Inner city regeneration projects are becoming easier to fund with property development finance as the mainstream lenders are starting to realise that the profit levels on these types of scheme can be very high. Regeneration opportunities are usually found in central locations and if selected carefully can represent up to 20% discount in similar property in fully developed areas. The most competitive property development finance is available for good quality regeneration schemes surrounded by good quality housing stock and local amenities. However investors still need to do some careful research and check there is a well-funded renewal plan in place. Areas such as Stratford East in London, parts of Manchester and inner city areas of Cardiff all have regeneration schemes in place and are proving irresistible to investors and buyers. A good example of the perfect regeneration project would be an area like Stratford in London with the 2012 Olympics being hosted in the area. The levels of applications for property development finance, specifically for regeneration areas are exceeding all records. There is no doubt that developers are realising that brownfield sites represent the best opportunity. This is because it is far easier to develop a brownfield site than go through all the hassle of applying for planning permission to develop a greenfield site. Finance for schemes in regeneration areas is often calculated based on the anticipated increase in overall value once the whole scheme is complete. The developer should be prepared to answer far more questions about the project as the lender is likely to be very careful to ensure the scheme complies with local planning requirements. Mortgage lenders have improved their product offerings to accommodate the inner city type of property, this includes helping people arrange mortgages for residential dwelling situated above commercial premises. In particular the buy-to-let mortgage has really come into its own in this environment. It is not unusual to see an entire development of apartment being snapped up by investors before the project is even ready for viewing. When researching the finance options available it is vital that the developer tries to use a specialist broker. The mainstream residential mortgage broker is sometimes tempted to dabble in commercial finance, usually attracted by the idea of large commissions. In reality arranging finance for property development is a highly skilled job, and relies on experience and personal contacts. Property developers trying to arrange finance for regeneration projects are also well advised to try to use local brokers wherever possible, this is because a local broker is more likely to know of a regional issues which may adversely affect the project. Local and central government and the EU often help fund larger regeneration projects with grants and subsidies, or by providing infrastructure improvements such as transport, schools and hospitals. Seeing publicity about these types of schemes is a sure indicator that the area is ripe for speculative development. It is worth bearing in mind that some of these larger projects can take several years to come to fruition, so it pays to plan ahead. It is quite likely that the property developer will also need to consider bridging finance as part of the overall property development funding package. This is because property development finance is not usually available for purely speculative deals, especially where there is no planning consent. Bridging finance can be used to secure the purchase of a site at a discount whilst the value is enhanced with planning permission.
Arthur Wood, founding partner of Total I'mpact Advisors, paints the big picture of the problem areas as well as new models, ideas and practices working to evolve new way to finance and sustain development and social change effots.
