Logistics and industrial development finance

How much can you borrow on a development scheme?

Development finance for a warehouse or logistics scheme is sized against two ceilings at once. A lender will typically advance up to around 65 to 75 percent of total cost, which covers land and build, and up to around 60 to 65 percent of the gross development value once the unit is finished. The facility takes whichever of those two figures is lower.

Where a scheme is pre-let to a tenant, the income and the exit onto a commercial mortgage are more certain, so the loan to value (LTV) on completion can sit at the top of the range. A speculative industrial unit with no tenant agreed carries a lower advance and a higher rate, because the lender is taking letting risk as well as build risk. We size the facility so your own cash equity is clear before you commit.

How are funds drawn down?

Development money is not paid out in one lump. It is released in stages as the build of the warehouse progresses, against the reports of a monitoring surveyor the lender appoints. The surveyor inspects the site, confirms the work to date matches the costings and signs off each stage before the next drawdown is advanced.

This staged structure protects both sides. The lender only funds work that is genuinely complete, and you only pay interest on money you have actually drawn rather than on the whole facility from day one. Interest itself is usually rolled into the loan rather than paid monthly, keeping cash free across the build of the industrial unit.

What does a lender want to see?

A development lender underwrites the scheme and the team. It will want the costings, the build programme, the professional team, planning consent and a realistic gross development value for the finished warehouse, ideally supported by a valuation. It also looks hard at your track record delivering industrial or logistics projects of similar scale.

Just as important is the exit. The lender wants to see how the development facility is repaid, whether that is a sale of the units, a refinance onto a commercial mortgage once the warehouse is let, or a stabilisation loan in between. A pre-let to a named tenant on an agreed lease makes that exit concrete and improves the terms on offer.

What is the exit?

The development facility is short-term and is always built around how it ends. Once the warehouse is built and let, it is refinanced. A fully let industrial unit moves onto a long-term commercial mortgage, the cheapest money in the lifecycle, while a part-let scheme often takes a stabilisation loan first to bridge the gap to full occupancy.

Where the plan is to sell rather than hold, the exit is the sale of the completed units and the facility is repaid from the proceeds. We line up the exit early, in parallel with the build, so the term lender's appetite or the sales strategy is known well before practical completion rather than scrambled for at the end.

What rates and terms apply?

Development finance prices above a term loan because it carries build risk and, on a speculative scheme, letting risk too. Rates commonly start from around 8 percent and move with the loan to value (LTV), the pre-let position and your track record. A de-risked, pre-let warehouse scheme prices keener than a speculative industrial unit.

Terms usually run from 12 to 36 months, long enough to cover the build of the warehouse and the initial letting. Because interest is rolled into the facility, the headline cost is what accrues across the term rather than a monthly payment. We model the rolled interest and the total cost so the numbers stack against the finished value and the exit.