Property Developer Financing
Property developer financing - debt, mezzanine and equity capital
Property developers often find it difficult to cover existing financing requirements for projects, as banks are unfortunately becoming increasingly reluctant to lend for property projects. Mezzanine financing helps project developers to reduce the equity ratio in projects and cover short-term liquidity bottlenecks.
In addition to many opportunities, the property development business also harbours risks such as a sudden sharp rise in interest rates. The property market in particular is subject to strong cycles that make it difficult to predict marketing prospects at the start of a project. Since Basel III, banks have had to back high-risk loans with more equity. For this reason, they have become much more reluctant to grant loans in recent years. The Bankers Association fears that access to credit for property developers and project planners will deteriorate further in future. From 2022, a tightening of the Basel III regulations will come into force, which will restrict financial institutions in the use of their own risk models.
Property developer loans: high equity requirements from banks
Banks already require a project-related equity share of up to 30 per cent in addition to high collateral for property developer loans. This is a problem for many property developers, as a significant proportion of their equity is already tied up in other projects.
Larger companies have the option of going public. Another option, which is often chosen in the property sector, is to form a joint venture with a financially strong partner. A joint venture is particularly advantageous if there are synergies between the partner companies. At the same time, there are also disadvantages to forming a joint venture, as new partner companies usually have high profit shares. It therefore makes sense for entrepreneurs to explore new avenues and consider alternative financing with the help of mezzanine capital.
We support the following projects with mezzanine capital:
Bridge financing with the help of mezzanine capital is intended to prevent a short-term liquidity bottleneck from leading to the interruption of a project. Bridge financing can be available after just a few days and has a term of only a few months. It enables the completion of a project and thus lays the foundation for a profitable resale. As the bank's debt capital framework is usually already exhausted in the course of the project, it is not available for bridge financing. In addition, banks are generally more cumbersome than private equity companies, for example, as they are bound by numerous control mechanisms such as Basel III. Mezzanine capital from alternative investors offers the possibility of guaranteeing the completion of projects with short-term liquidity requirements independently of banks.
Property projects tie up equity. It is not uncommon for up to 30 per cent of a project's financing to be equity capital. Equity that property developers or project planners lack elsewhere. In the course of an equity release, part of the equity tied up is replaced by mezzanine capital, thus subsequently reducing the equity share in individual projects to up to 5 per cent. The equity released in this way can then be used to realise further projects.
Purchase financing is considered to be riskier than property project financing, as it is generally used to purchase land that often has no development rights. They often lay the foundations for property projects and are therefore of particular interest to property developers. Despite the risks, there are some companies that will support the high-risk development of properties.
An equity release can also be realised for portfolio holders independently of a project development. In the course of an equity release for an existing property, funds can be released from this property in the long term and are thus available for other purposes. The term is usually for up to 5 years.
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"Our customised property financing gives entrepreneurs, project planners and property developers access to fast and uncomplicated financing."
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Advantages for property developers and project planners
- Debt capital and mezzanine capital for your property projects
- Access to an extensive network of lenders
- Customised financing offers and greater transaction security
- Support and advice from our real estate experts
Property Developer Financing FAQ
The potential for investors is huge. In addition to banks and specialist financiers, insurers and pension funds are also increasingly active in the property financing business, as they have to comply with less stringent capital requirements than banks. Private equity companies, mezzanine and credit funds also benefit from less stringent regulation. Although they have only been authorised to grant loans since 2016, the latter are increasingly becoming serious competition for banks.
It is also wealthy private individuals, entrepreneurs and family offices in particular who are investing in property projects. In recent years, property developers have discovered another group of investors: crowd investors. Of the almost 300 million euros that German companies raised on crowdfunding platforms in 2018, over 70 per cent went to project developers.
Are you planning an interesting property project and looking for suitable financing? Finanzierung.com has extensive experience in the field of property developer financing and can draw on an extensive network of investors. We will be happy to advise you on the advantages and disadvantages of the various financing options. We will find the best offers for you and support you throughout the entire financing process.
Property developer financing is a financing project that aims to realise one or more construction projects with little or no equity.
To this end, property developers can either borrow capital at favourable interest rates (two-account model as a classic approach) or use mezzanine capital to "leverage" the equity share (leverage effect). In this way, they have the option of tackling individual projects with a lower capital commitment or several projects in parallel.
There are various ways for property developers to acquire additional capital for their projects both before and during the construction phase. These include raising debt capital, leveraging their own funds via mezzanine capital and forward deals, in which the property is sold before construction is completed. With professional advice from our experts, we determine which form of property developer financing is best suited to your project.
Yes, in order for property developer financing to be successful, it must comply with the requirements of the German Real Estate Agent and Property Developer Ordinance (MaBV), among other things. This primarily regulates the conditions under which payments are to be made, received and recognised by which contracting parties.
A breach of this regulation can have significant consequences for both your project and your company. For this reason, we are happy to provide you with personalised advice on this topic.
For property developer financing, borrowers must submit a range of documents and project data. These can vary depending on the financier. The following documents are usually required:
Property documents (floor plans / analyses / construction plans / area calculation)
Creditworthiness documents (annual financial statements / credit history / income and costs)
Information on the company structure
Project calculation
Building law / authorisations / expert opinions
Exit strategy considerations
We will be happy to support you in compiling all documents in line with the requirements of your financier.
The duration of the processing time depends on various factors. These include the financing partner, the requirements for the documents to be submitted and the type of property developer financing itself.
Smaller bridge financings can be available within a few days with good preparation, for complex project financings you have to calculate with a correspondingly longer time.
We will support you professionally and individually with our expertise so that you can realise property developer financing quickly and on the preferred terms.
Finanzierung.com will find suitable financiers for property developers & project planners
Our aim is to provide entrepreneurs with quick access to favourable financing. To achieve this, we work independently and advise each entrepreneur individually.
We have been in the market for you for 20 years. As entrepreneurs like you, we know exactly what companies and the self-employed need in all financing matters.
Finanzierung.com will always provide you with a personal advisor. No call centers, no queues. You can also visit us in person at our offices in Munich City Center.
Thanks to our long-standing relationships with financiers and our high financing volume, we receive unique conditions, which are passed on to you.