Currently, the government uses the system based on the Town and Country Planning Act 1947. The act calls for local authorities to prepare local plans setting out proposals for the use and development of land within their area, showing an ability to meet the housing demand.
From a developer perspective, sometimes the UK planning system can be quite intricate and vague. One of the reasons is due to its uncertainty at the initial stage.
Before starting a site negotiation with the landowner, the developer needs to calculate the residual land value. However, to appraise the prospective development, the developer needs to know precisely the maximum number of unities, max stories height, and all other building metrics. That is only possible if the developer officially consults the local planning authority (pre-application), which is going to charge for the information (ranging from a few dozens to thousands of pounds).
That is a dilemma: the developer needs to decide whether it is worth to pay a pre-application fee for each and every new deal to verify the residual land value.
If you are looking to get into Real Estate financier, here you will find a few metrics commonly used by loan underwriters.
As discussed in part 01, covenants are financial metrics used by lenders to determine how risky lending capital might be for a given project. We learnt about LTV/LTGDV/LTC, and now we are going to find out a bit more about two other important ratios: DSCR and ICR.
DSCR (Debt Service Coverage Ratio)
In short, DSCR is the ratio between cash available and cash required for debt servicing. In other words, it is the ratio of the right amount of cash to repay the debt.
Commercial lenders use the DSCR to assess how large a commercial loan can be supported by the cash flow generated by the asset.
If you are looking to get into Real Estate financier or just being more familiarised with its vocabulary, here you will find a few metrics commonly used by loan underwriters.
The daily life of a developer is not easy. They need lenders to help them to finance their developments, but lenders do not lend money without a thorough due diligence on the investment, starting with the covenants. Covenants imposes a limit on the amount of money a financier can lend to a development. In this article and the next, we are going to run through the most common covenant metrics used by loan underwriters.