Stretched Senior Debt refers to a first charge development facility which provides an even higher Loan to Cost or Loan to Value percentage, than a typical Senior Debt facility can allow. “Stretched” suggesting the loan goes further than a normal Senior Debt loan would, in terms of leverage.
What is Stretched Senior Debt?
Stretched debt can typically provide up to 75% of the Gross Development Value or 90% of total project costs (whichever is the lower of those two figures). Naturally, such products are only available to well experienced, professional developers, given the developers cash contribution will be a small percentage of overall costs. The enhanced risk associated with higher levels of funding is reflected in a higher interest rate compared to more conventional Senior debt.
A Stretched Senior facility can allow a developers’ equity to go further and is very often used by a developer who has more than one scheme to develop, but a limited amount of capital to deploy.
Using Stretched debt is an alternative to using a “structured” funding package which might consist of Senior Debt and Mezzanine Finance. Often the loan amounts available across the two types are comparable, but with Stretched Senior one lender provides the whole loan, whereas with a mezzanine lenders participation there would be two lenders to deal with, and possibly two lots of professional fees to pay.
It is not uncommon for a developer to want to borrow and leverage as high as he/ she can. Often new development opportunities present themselves to property developers and investors at inopportune moments in time, and as such the borrower would need to keep the cash or equity invested into each scheme, to a minimum. As such, developers are attracted to development funding options which can provide as much of the project costs as possible. Whilst there are many Senior Debt loans offering up to 65% of the GDV, or 80% of project costs, a Stretched facility can provide up to 75% of the GDV, or 90% of project costs.
Stretched facilities are predominantly used for residential developments, however there are a number of lenders who can also consider Mixed Use schemes, commercial schemes, Student Accommodation, Nursing Homes, Hotels, industrial schemes, and so on.
Up to 75% of the Gross Development Value, or
Up to 90% of Total Project Costs (including finance costs).
Arrangement Fees from 1%.
Interest Rates from 6% per annum.
Exit fees on a case by case basis.
Minimum loan size £250k, with no maximum loan size.
No profit share.
Up to 36 months.
On a First Charge basis only.
Experienced Developers only.
Detailed planning consent has to be granted, though it is possible to arrange a bridging/ acquisition facility for sites with Outline planning.
To be monitored by the lender’s appointed QS/ MS.
Multi-unit schemes preferred.
Available for property development schemes in England, Scotland and Wales
Personal Guarantees are required from most lenders, however there are a small number of lenders who do not require PG’s
Applicant company name & number.
Directors & significant shareholders CV’s or Biographies.
Full site/ property address.
Copy of the planning consent.
Financial Appraisal (can exclude finance costs) and Cash-Flow.
Detailed build costs.
Schedule of proposed Accommodation.
Details of the professional team (contractor, architect, structural engineer, CDM coordinator etc).
Procurement Method (For example, Design & Build or Construction Management?).
Any comparable sales information (or agent’s opinions) to support the proposed GDV.