Lending to property developers had been an extremely lucrative business for banks, until 2008 when new regulation restricted them from lending more than 60% of the Gross Development Value of any given property development.
That means property developers are often left with a substantial funding gap to fill.
Thanks to our peer to peer property lending platform, you now have the opportunity to fill these funding gaps in carefully vetted 3rd party developments and earn double digit returns.
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Investing in Mezzanine Finance deals was until recently, only available to financial institutions and high net worth individuals.
Everyday retail investors are now able to join forces via our peer to peer platform to provide mezzanine finance and fill the funding gap on carefully selected property developments from well-established developers and benefit from the lucrative returns on offer.
We build on the bank’s risk assessment and due diligence and conducting additional due diligence and feasibility studies for added protection. This allows the developers to fill the gap between the bank’s lending and their equity contribution. And, it allows you to earn double digit returns with the benefit of a registered second legal charge.
Please note: mezzanine finance investments pay a high rate of interest as they are only secured by a second legal charge and (usually) a directors personal guarantee. As such they involve more risk than our own House Crowd Development loans where your investment is protected by a first charge and a floating charge. You must appreciate this risk before investing and, as with all investments, only invest money you can afford to lose.
*(assuming a total build cost of £10m and GDV of £12m)
Let’s say a development project will cost in total £10M.
Once complete, the expected value of the development is worth £12M.
The profit created once the properties are sold makes the deal work for everyone.
The developer in this case contributes 15% of the costs (£1,500,000). They are in a first loss position.
The bank will typically provide finance for the ongoing construction, depending on its lending criteria, up to 75% of the development costs or 60% of the GDV (in this example: we’ve assumed the senior debt is £7,200,000).
The gap between what the bank lends as senior debt provider and the developers’ equity (in this example) is £1,300,000. That’s the gap mezzanine finance fills. And because you will have a second legal charge and sit behind the bank when the revenue is paid out, it potentially carries higher risk and offers you the opportunity to earn higher returns. The developer takes his profit only once you have received your capital and interest due. As additional protection, we will always require personal guarantees from the directors.