Refurbishment-to-stabilisation finance

What lenders assess on a heavy refurb

Heavy refurbishment lenders underwrite the works, the team and the end value, because the loan is exposed to construction risk during the refurb and to lease-up risk afterward. They want a clear scope and a costed schedule of works, a credible contractor or builder with a track record on similar projects, the planning position confirmed where the works need consent, and a realistic programme with contingency. They size the loan against the works cost and the value the finished asset will reach, funding the refurbishment in stages against a monitoring surveyor's certificates so funds follow completed work. For the stabilisation phase they assess the lettings plan and the path to stabilised income, and they line up the term-loan exit, because the structure only works if a term lender will refinance the repositioned asset once it stabilises. First-time refurbishment borrowers are fundable with a strong contractor and a sound scheme. We package the works, the team, the end value and the lease-up plan so the case holds across both phases.

Loan sizing across the works and the income ramp

Refurbishment-to-stabilisation finance is sized in two parts that work together. The works funding can cover up to 100 percent of the refurbishment cost, released in stages against the monitoring surveyor's certificates, so the borrower is not funding the build from cash. The loan against the property is set at a loan to value, indicatively up to 70 to 75 percent, measured at the start against current value and at the end against the value the repositioned, stabilised asset reaches. As the works complete and the asset leases up, its value rises and it moves toward the position that supports a long-term investment term loan. Where an existing lender stays in place, the works funding can sometimes sit behind it as a second charge rather than refinancing the whole facility, subject to the senior lender's consent. Interest is usually retained or rolled up across both the works and the income ramp, so the net day-one advance is the gross loan less retained interest and fees, and cashflow is not strained while there is no income. We model the works funding, the loan to value at each stage and the term loan it leads to before approaching lenders. All bands are illustrative, vary by lender and scheme, are subject to principal sign-off, and are not an offer.

What the structure costs across both phases

Refurbishment-to-stabilisation finance is priced for the refurbishment risk it carries, so it is dearer than a stabilised term loan and is priced per month while the works and the lease-up run. Expect a lender arrangement fee, indicatively around 1 to 2 percent, a monitoring surveyor's cost for the staged drawdowns, a valuation reporting on current and end value, legal costs for both sides, and sometimes an exit fee. Because interest rolls up across both phases, the length of the works and the lease-up drives the total cost, so a tight programme and a quick lease-up save real money. Arranging the works and the stabilisation on one facility avoids refinancing twice between phases, which saves a second set of valuation and legal costs. We disclose our broker fee in writing, quote the all-in cost across both phases to the term exit, and never claim an exclusive panel or an exclusive tie to any lender. The figures are indicative and not an offer of finance.

Refurbishment-to-stabilisation against light refurb and development finance

Where a project sits on the spectrum from light refurbishment to full development decides the right structure. Light refurbishment bridging suits cosmetic works, a refresh, new kitchens and bathrooms, redecoration, where the building stays fundamentally as it is and the loan is mostly value-led. Development finance suits ground-up construction or a scheme so substantial it is effectively a new build. Heavy refurbishment, and refurbishment-to-stabilisation, sit between: structural works, change of use, extension or a comprehensive re-fit that repositions the asset, funded in stages like development finance but on an existing building. Refurbishment-to-stabilisation adds the lease-up phase, so the same plan that funds the works also carries the repositioned asset to stabilised income. We place the project on the spectrum and structure the debt to match, so the works and the income ramp are funded on the right money and exit onto a term loan.