Equity

A lender refers to Developer Equity as the amount of cash which a developer has in, or will put into, a development project. This could be in the form of “hard” cash i.e. pound notes, or “soft” equity which could be the extra value a developer has created from a planning uplift, for example.

As well as the developer/ borrower putting in their own equity towards a scheme, other 3rdparty equity providers can also contribute some funds. Often such equity providers will require a profit share, given they are putting in the “seed” capital, alongside the developer. These equity providers might be lenders, private investors, or companies set up specifically to facilitate or find equity for such purposes.

The Capital Stack is made up of the component parts of the finance jigsaw. So, it could consist of Senior Debt (i.e. the main part of the funding, secured on a first charge basis), Mezzanine Finance (“top-up” funding, secured on a second charge basis), and Equity, which is basically the amount the developer has to contribute – like a deposit. The Capital Stack is often shown as a “chart” or a visual depiction of how a project is funded.

Given Equity is often unsecured, the equity provider would usually require a profit share. As it is unsecured, it is high-risk, and therefore commands a high reward.

That’s where we come in. Perhaps the more important question would be “how do I choose an equity provider?”. There is no set parameters or cost of equity finance, and as each deal is bespoke, your choice will come down to not only the cost, but also the conditions which each equity provider might impose, such as a minimum return on their money.

It is unlikely you will need to give a PG

Yes, most equity investments require a share of the profits.

Residential Schemes, Private Rented Sector (PRS), Build to Rent, Mixed Use Schemes, Care Home Schemes and Student Accommodation, Commercial schemes, Industrial schemes and so on.