Planning Gain Counts As Cash Stake?

For developers involved in ‘Subject to Planning’ projects but struggling to come up with the cash equity stakes, I have some interesting news for you…

Planning Gain As Your Cash Equity Stake

One of the most interesting changes in very recent lending policy that I’ve seen in a while surrounds the much debated area of planning gain counting, or historically not counting, towards a developer’s cash equity stake requirement.

To recap, a developer’s cash equity stake is how much cash has physically gone into the project, predominantly at the purchase stage. 

Typically, virtually all lenders on stand alone projects have required the developer to demonstrably put cash in at purchase (or from an affiliated equity investor). 

For most lenders, where the developer has had the opportunity to work up the planning, planning gain has not been considered towards cash in, which many have viewed as unfair.

The exciting news from conversations with several lenders, as part of our recent comparison data launch, is that some lenders are now allowing planning gain as part, if not all, of your cash in; a major development. 

This means a developer can potentially put in less cash than previously required.

But Loan to Cost Ratios have worsened?

Interestingly, this development comes hot on the heels of lenders increasing the % of project costs as cash they want developers to put in, due to the marketplace uncertainty. 

Lender’s Loan to Cost Ratios vary from 75% (High Street Bank) to 90% (Senior Debt), so a developer’s cash equity stake varies typically from 10% of the project costs (Senior Debt) to 25% of the project costs (High Street Bank).

Most developers will now know that, with the current market uncertainty, lenders are leaning towards lending less and requiring developers to put up more cash, which is hampering progress on a number of fronts. 

The good news, therefore, is if planning gain has been achieved, there’s every chance a developer can get away without having to put in extra cash, and may get away with putting less cash in than before.

It is my view, rightly or wrongly, that lenders are experiencing a lending volume problem from the move to be more conservative, and looking for ways to keep lending levels high in a difficult marketplace. 

Allowing planning gain as part of the cash equity requirement is one such way to help.