WHAT IS IT?
Investment into property development falls into three areas:
They are generally used by property developers who need additional capital for a project but do not want to give away equity. Instead, they are happy to postpone their return in the funding structure behind the mezzanine debt and pay a fixed return to the lender.
The simplest and least risky of projects tend to be those where planning has been approved, leaving only construction and sales.
Where a piece of land or property already has planning permission to redevelop into residential units or something else more valuable but there is a possibility to further enhance that planning.
Where a piece of land or building has no planning permission for redevelopment, but it is considered to be in a location where redevelopment is likely to be supported, this can present an extraordinary opportunity.
HOW DOES IT WORK
To secure their loan, a bank or senior lender will rarely lend 100% of total development costs to a developer. It is typically capped at the 70% mark, which means that a developer needs to contribute the remaining 30% himself. Since many developers may struggle to raise the required amount of equity, he may invite other investors to provide some of the equity and share in the profits.
Equity is the riskiest position in the funding structure as it sits below any debt.
WHAT IS IT?