Funding development projects: choosing the right structure in a challenging market
Funding a development project has always required careful thought, but in today’s climate the stakes feel higher than ever. Planning delays, rising build costs and increasing contractor and material prices mean looking beyond traditional funding routes.
While the market now offers a wide range of funding structures, the challenge is identifying which best suits your project, risk appetite and exit strategy.
So, what are the options? Let’s look at a typical mixed‑use redevelopment.
Imagine you’ve acquired a multi‑let commercial estate comprising several industrial units generating strong rental income. You later secure planning permission for a mixed‑use redevelopment including residential apartments and retail warehouse units.
It’s an attractive opportunity. Existing rental income provides holding income while planning is progressed, and the scheme offers significant development potential. With planning secured, the key question becomes: how should the development be funded?
There’s no single answer. The appropriate structure depends on factors such as experience, available equity, timescales, risk appetite and exit strategy.
Developers today have access to a broad mix of funding routes, including:
Many schemes use a blend of these rather than relying on a single source.
Senior development finance is often the most cost‑effective option. A lender may fund acquisition costs (if applicable), development costs, professional fees and interest roll‑up.
For a mixed‑use scheme, lenders will assess planning consent, gross development value (GDV), construction costs, developer track record and proposed exit strategy.
In this case study, the existing rental income is a particular advantage. It demonstrates asset performance and can give lenders confidence during the early stages.
Points to consider:
Bridging finance is useful when speed is essential, for example, acquiring the estate before planning is secured. Once consent is obtained, the bridge is typically refinanced with a development loan.
Points to consider:
It can be a powerful tool, but is rarely a long‑term solution.
Mezzanine finance sits between senior debt and developer equity. It is often used when a developer has a strong scheme but insufficient cash to meet the equity contribution required by a senior lender.
Points to consider:
Potentially, yes. In a JV, an investor provides capital while the developer contributes expertise and project management. This can unlock schemes where land values or build costs are high, or where developers want to preserve liquidity.
Points to consider:
Robust legal documentation is essential to avoid disputes.
Stretch senior funding bridges the gap between senior debt and mezzanine finance. Instead of lending 60–65% of costs, a stretch senior lender may advance a higher percentage, reducing the need for mezzanine borrowing.
Points to consider:
Forward funding is particularly relevant when part of the completed scheme will be retained as an investment. An institution or investor agrees to acquire the completed development and may fund construction costs during the build.
In our case study, the retail warehouse element may appeal to an income‑focused investor.
Points to consider:
The cheapest option is not always the best. Developers should assess equity levels, planning status, construction risk, timescales, cashflow needs, exit strategy, market conditions and lender reporting obligations.
Securing the right funding package at the outset can be the difference between a successful development and a stalled scheme. Early engagement with advisers, funders and consultants is essential to ensure the chosen structure aligns with the project’s objectives and risk profile.
The Whitehead Monckton Real Estate team has extensive experience in advising on development projects of all sizes, from site acquisition and funding through to development, disposal and investment structuring. Whether you are exploring a mixed-use redevelopment, seeking funding solutions or bringing a complex scheme forward, our specialists provide practical, commercially focused advice at every stage.
