Finance costs across a development

Finance cost is more than the margin over the reference rate. A realistic model includes:

• arrangement or structuring fee on the facility
• commitment fee on undrawn amounts
• interest on drawn balances, capitalised or serviced
• stamp duty on credit, which applies to financing arrangements
• valuation fees, initial and on review
• monitoring surveyor fees across the drawdown period
• lender's legal costs, usually borne by the borrower
• guarantee and bond fees where infrastructure works require them
• early repayment or exit fees where applicable
• the cost of maintaining facilities during a sales period longer than planned.

Development facilities release funds in stages against certified works. That mechanic has three consequences for the appraisal.

First, interest accrues on the drawn balance, so the profile of spend matters as much as the total. Second, certification introduces a lag between the contractor's valuation and the receipt of funds, which the developer bridges. Third, the monitoring process is itself a cost and a programme item, not an administrative formality.

Equity is almost always required before the first drawdown, and lenders will expect it to be visibly committed. That is why the acquisition block and the early professional fees have to be funded from equity in the model.

A lender pack that answers these questions in advance shortens credit approval considerably:

• the planning position — approved licence, PIP, or the risk that remains
• the cost plan, its source, and the contingency held
• the programme, with the licensing and sales periods shown explicitly
• evidence for sales values, and any pre-sales or reservations
• the contractor: standing, capacity, contract form, bonds and retention
• the sponsor's track record on comparable projects
• the vehicle: structure, shareholders, funding trail, beneficial ownership
• the exit: how and when the facility is repaid.

Leverage is then constrained by loan-to-cost and loan-to-value tests, and by the lender's view of the sales period.

Programme delay is the dominant finance risk on Portuguese development because licensing periods are long and partly outside the developer's control. A six-month extension does not only add six months of interest; it adds insurance, municipal property tax, professional retainers, overhead and, potentially, a shifted sales window into different market conditions.

Model it explicitly:

• run the base case with a realistic, not optimistic, licensing period
• run a delay case of six months and check covenant headroom, not just margin
• check the facility term against the completion of sales, including the deed tail
• identify the point at which an extension fee or a refinancing becomes necessary.

Units sell over a period, and each sale releases funds subject to the lender's release mechanism. The gap between practical completion and the final deed is where many projects run out of facility term.

Practical controls:

• agree release prices per unit at the outset and check they clear the loan on a realistic absorption rate
• confirm what happens if units remain unsold at maturity
• plan the refinancing option before it is needed rather than during a covenant breach.

• Assuming the facility covers acquisition taxes, VAT and fees.
• Modelling interest only across construction, ignoring licensing and the sales tail.
• Omitting fees, stamp duty on credit, monitoring and legal costs.
• No contingency, so the first variation breaks the drawdown schedule.
• A sales programme that finishes after the facility matures.
• Release prices set so that the last units carry a disproportionate share of the debt.