In the fast-paced world of property development, the ability to adapt to evolving demands is crucial for success. As developers and lenders navigate the complexities of larger projects, the concept of phasing emerges as a vital strategy. The most successful development lenders cultivate strong, long-term relationships with their customers, supporting their growth ambitions with increasing loan facilities as borrowers gain experience with larger projects. However, when a customer approaches their banker with aspirations for a site significantly larger than their previous ventures, the lender’s response may very well be, “Can we phase it?”
The Benefits of Phasing
Phasing allows housebuilders to take on larger projects by breaking them down into manageable stages. Each stage is designed to align with the borrower’s previous experience, providing a safety net as they venture into more ambitious developments. This strategy offers several benefits, which can significantly enhance a developer’s operational efficiency and financial viability.
One of the primary advantages of phasing is its capacity to minimise the equity required from developers. Debt financing is generally more cost-effective than equity, enabling housebuilders to retain more of their profits. By using phased financing, developers can tackle larger sites sooner and even pursue multiple projects simultaneously. This approach reduces reliance on more expensive forms of financing, such as investor debt or profit-sharing agreements.
Phasing also allows developers to improve their cash flow by generating revenue incrementally. As each phase of the project is completed and units are sold, capital is freed up to service existing finance or fund subsequent phases. While the timeline for completing a phased project may extend, the ability to realise returns at each stage often outweighs the potential downsides, such as lost economies of scale.
Developers can effectively manage and mitigate risks through phasing. By breaking a project into smaller, more digestible parts, developers can evaluate the performance and feasibility of each phase before moving forward. This approach not only reduces financial exposure but also allows for necessary adjustments based on real-time information and market conditions—criteria that lenders favour.
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Hannah Larvin
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