Our Joint Venture Development Finance
FREE Joint Venture Development Finance Advice
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Jonathan Smith – (CeMAP, BA Hons, Aff SWW, CeRER)
When you want to commence a new development project but don’t have the financial means to apply for development finance, there is a solution. Joint venture development finance allows you to secure 100% of the funding you need. This means that there’s no need to miss out on a good investment opportunity when you don’t have a deposit to hand.
At Trinity Finance, we can help you to secure funding for your project whether you’re an experienced or inexperienced developer. We work with specialist lenders and private banks offering flexible funding solutions when you’re unable to provide any capital. Here, we’ll explain what joint venture development finance is and how it works, the eligibility criteria and the application process.
What is joint venture development finance?
Joint venture (JV) development finance allows you to fund your development project without having to pay a deposit. Also known as 100% development finance, it mainly applies to residential development projects although it can be considered for mixed-use and commercial projects. For example, the funds can be used for:
- Conversions or extensions
- Flats or houses
- New builds
- Mixed-use properties
- Multi-unit properties
- Commercial developments
The lender provides the funds you need to buy the land, pay for the materials, cover the labour costs and meet the project management costs. In return for providing all of the funds, the lender retains a share of the profits when the project is completed.
How does joint venture development finance work?
As mentioned above, the lender provides you with all of the funds needed to purchase the site, cover the build costs and pay for any related expenses. A substantial profit share is agreed upon in exchange for this. This is typically about 40% to 50% of the profits generated from the finished project. Detailed planning permission is usually required to be in place as is a personal guarantee. These minimise the lender’s risk.
Joint venture financing can start from about £250,000 and extend into the millions, depending on the lender. Some lenders charge interest as well as requiring a profit share. As you might expect, the interest rates for JV development finance tend to be higher than for other types of funding. The interest is usually rolled up so that you don’t have to pay it until the end of the loan term. This helps to free up your cash flow as there’s no need to make monthly interest payments.
The project length will be stipulated, such as 12 months, 24 months or up to 36 months. As the lender is providing all of the funds, you’re expected to complete your project within the agreed time frame as well as within the budget.
A special purpose vehicle (SPV) has to be set up between you and the lender. This is where the project is held and the funds are released in instalments as each development milestone is reached. An agreement will be drawn up between both parties, detailing the role of each one. Once the development project has been completed, you need to adhere to your exit strategy, such as selling the units, and then repay the loan. The profits will be divided between you and the lender according to the terms of your agreement.
Get expert advice on joint venture development finance
Our mortgage and protection brokers – located in Kent, London and Edinburgh – are ready to answer any queries you may have on joint venture finance. They can discuss your development project plans and your funding needs before guiding you on the application process. When you’re ready to proceed, they’ll source the best joint venture funding deal to meet your needs. This will allow you to get started on your project without the need to invest any capital yourself. Just give us a call on 01322 907 000 to speak with one of our specialist brokers. If it’s out of office hours, simply send your details to us by email at firstname.lastname@example.org or via our contact form. We’ll reply to you as quickly as possible with more information about the development finance options available.
Joint venture development finance eligibility criteria
This type of finance is generally only available to experienced developers as joint venture lenders take on all of the risk by providing all of the funds. There are lenders, however, who will accept inexperienced property developers. In this case, a project manager, quantity surveyor or building contractor is likely to be needed to oversee the development project.
Each JV finance application is assessed on a case-by-case basis. Joint venture lenders take various factors into consideration, such as the size of the development project, the types of properties, the location, the length of the project and your previous successful development projects. Other criteria for joint venture development finance usually include:
- Detailed planning permission must be in place.
- You need to provide a good business plan.
- You need a strong exit strategy.
- A personal guarantee is required.
- A high level of return must be achieved on the lender’s investment. For example, a net return on costs of 20% or a gross return of 30%. This high return on investment often means lenders expect a gross development value (GDV) of £1 million or more.
Applying for joint venture development finance
You can apply for joint venture finance as an individual, a partnership, a limited company or a trust. As the financial risk is solely down to the lender, they will assess your application based on your experience, your exit strategy and the profit to be generated from the development project. As mentioned above, joint venture lenders prefer experienced developers with a successful history of similar development projects.
You need a strong exit strategy, such as selling the units upon completion. The lender must be convinced of the saleability of the units so you need to prove that there’s a high demand for them. This is why lenders often take the location of the development project into consideration before agreeing to provide JV funding.
Regarding the profit, there needs to be a high margin over the costs. This is typically 20% to 30% although the higher the better from the lender’s point of view. The development project must usually have a minimum gross development value (GDV) of £1 million to be attractive to lenders. Those with a GDV of £2 million or more are favoured by joint venture lenders.
The information required for a JV finance application
You’ll need to supply the following information to apply for joint venture development finance:
- The site address
- Designs or drawings
- A copy of the planning permission
- Detailed costings
- The schedule of works
- Details of your development experience
- Details of your project’s team, such as the architect, contractors and project manager
- The projected value of the completed development
- Details of your exit strategy
Comparables to validate the anticipated GDV
Increase your chances of a successful joint venture development finance application
It’s essential to reassure the lender that the risk has been minimised as much as possible. Provide them with detailed information as to how any risk factors will be addressed when it comes to the construction and sale of the development. Supply details that confirm how profitable the development will be. The lender needs to have confidence in you and the project so give them as much documentation as you can to back up your proposal.
The benefits of joint venture development finance
Being able to partner with a JV development finance lender enables you to proceed with a project when you either don’t have any capital to invest or your capital is tied up in another project. This ensures that you don’t miss out on a profitable investment opportunity should one arise. You can benefit from:
- 100% funding for the site purchase and development costs
- A fast turnaround for the application process and release of funds
- An equal profit share or one that is in your favour
Take advantage of 100% funding for your project with joint venture development finance
When you don’t have any capital for a new project or your capital is already invested in another one, take advantage of joint venture development finance. This provides you with 100% funding from a JV lender so that you can proceed with your development project. Our mortgage brokers – located throughout Kent, London and Edinburgh – can help you every step of the way. This includes checking your eligibility, processing your application and finding the best JV funding solution for your needs.
Just give us a call at Trinity Finance on 01322 907 000 to discuss your project and development finance requirements. We’ll present a tailored application to the most suitable lender to ensure that you benefit from a successful outcome. If you prefer, send an email to us at email@example.com or an enquiry via our contact form. One of our development finance specialists will reply to you as quickly as possible with further details.
Yes, all joint venture lenders expect a personal guarantee to be provided. How much this equates to can vary between lenders but most will accept a personal guarantee that’s capped at 20% of the loan amount.
Lenders have their own expenses to cover so charge you fees and interest for this reason. They provide all of the money you need for your project, including buying the land, paying for the materials and covering the labour costs. You don’t need to invest any capital at all but, in return, the lender asks for a profit share. This can be an equal 50/50 share or a profit share that’s in your favour, such as 40% for the lender and 60% for you. If they didn’t invest the funds, you wouldn’t be able to proceed with the project. Therefore, it makes sense to do this and benefit from a profit-sharing arrangement.
Yes, provided that you supply additional security. This is usually in the form of land or property, such as your home or an investment property. If you’re unable to provide extra security for the lender, you’ll have to enter a profit-sharing arrangement.
Yes. The joint venture lender is already taking on all of the financial risk by providing the funds for the entire development project. Having full planning permission in place reduces their risk.