From Contractor to Developer

Posted by Mesa Financial on 11th July 2022 -

Over the past twelve months we have seen a number of contractors make the transition to taking on their first development project. With high asking prices for land, increased construction costs and a potential cooling of GDV's, developers across the board are having to scrutinise projects even more in order to produce a reasonable profit margin. In more cases than not, deals are not making sense unless the vendor is willing to have a conversation around reducing the asking price.

We recently structured a development loan of £1.6m for a developer that has owned a construction business for 30 years. He spotted an asset in South West London that was prime for development.

The real benefit of contractors taking on their own development project is the expertise with regards to the construction risk and the overall cost control.

The rationale for transitioning tends to be fairly similar across the board: 

1. Increased pressure on contractors to deliver projects with quite the increase in overall construction costs
2. Reduced profit margins
3. Developers looking to utilise their long career of contracting experience to build their own development pipeline
4. In some scenarios, contractors are looking to reduce the size of their contracting arm in order to take on their own development projects

There are funding solutions available and we have vast experience structuring these transactions.

• Minimum loan: £500,000
• Term: Up to 24 months
• Rate: 9%+ pa
• LTV: Up to 70% day one
• LTGDV: Up to 65%
• LTC: Up to 90%

If you are looking to make the transition and want to make sure you are receiving the best structured terms available, then it is worth contacting the Mesa Financial team to see how we can help you. We always aim to add value to our clients by finding a deal, often bespoke, with carefully negotiated terms to suit the client’s interests.