Property development - Joint venture
Discussion
Joint venture
Basics of the deal
I’m an investor in talks with a building firm looking to enter into a joint venture on a development.
Building firm has a good long standing reputation and has done projects of similar size and scale before in the past.
The deal is we both inject 50/50 of the funds needed to acquire the development land - through a new LTD.
Planning permission is then obtained for the development and a development loan is applied for to fund the build cost.
The development is then sold, loan repaid and after initial costs are deducted hopefully there will be a nice profit leftover which will be split 50/50.
The building firm will be doing the build so they will be making margin on this as well as 50% of the profit upon resale. They could do the whole project themselves but cash is tied up in other projects hence the need for an investor.
So the current state play is that there is a development site available which will be suited to student accommodation, in the region of 40-50 units.
The building firm has put rough figures from their experience on the cost of build including planning, we know how much the land will cost to acquire and we have a resale value in mind - there’s a healthy profit left over.
I’m not new to business but new to a development of this scale and joint ventures. I’m trying to piece together where this could go wrong in order to mitigate areas of risk when structuring the deal with the building firm.
I feel assured that the building firm themselves are willing to inject 50% of the land cost. It a big commitment and one they surely wouldn’t do if they had no faith in the project.
Im just at the start of analysing this project. My shortlist for areas of concern or query are as follows:
1. Company structure - limited company with 50/50 share holding between myself and the building firm.
2. Planning permission - what happens if this is not obtained? Im happy to treat this as part and parcel of development risk.
3. Cost of build - naturally it’s in the building firms interest to have this cost as high as possible. We have an agreement that the schedule of works can be priced up by other contractors so I should feel assured the build cost reflects market rates. Would you get a QS involved ?
4. How long will the project take? I believe the development loan needs to generally be repaid in 18-24 months. Planning could take 6-9 months. So realistically I’m looking at a 2+ year turn around for payback.
5. Resale value of development will need to be accurate as this will dictate the profit of the scheme. If the resale value matches the costs incurred of the project (or even exceeds it) the building firm are still onto a winner as they’ve made the margin on the build itself. Apart from agents valuation of the scheme where else can I go to satisfy myself of a realistic resale?
6. Development loan - the building firm will be applying for this and because of their experience in the field it shouldn’t be a issue to obtain. I’m assuming the lender takes a first charge on the land itself. Is this first charge generally enough or are personal securities from the directors required also?
7. Time limit for build - I think it’s prudent to have a time limit for build included for the scheme. I don’t want the building firm to prioritise their other developments and neglect this one because it suits them too. What kind of claw back is generally used in this scenario? Penalties for lateness? How are ‘unexpected’ delays accounted for? I would like a degree of fairness and understanding between us - or maybe I’m being too nice.
8. Upon resale the LTD will pay Corp tax on any profits made on the project. Are there any other property related taxes I need to be aware of?
9. What happens if one of the investors passes away during the project? Are provisions generally made to deal with this? If so what kind of provisions would be prudent?
That’s as far as I’ve got while having a short brainstorm, like I said I’m new to a project of this scale but tempted to dip my toe providing the deal is understood and structured correctly.
The building firm are happy to discuss any concerns and how they can be mitigated as this is their first time for joint investment.
So over to the PH massive... I’m sure I’ve not considered some areas which could be very obvious to someone in the field.
Any advice will be greatly appreciated, thanks in advance guys 👍
Basics of the deal
I’m an investor in talks with a building firm looking to enter into a joint venture on a development.
Building firm has a good long standing reputation and has done projects of similar size and scale before in the past.
The deal is we both inject 50/50 of the funds needed to acquire the development land - through a new LTD.
Planning permission is then obtained for the development and a development loan is applied for to fund the build cost.
The development is then sold, loan repaid and after initial costs are deducted hopefully there will be a nice profit leftover which will be split 50/50.
The building firm will be doing the build so they will be making margin on this as well as 50% of the profit upon resale. They could do the whole project themselves but cash is tied up in other projects hence the need for an investor.
So the current state play is that there is a development site available which will be suited to student accommodation, in the region of 40-50 units.
The building firm has put rough figures from their experience on the cost of build including planning, we know how much the land will cost to acquire and we have a resale value in mind - there’s a healthy profit left over.
I’m not new to business but new to a development of this scale and joint ventures. I’m trying to piece together where this could go wrong in order to mitigate areas of risk when structuring the deal with the building firm.
I feel assured that the building firm themselves are willing to inject 50% of the land cost. It a big commitment and one they surely wouldn’t do if they had no faith in the project.
Im just at the start of analysing this project. My shortlist for areas of concern or query are as follows:
1. Company structure - limited company with 50/50 share holding between myself and the building firm.
2. Planning permission - what happens if this is not obtained? Im happy to treat this as part and parcel of development risk.
3. Cost of build - naturally it’s in the building firms interest to have this cost as high as possible. We have an agreement that the schedule of works can be priced up by other contractors so I should feel assured the build cost reflects market rates. Would you get a QS involved ?
4. How long will the project take? I believe the development loan needs to generally be repaid in 18-24 months. Planning could take 6-9 months. So realistically I’m looking at a 2+ year turn around for payback.
5. Resale value of development will need to be accurate as this will dictate the profit of the scheme. If the resale value matches the costs incurred of the project (or even exceeds it) the building firm are still onto a winner as they’ve made the margin on the build itself. Apart from agents valuation of the scheme where else can I go to satisfy myself of a realistic resale?
6. Development loan - the building firm will be applying for this and because of their experience in the field it shouldn’t be a issue to obtain. I’m assuming the lender takes a first charge on the land itself. Is this first charge generally enough or are personal securities from the directors required also?
7. Time limit for build - I think it’s prudent to have a time limit for build included for the scheme. I don’t want the building firm to prioritise their other developments and neglect this one because it suits them too. What kind of claw back is generally used in this scenario? Penalties for lateness? How are ‘unexpected’ delays accounted for? I would like a degree of fairness and understanding between us - or maybe I’m being too nice.
8. Upon resale the LTD will pay Corp tax on any profits made on the project. Are there any other property related taxes I need to be aware of?
9. What happens if one of the investors passes away during the project? Are provisions generally made to deal with this? If so what kind of provisions would be prudent?
That’s as far as I’ve got while having a short brainstorm, like I said I’m new to a project of this scale but tempted to dip my toe providing the deal is understood and structured correctly.
The building firm are happy to discuss any concerns and how they can be mitigated as this is their first time for joint investment.
So over to the PH massive... I’m sure I’ve not considered some areas which could be very obvious to someone in the field.
Any advice will be greatly appreciated, thanks in advance guys 👍
GT03ROB said:
What do you know about construction/contracting??
On this scale - not a lot. I’ve been involved in a few house builds previously but nothing previously on this kind of scale. I’ll be relying on the building firms expertise in this field, my concern is how do I know they haven’t inflated the build costs in areas.
The only thing I can think of to migrate this is to have the build costed by at least two other firms.
Insurancejon said:
FYI my brother in law does lending on these jv’s For builders (but usually 100% of the money) and takes:
2-3% in entry fees
2-3 % per month interest
20-50% of the profit at the end
That’s very interesting thanks for posting. Probably reassures my why a joint venture from a private investor makes sense for a building firm - those costs certainly add up!2-3% in entry fees
2-3 % per month interest
20-50% of the profit at the end
kiethton said:
I’d be very reluctant to invest in student housing at this point in time given the potential rental regulation and over-supply, especially outside of Russell group locations
This is a good point that will obviously effect resale.... the scheme is within very close proximity of the university and I would say there is a over supply in the area. University expansion plans will help with demand, but this is definitely an area I would be looking more into. If it’s not this specific project, it could end up being a commercial scheme else where, it’s probably the mechanics of the joint venture I have more concern about instead of the specifics of the project itself at this stage.
This is only hearsay, but as I understand it:
a) Universities have a vested (ie financial) interest in students staying in halls wherever possible and in fact some are now providing rooms for rental throughout the term of a degree course, not just for the first year as used to be the case.
b) Some universities will treat applications differently depending on whether they are accompanied by applications for accommodation or not, ie a student has a better chance of being offered a place if they are also applying for a place in halls.
I was surprised by b), but it seems they're becoming more and more strapped for cash, so maybe not so surprising.
a) Universities have a vested (ie financial) interest in students staying in halls wherever possible and in fact some are now providing rooms for rental throughout the term of a degree course, not just for the first year as used to be the case.
b) Some universities will treat applications differently depending on whether they are accompanied by applications for accommodation or not, ie a student has a better chance of being offered a place if they are also applying for a place in halls.
I was surprised by b), but it seems they're becoming more and more strapped for cash, so maybe not so surprising.
msport123 said:
I’ll be relying on the building firms expertise in this field,
This is the big issue here. How did this all come about? Did you find the opportunity and sought the builder or did they sell the idea to you? Why can't they buy the land with finance and cut you out entirely?
Are you prepared to give personal guarantees on the development loan? Is there much planning gain to be made? Have you had specialist planning advice?
Lots and lots to go wrong - development of this scale is complicated and expensive. However, it can be lucrative IF you get it right.
My immediate concern is your exit strategy - if you are building student units, who is going to buy them? Ideal sale would be to an institution who wants exposure to student accomm. However, it's a very narrow market, lots of supply. You ideally want to be in an area with a mid-low tier uni in town - Russell Group towns are overdone.
The strategy I would go for is finish development, refi onto a long term loan against the entire development, extract the upside (of which there might be a lot or a little, depending on the LTV you can get on the refi) and then get the cashflow each month.
If you're building for resale you might be better off building apartments.
My immediate concern is your exit strategy - if you are building student units, who is going to buy them? Ideal sale would be to an institution who wants exposure to student accomm. However, it's a very narrow market, lots of supply. You ideally want to be in an area with a mid-low tier uni in town - Russell Group towns are overdone.
The strategy I would go for is finish development, refi onto a long term loan against the entire development, extract the upside (of which there might be a lot or a little, depending on the LTV you can get on the refi) and then get the cashflow each month.
If you're building for resale you might be better off building apartments.
Muncher said:
This is the big issue here.
How did this all come about? Did you find the opportunity and sought the builder or did they sell the idea to you? Why can't they buy the land with finance and cut you out entirely?
Are you prepared to give personal guarantees on the development loan? Is there much planning gain to be made? Have you had specialist planning advice?
All sensible questions... all of this came about through mutual friends, there was no real sales pitch from either side. If anything it was more from my side having a bit of spare cash to invest. How did this all come about? Did you find the opportunity and sought the builder or did they sell the idea to you? Why can't they buy the land with finance and cut you out entirely?
Are you prepared to give personal guarantees on the development loan? Is there much planning gain to be made? Have you had specialist planning advice?
Could they buy the land themselves? I guess so, I don’t add any value to the deal apart from the cash injection. I know the firm reinvest heavily back into property for long term. The fact is they don’t have the cash flow at this precise moment to move on a deal this size as they have several other projects underway.
That could change as soon as projects are completed and refinanced/sold but getting to that point takes time and you’ve got to be able to move on a deal when it presents itself. I guess I’d rather take 50% profit than not have opportunity and make 0%.
I’d be fine with personal guarantees of the deal stacks up.
The way I understand it the site does not have planning but the pre app advice has been positive and the building firm have first refusal. Again all of this has been done by the building company so I haven’t heard any of this first hand. But assessing projects in this manner is what they do as their bread and butter, it’s landed on my desk simply because they need investment.
Part of my due diligence will be go through their assessment and pick holes where I can.
cholo said:
They will want personal guarantees.
And planning will be a gamble...
What sort of relationship do you have with the contractor? Do you have absolute trust in him?
I think the only way to do it would be to say @cost + say 10%, but still, how can you confirm his costs??
I can’t say I absolutely trust the building firm, who can you absolutely trust in business? I’ve never had dealings with them but know a few who have all with good experiences. It’s due diligence and how the deal is structured that will give me the confidence of if I should proceed or not. And planning will be a gamble...
What sort of relationship do you have with the contractor? Do you have absolute trust in him?
I think the only way to do it would be to say @cost + say 10%, but still, how can you confirm his costs??
Interesting point asking them to do the work at cost + a fixed margin, but like you say difficult to verify. I’m assuming a detailed schedule of works would be produced for the scheme once this has been priced up by a few other contractors that would at least give me an idea of what the build cost should be. This is where a QS could come in.
As long as the building firm are charging market rates I will be ok with that, it’s grossly over inflating the build that I’d be concerned about.
msport123 said:
....... priced up by a few other contractors that would at least give me an idea of what the build cost should be.
This will prove tricky, it will be common knowledge that there is minimal chance of winning the job, so a waste of time for other contractors. You’ll need a QS experienced in projects of this nature right from the off, their remit will not only be costings but also contractual terms & obligations. Without that person on your side you’ll be a lamb to the slaughter.
I've not read all of the posts above but given your relative experience I will only make a couple of points
- the builder will run rings around you so unless You know a good trusted QS stay away. Even then you will need a good lawyer with building / JV experience from the start
- the scheme is small so profits will likely be wrapped up in the ground rental value, that is a volatile market at the moment and lots of student developers are taking a hit on it.
- student developments are very time sensitive around academic years, miss it by a few weeks and to are stuffed for a year
- who will control the sales, commission's are high in this area and eat into profits
So many areas to consider to list to a novice but in simple terms there are so many ways the builder can shaft you and you won't even know.
Why are they not using a more experienced funding partner, there are plenty about and if legit would be easier for them to work with someone with experience compared to a novice ?
If I where you I would look for a straight loan arrangement with staged repayments and a charge on the land. You will likely take a smaller cut on paper but it would be far less risky and easier to control / avoid being ripped off. We normally get our funds back within 9 months and profits at stages of sales so you are not tied into scheme completion etc....
- the builder will run rings around you so unless You know a good trusted QS stay away. Even then you will need a good lawyer with building / JV experience from the start
- the scheme is small so profits will likely be wrapped up in the ground rental value, that is a volatile market at the moment and lots of student developers are taking a hit on it.
- student developments are very time sensitive around academic years, miss it by a few weeks and to are stuffed for a year
- who will control the sales, commission's are high in this area and eat into profits
So many areas to consider to list to a novice but in simple terms there are so many ways the builder can shaft you and you won't even know.
Why are they not using a more experienced funding partner, there are plenty about and if legit would be easier for them to work with someone with experience compared to a novice ?
If I where you I would look for a straight loan arrangement with staged repayments and a charge on the land. You will likely take a smaller cut on paper but it would be far less risky and easier to control / avoid being ripped off. We normally get our funds back within 9 months and profits at stages of sales so you are not tied into scheme completion etc....
Edited by jonttt on Monday 10th June 20:54
msport123 said:
GT03ROB said:
What do you know about construction/contracting??
On this scale - not a lot. I’ve been involved in a few house builds previously but nothing previously on this kind of scale. I’ll be relying on the building firms expertise in this field, my concern is how do I know they haven’t inflated the build costs in areas.
The only thing I can think of to migrate this is to have the build costed by at least two other firms.
Several things come to mind if you after what others have said you feel you still want to do this.
- financial due diligence on the contractor. How financially stable is he? Cashflow? Accountants are notoriously poor at doing this on contractors, you need to find somebody who specializes in the contracting business.
- get a good contract lawyer on board.
- independent PM & QS, find one or both. Given the scale of the project can probably be justified. Have your JV fund them.
- Agree contractor charges into the JV for work. Open book for materials & labour. Agree a fixed fee for his overhead & profit.
.
A basic fundamental in jv’s Like this is that the contractor carries the cost risk. You need to cap your maximum commitment and oblige the contractor to complete the work.
You also need to understand the contractors financial status, I would be looking for a legal charge and fixed and floating debentures, although the fact you need development finance will make this difficult.
I would look for a forward funded model.
I can put you in touch with a couple of funds.
This stuff has been my day job for 10 years In related asset classes
What yield and purchasers costs have you assumed? Development finance for the development phase should be run at a rolled up interest rate of 6%, a forward fund will cover this.
Developer margin will need to be at least 10% of cost to secure a proper funder.
But I will end with where I started. Your biggest risk is cost you MUST have a way to limit your exposure where the other half of the Jv is the contractor. You are also going to need step in rights, a detailed cost plan, a detailed drawdown cash flow, sub contractor and main contractor warranties, your own employers agent, CICS registration etc etc
You also need to understand the contractors financial status, I would be looking for a legal charge and fixed and floating debentures, although the fact you need development finance will make this difficult.
I would look for a forward funded model.
I can put you in touch with a couple of funds.
This stuff has been my day job for 10 years In related asset classes
What yield and purchasers costs have you assumed? Development finance for the development phase should be run at a rolled up interest rate of 6%, a forward fund will cover this.
Developer margin will need to be at least 10% of cost to secure a proper funder.
But I will end with where I started. Your biggest risk is cost you MUST have a way to limit your exposure where the other half of the Jv is the contractor. You are also going to need step in rights, a detailed cost plan, a detailed drawdown cash flow, sub contractor and main contractor warranties, your own employers agent, CICS registration etc etc
Edited by blueg33 on Tuesday 11th June 07:25
I know nothing about this, but it's not been mentioned by anyone else, so what jumps out to me is, where are you if the contractor goes under? Will their creditors take value from the joint venture and how will you then get your cash out of the land?
Could you buy the land yourself on the basis that the contractor has an option to buy it from you at cost+ when they're ready and have the cash to develop it? So long as that's appropriately time limited, you would lock in an interested buyer, with the freedom to find another if they can't complete the deal.
Could you buy the land yourself on the basis that the contractor has an option to buy it from you at cost+ when they're ready and have the cash to develop it? So long as that's appropriately time limited, you would lock in an interested buyer, with the freedom to find another if they can't complete the deal.
msport123 said:
Joint venture
Basics of the deal
I’m an investor in talks with a building firm looking to enter into a joint venture on a development.
Building firm has a good long standing reputation and has done projects of similar size and scale before in the past.
The deal is we both inject 50/50 of the funds needed to acquire the development land - through a new LTD.
Planning permission is then obtained for the development and a development loan is applied for to fund the build cost.
The development is then sold, loan repaid and after initial costs are deducted hopefully there will be a nice profit leftover which will be split 50/50.
The building firm will be doing the build so they will be making margin on this as well as 50% of the profit upon resale. They could do the whole project themselves but cash is tied up in other projects hence the need for an investor.
So the current state play is that there is a development site available which will be suited to student accommodation, in the region of 40-50 units.
The building firm has put rough figures from their experience on the cost of build including planning, we know how much the land will cost to acquire and we have a resale value in mind - there’s a healthy profit left over.
I’m not new to business but new to a development of this scale and joint ventures. I’m trying to piece together where this could go wrong in order to mitigate areas of risk when structuring the deal with the building firm.
I feel assured that the building firm themselves are willing to inject 50% of the land cost. It a big commitment and one they surely wouldn’t do if they had no faith in the project.
Im just at the start of analysing this project. My shortlist for areas of concern or query are as follows:
1. Company structure - limited company with 50/50 share holding between myself and the building firm.
2. Planning permission - what happens if this is not obtained? Im happy to treat this as part and parcel of development risk.
3. Cost of build - naturally it’s in the building firms interest to have this cost as high as possible. We have an agreement that the schedule of works can be priced up by other contractors so I should feel assured the build cost reflects market rates. Would you get a QS involved ?
4. How long will the project take? I believe the development loan needs to generally be repaid in 18-24 months. Planning could take 6-9 months. So realistically I’m looking at a 2+ year turn around for payback.
5. Resale value of development will need to be accurate as this will dictate the profit of the scheme. If the resale value matches the costs incurred of the project (or even exceeds it) the building firm are still onto a winner as they’ve made the margin on the build itself. Apart from agents valuation of the scheme where else can I go to satisfy myself of a realistic resale?
6. Development loan - the building firm will be applying for this and because of their experience in the field it shouldn’t be a issue to obtain. I’m assuming the lender takes a first charge on the land itself. Is this first charge generally enough or are personal securities from the directors required also?
7. Time limit for build - I think it’s prudent to have a time limit for build included for the scheme. I don’t want the building firm to prioritise their other developments and neglect this one because it suits them too. What kind of claw back is generally used in this scenario? Penalties for lateness? How are ‘unexpected’ delays accounted for? I would like a degree of fairness and understanding between us - or maybe I’m being too nice.
8. Upon resale the LTD will pay Corp tax on any profits made on the project. Are there any other property related taxes I need to be aware of?
9. What happens if one of the investors passes away during the project? Are provisions generally made to deal with this? If so what kind of provisions would be prudent?
That’s as far as I’ve got while having a short brainstorm, like I said I’m new to a project of this scale but tempted to dip my toe providing the deal is understood and structured correctly.
The building firm are happy to discuss any concerns and how they can be mitigated as this is their first time for joint investment.
So over to the PH massive... I’m sure I’ve not considered some areas which could be very obvious to someone in the field.
Any advice will be greatly appreciated, thanks in advance guys ??
I`ve done quite a few JVs of various sizes over the years by using private investors funds and even though you are completing a project together, you are responsible for your own funds and risk, and need to make sure you are satisfied with your DD (due diligence).Basics of the deal
I’m an investor in talks with a building firm looking to enter into a joint venture on a development.
Building firm has a good long standing reputation and has done projects of similar size and scale before in the past.
The deal is we both inject 50/50 of the funds needed to acquire the development land - through a new LTD.
Planning permission is then obtained for the development and a development loan is applied for to fund the build cost.
The development is then sold, loan repaid and after initial costs are deducted hopefully there will be a nice profit leftover which will be split 50/50.
The building firm will be doing the build so they will be making margin on this as well as 50% of the profit upon resale. They could do the whole project themselves but cash is tied up in other projects hence the need for an investor.
So the current state play is that there is a development site available which will be suited to student accommodation, in the region of 40-50 units.
The building firm has put rough figures from their experience on the cost of build including planning, we know how much the land will cost to acquire and we have a resale value in mind - there’s a healthy profit left over.
I’m not new to business but new to a development of this scale and joint ventures. I’m trying to piece together where this could go wrong in order to mitigate areas of risk when structuring the deal with the building firm.
I feel assured that the building firm themselves are willing to inject 50% of the land cost. It a big commitment and one they surely wouldn’t do if they had no faith in the project.
Im just at the start of analysing this project. My shortlist for areas of concern or query are as follows:
1. Company structure - limited company with 50/50 share holding between myself and the building firm.
2. Planning permission - what happens if this is not obtained? Im happy to treat this as part and parcel of development risk.
3. Cost of build - naturally it’s in the building firms interest to have this cost as high as possible. We have an agreement that the schedule of works can be priced up by other contractors so I should feel assured the build cost reflects market rates. Would you get a QS involved ?
4. How long will the project take? I believe the development loan needs to generally be repaid in 18-24 months. Planning could take 6-9 months. So realistically I’m looking at a 2+ year turn around for payback.
5. Resale value of development will need to be accurate as this will dictate the profit of the scheme. If the resale value matches the costs incurred of the project (or even exceeds it) the building firm are still onto a winner as they’ve made the margin on the build itself. Apart from agents valuation of the scheme where else can I go to satisfy myself of a realistic resale?
6. Development loan - the building firm will be applying for this and because of their experience in the field it shouldn’t be a issue to obtain. I’m assuming the lender takes a first charge on the land itself. Is this first charge generally enough or are personal securities from the directors required also?
7. Time limit for build - I think it’s prudent to have a time limit for build included for the scheme. I don’t want the building firm to prioritise their other developments and neglect this one because it suits them too. What kind of claw back is generally used in this scenario? Penalties for lateness? How are ‘unexpected’ delays accounted for? I would like a degree of fairness and understanding between us - or maybe I’m being too nice.
8. Upon resale the LTD will pay Corp tax on any profits made on the project. Are there any other property related taxes I need to be aware of?
9. What happens if one of the investors passes away during the project? Are provisions generally made to deal with this? If so what kind of provisions would be prudent?
That’s as far as I’ve got while having a short brainstorm, like I said I’m new to a project of this scale but tempted to dip my toe providing the deal is understood and structured correctly.
The building firm are happy to discuss any concerns and how they can be mitigated as this is their first time for joint investment.
So over to the PH massive... I’m sure I’ve not considered some areas which could be very obvious to someone in the field.
Any advice will be greatly appreciated, thanks in advance guys ??
In reply to your comments.
1. Company structure. This is standard. A separate Ltd company acts as an SPV (specialist purpose vehicle) to ring fence a lot but not all of the risk and tax implications.
2. Planning. You need to build something that compliments and fits in to the surrounding buildings to give it a better chance of passing planning. If planning is declined, use it as a check list to change the design to suit what the council wants. If you are building on brownfield, they would prefer something there than nothing.
To reduce your risk, you can crowdfund the planning stage. The risk is high for the investors and they are made aware of this. The returns also reflect the risk but at least your risk is reduced. Investors will also like to see that you have various exits in place if you cannot get anything through planning.
3. Yes, 100% get a QS involved. I have a reasonable one should you require him.
4. Yes 24mths but you also need to plan that the units don`t sell. What will you do when the loan deadline gets nearer?
5. Never take an agents opinion on how much the units will sell for. You need to do your own DD and find out the comparable SOLD prices of similar units. At worst you should have a £sold per sqmt of a worst and best case scenario. This is done on the first day of your initial deal analysis!
6. Development Loan. Normally the Ltd company which you open applies for the development loan and typically you are asked for personal guarantees. Are you sure the builder is applying for this? If this is correct, make sure that you are not jointly liable for the repayment of the loan. Get some risk on his side to balance the project out.
7. Time LImit - A JCT contract is drafted and you will allow a certain amount of time for poor weather or delays which are not in your/contractors control, but you will also include penalties for lateness.
8. Not really but it depends on your own tax position. You need professional advice on this.
9. This should be drafted in the JV and in to the Ltd company structure. Things can happen, and normally do! Say if the contractor breaks his back in a fall or, as you said, dies. All these things should be discussed and agreed before you open Ltd company.
If it`s the builders first JV too, you both need to draft everything you can think that can go wrong and get a JV agreement drafted. I`ve got sols who specialise in drafting these. PM me me if you want more advice.
As a few people have mentioned above, you have to make sure that the build cost is accurate and if it runs over budget, the risk is with the contractor and he has to fund the shortfall.
Also be aware that you are building for a niche market of student units. Have you done your DD to check demand in the area? You need to be 100% sure of the market you are building for. I`d personally go for apartments before student units. I`m sure the lender would prefer this too.
Happy to help and advise if you want, just PM me.
Op you have a useful post above, but one comment I have on it is the alternate use. Outside London you will get a worse yield from investors on PRS than you would on Student especially if the student accommodation is backed by the university.
As per my earlier post, I was serious about introducing you to a couple of funders. I have worked with these for a few years circa £200m of GDV in smallish tranches of £5m and up. They are private equity but are very comparable with institutional funds (except lower costs). I ac also intro you to institutional funds but your project is a bit too small, you would need to be circa £15-20m GDV
As per my earlier post, I was serious about introducing you to a couple of funders. I have worked with these for a few years circa £200m of GDV in smallish tranches of £5m and up. They are private equity but are very comparable with institutional funds (except lower costs). I ac also intro you to institutional funds but your project is a bit too small, you would need to be circa £15-20m GDV
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