Equity finance is useful for developers who require further funds. Also known as developer equity finance or joint venture financing, equity finance allows investors and funds to top up the money needed to finance a development project. This means the developer can proceed without the need to self-fund or pull cash from other projects.
Developer equity finance can be used for residential and commercial development projects. It is often used when developers are working on several projects at the same time.
Development equity finance usually works by the creation of a joint venture profit share agreement. The investing partners will require a Special Purpose Vehicle (SPV) in order to protect their return on the investment as agreed with the developer. The business arrangement between the developer and equity investor includes regular project updates. The profits from the sale of the development are distributed on completion of the sale. Some equity providers may require a personal guarantee but not all.
Typically a developer will require development equity finance when they amount they need to borrow is greater than senior debt, stretched senior or mezzanine lending can allow.
Key features of Development Equity Finance