Real Estate - Real Estate Investment

The UK has a chronic shortage of housing and in particular affordable housing, so it seems ironic that arranging property development finance for brownfield sites can be a real headache.

Lets start by defining what a brownfield is, essentially it can be any piece of land which has had a previous use, such as a backgarden or parking area. Typically though, you would think of a brownfield site as being petrol stations, workshops, factories, office blocks and car parks. To be called a brownfeld development you would usually expect to see complete site clearance with the previous structure being completely removed.

Local planning authorities are under pressure to ensure that 60% of land used to build new homes is built on land that has had previous use.

Arranging property development finance for brownfield sites can cause problems because of the extra expense associated with examining the land and clearing any contamination. Environmental controls require that the soil be tested for contamination and that if any is found the top soil has to be completely removed. This contaminated soil has to be disposed of in special landfill. This process costs a significant amount of money.

The extra costs associated with clearing a brownfild site and the limitations caused by the size of the plot are the main reasons why it is such a challenge to arrange property development finance. However, for the property developer who is prepared to put in the extra effort there are some handsome rewards.

Given that most brownfield sites are in town centre locations, and the continuing demand for luxury apartments there is a strong motivation to work through the challenges provided by these types of plots. There are specialist lenders willing to fund development of petrol stations and factories so there is a way to get the job done.

The types of property development funding available varies from modest Loan to Values (LTV’s) with highly competitive interest rates, right up to the specialist schemes offering up to 100% funding, although the rates are reflective of the risks.

Once the development of a brownfield site starts it is really important to get the project competed as quickly as possible, after all, time is money!

If you are planning to undertake the development of a brownfield site in the near future, it is important to collate as much information you can about the project: Prepare your CV confirming your building experience and examples of projects you have undertaken. It is worth commissioning any professional reports, including ground investigation, environmental reports and a valuation. Finally you must provide a full financial evaluation including the costs associated with site clearance.

Banks have a reputation for being slow to release staged payments and for being rigid when problems arise whereas specialist property development finance companies tend to be more flexible and willing to accommodate last minute changes to plans, but their fees do tend to be higher so it is important to use a broker.