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Stretched Senior Debt

What is Stretched Senior Debt?

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.

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.

What is Stretched Senior Debt used for?

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.

What are the Key Features of Stretched Senior Debt?

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.

What are the Stretched Senior Debt lending criteria?

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.

What information would I need to provide?

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.

Stretched Senior Debt Frequently Asked Questions

What type of lender can offer Stretched Senior?

Typically, these are well-established Development Finance lenders, who will naturally have to be totally confident in the developers’ ability to “deliver” the project. Provided the developer has a strong enough track record, lenders are more willing and able to offer a higher Loan to Cost or Loan to Value.

Why do I have to be experienced?

Given the enhanced loan amounts which a Stretched provider can offer, their risk is much greater, and therefore they need to be sure that the build programme is adhered to. Naturally, an experienced person is much more likely to be able to efficiently deal with any “unforseens”, and as such, these lenders will not back inexperienced developers or property professionals.

How much will a Stretched Senior facility cost?

In our opinion, such facilities can provide a very fair cost of finance, given the funders exposure. Arrangement fees and exit fees are often the same as a standard Senior Debt facility, so the difference is an increased interest rate, and typically that will be 2 or 3% above a Senior Debt rate.

Will the lender want a profit share?

No, they won’t. Only Joint Venture deals require a profit share, and Stretched Senior deals are on a Debt basis.

What is the difference between Stretched Debt and Mezzanine Finance?

Stretched Debt is provided by one lender, whereas Mezzanine finance will include a senior debt lender and a mezzanine lender, therefore two different lenders to satisfy, which both have their own costs which you will be expected to cover.

Can I get Stretched Senior with poor credit?

That really depends on the extent of the poor credit, and the explanation as to how it arose. If there is a story which a lender can sympathise with, fully understand and not be concerned by any resultant liabilities, then it is possible.

When does my money have to go in?

The developer’s cash will go in, in its entirety, towards the land purchase. The lenders facility will then cover the balance of the purchase price, and then the costs to complete the scheme.

Can we help with providing the best Senior Stretched Debt loan?

Yes, absolutely.  Get in touch now and let’s talk. As a well-established development finance broker, we have strong relationships with the lenders who can offer such facilities, and they take a certain level of comfort from knowing that we are involved in presenting and packaging loan applications.

How long will it take to get a Stretched Senior Loan approved?

Heads of Terms can be issued quite quickly, provided we have a fully detailed proposal including a development appraisal & cash-flow, detailed build costs, a copy of planning permission, drawings and plans and details of the applicants’ experience. Once the Heads of Terms have been accepted, we can get a credit backed offer in 48 hours.

Can I use a third-party contractor?

A third-party contractor is often preferred. They will need to able to demonstrate sufficient experience with the company being in good financial standing. Larger Schemes will usually require a 3rdparty contractor with a JCT in place.

Some lenders do allow the developer to manage the scheme and employ the sub-contractors and direct labour themselves.

Do High Street Banks have Stretched Senior products?

At Positive Commercial Finance we do have relationships with all the High Street banks. A Stretched Senior product is not usually offer by the high street banks. This type of product is more likely offered by finance houses, challenger banks, investment banks, managed property funds, specialist lenders, private family offices and institution and private investors.

What legal entities will Stretched Senior funders lend to?

Limited Companies, Sole Traders, LLPs, Partnerships and Offshore companies.

The most common structure is to use a Special Purpose Vehicle.

Can I get Stretched Senior in Eire?

Yes. We have options in Southern Ireland for Stretched Senior Development Finance.

If you want a fast, flexible and reliable service, try
Positive Commercial Finance.

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