behind this is if the development runs into financial difficulties the developer will lose money as well as the lender, the developer will therefore work harder to prevent this happening.

Will 100% development funding ever be available again? Not until confidence in the property market returns. When this happens then more lenders will enter the market increasing the competition, this will drive down the costs paid and increase the level of lending available compared to the overall development costs. In the current climate we have not reached this stage yet and mezzanine lenders are still few and far between, this allows them to cherry pick schemes they will lend on.

At Sunrise Commercial Finance we have access to some funders who provide mezzanine junior debt lending behind the senior debt. For more information contact one of our Senior Advisors for a free no obligation consultation.

We also welcome enquiries from lenders, ether existing Mezzanine Lenders, Hedge Funds or Private Finance about how we can collaborate together in providing finance to property developers or for bridging loans.

Tags: development, lending, mezzanine, property

This entry was posted on Thursday, July 29th, 2010 at 4:32 pm and is filed under Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.