Type Property
Asset-backed Yes
StatusDevelopment
Estimated loan-to-value N/A*
Capital is at risk and returns are not guaranteed. This is a 24-month Bond and is not readily realisable.
Project
This is an opportunity to lend to Downing Development Finance Limited (“DDF”), a company that makes property development loans, and earn 6% p.a. on a two-year bond. Alternatively, there is also a one-year bond at 5% p.a. available. The maximum raise across these two bonds is £20 million (including the raise of Offer B), closing in monthly tranches.
The current loan book and future pipeline of opportunities are focused on residential development and funding for trading businesses wishing to develop their premises.
Loans are spread across the life cycle of property development: from initial acquisition funding, to development financing, to bridging loans supporting the sales process. DDF does not fund purely speculative commercial property development.
The borrower takes a first charge over the land and where applicable a charge over the assets of the company undertaking the development. Loans will also typically benefit from a cost overrun guarantee provided for by the development partner of up to 20% of the value of the build cost.
The weighted average loan-to-gross-development value (LTGDV) ratio of the portfolio is capped at 70% and no underlying loan can exceed 75% LTGDV. This means that the value of individual projects could fall by up to 25% before Bondholders’ interest and capital would be put at risk.
Additionally, whilst fundraising DDF will hold a minimum of 3% of the value of the gross loan book as equity and reserves which will take first loss should any loans default. Any profits generated will be retained in the company to support the value of this buffer. DDF’s initial equity contribution stands at £3 million against £27 million of committed loans as at 12 December 2017.
We recommend you read the Offer Document in detail to understand the nature of the risks involved in property development, the criteria by which DDF lends to developers and the level of due diligence undertaken by the company.
* No LTV is provided for the bond itself, as the value of DDF assets varies too frequently for this to be accurately estimated for bondholders over the period of the raise
About
Downing Development Finance Limited (“DDF”) is a UK limited company that originates and manages a loan book of committed funds of £27 million as at 12 December 2017. The company also has a pipeline of property development opportunities in place, which are set out in the Offer Document as an indication of the potential uses of the bond proceeds.
The Government recently concluded that the annual housing need in England is 266,000 new homes per annum,1 whereas the housebuilding industry is only producing 210,000 new homes per year2. The housing deficit caused by this lack of supply is driving demand in the housebuilding sector. With over half of small to medium-sized housebuilders saying a lack of financial support is the second biggest barrier to building new homes,3 DDF is seeking to address this gap in funding.
DDF is supported by a team of five property and lending experts including:
- Jonathan Boss - Partner and Head of Lending. Jonathan has 20 years’ experience in the industry and has led around 100 transactions.
- Parik Chandra - Investment Director. Parik joined Downing from p2p lender Funding Circle where he was director of real estate finance. During his time with Funding Circle, he originated over £100 million in loans and has several years of experience.
- John Pilbeam - Construction Director. John is a chartered surveyor with a focus on property development project management and has worked across our asset-backed and energy investment teams helping to manage construction risk.
DDF is managed by Downing LLP, an investment manager with over £950 million in funds under management. Downing managed funds have been lending to property development and asset-backed projects for seven years, funding over 60 projects across the UK. Of the £100 million lent since October 2010, over £60 million has been repaid alongside over £6 million of interest. To date there have been two defaults in the loan book, totalling £223,137 equating to less than 0.2% of the loans made, though past performance is not a reliable indicator of future performance.
1 Planning for the right homes in the right places: consultation proposals, Department for Communities and Local Government, 14 September 2017.
2 Spotlight: Residential Property Forecasts, Savills, Autumn 2017
3 Source: Federation of Master Builders, ‘FMB House Builders’ Survey 2017’, https://www.fmb.org.uk/media/35090/fmb-house-builders-survey-2017.pdf