How Planning Flexibility is unlocking Ground-up Development schemes

by George Ormerod, Senior Relationship Manager at Avamore Capital

Over the last few years it has been increasingly difficult for ground-up development schemes to stack up for developers, landowners and lenders.

In the time that it takes to jump over the hurdles of red tape and wait for a planning application to be approved, the market can have changed dramatically – especially with today’s political and economic uncertainty.

Any delays can lead to a purchase falling through, contractors no longer being available and more interest being charged or finance terms needing to be extended.

With build costs rising and the sales market remaining stagnant, sites with planning consent are becoming less profitable or even viable at all.

Developers are having to reassess their expected returns which leads to downward pressure on residual land values, making it harder for landowners and developers to agree on the purchase price of a site. Deferred purchase agreements and joint ventures have become increasingly common as solutions to this issue.

Rather than building out a scheme that has already been approved, many developers are taking a strategic approach by reviewing existing planning consents and identifying opportunities to maximise values that would make them more commercially successful.

This could be by reconfiguring layouts to increase the number of units, with a greater number of smaller units which could be more sellable, or even by decreasing the number of units, with fewer but higher-value units, depending on marketability and sales demand.

At Avamore Capital, we\’ve seen a growing number of borrowers looking to optimise their schemes with additional planning. This increases the borrower’s profit, but also de-risks our loan and often unlocks the ability to progress with a deal.

Despite the added complexity, we can underwrite deals where multiple planning applications are being considered, taking a pragmatic view of both the existing consent and the proposed enhancements. We provide funds to complete the purchase of the site and make a start on the construction, where possible, without having to wait for the final scheme to be granted.

Once granted, we simply increase the build facility accordingly without having to refinance onto a whole new loan, keeping the borrower’s finance costs down in the process. If there is room in our leverage as a result of the GDV being uplifted, we can offer an equity release to the borrower too.

This product feature can be applied not only to ground-up developments but also refurbishment enquiries. I have no doubt that this loan structure will become more popular as lenders adapt to market conditions and ultimately borrower’s needs.

About Avamore Capital

Avamore Capital is a specialist lender bridging the gap between traditional bridging and development finance. Avamore Capital offers tailored solutions for refurbishment, conversion, and ground-up projects. With products like their Refurbishment Loans, designed to fund works upfront, in drawdowns, or at point of completion, brokers can access streamlined funding for a wide range of client needs.

Backed by an experienced team and a focus on real-world lending, Avamore helps brokers place deals others can’t.

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