Clearwell Capital has completed its largest senior development finance loan for the purchase of a development site and its subsequent development into 28 new build residential units and one ground floor commercial unit.
The loan was secured by way of an option agreement by a borrower known to Clearwell. The team had successfully funded them in the past while having a live loan in the same region completing final conversion works.
The borrower had agreed an option price for the development site subject to it gaining planning approval which took over two years to achieve. As a result of the planning uplift, Clearwell was able to factor in some of the borrower’s ‘soft’ equity as part of their 10% equity contribution.
A down valuation to the GDV meant the borrower required funding, which would take Clearwell’s loan above its maximum leverage limit. In addition, the borrower’s ‘hard’ equity was tied up in their existing development.
Various options were discussed with the borrower and the broker to try and find a way to deliver the leverage required, without breaching this covenant. Clearwell’s pragmatic approach to find a flexible funding solution resulted in an innovative structure of the development loan.
The borrowers had optioned another site subject to planning that was expected to be granted planning permission within three months. Their plan was to flip this site once they had enacted the option agreement, which in turn would generate them c.£250k. However, as they did not yet own the site, Clearwell could not take a charge over this asset and leverage against it. Instead, it was agreed that Clearwell would increase its day one loan by an additional £75,000 to assist with the purchase of the site, which was to be repaid within eight months of the loan drawdown (and once the planning permission on the other site was granted and the site then sold). A third-party legal charge over the borrower’s primary residence was taken as reassurance that the funding would be repaid.
This action still did not provide the borrower with the total amount of funding they required to complete the purchase of the development site, so Clearwell agreed to move its arrangement fee to the exit fee, meaning the borrower received a larger loan on day one.
The historic and repeat relationship between the borrower and Clearwell Capital meant the team was able to create a unique solution to realise the financial ambitions of its client and all parties involved in the transaction.