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When is a property developer not a property developer?

19th August 2021

The idea of being a Property Developer holds a lot of appeal for many of us, but sadly it is often one of those dreams that doesn’t become a reality.  Whether it is time or money holding budding developers back, the challenge can actually be insurmountable for most of us in the context of getting on with real life.

Crowdstacker has featured many property-related loans on its platform since launching in 2015, so we have experienced first-hand the enthusiasm for, and popularity of, investing in property.  It was with this in mind that the Property Development Loans, or PDLs, were created – to help people become more involved in specific property development projects without having to pick up any power tools of their own, or invest too much time or money.

“We see PDLs as something akin to ‘Property Development Lite’” explains Karteek Patel, CEO of Crowdstacker.  “The basic principle is to provide all the excitement and interest from featuring specific build projects where the investor can see the site, the architect plans, the interior fit-out plans, and the vision of the end-product.  Plus they can follow the development as it progresses towards completion.”


The first PDL will be offered soon.  All PDLs will be listed here as soon as they launch.


What type of finance is a PDL loan?


PDLs are all mezzanine loans.  Mezzanine finance is sometimes used by developers to bridge the gap between senior lending (most often from a bank) and the actual full cost of a project.  

Property developers face the problem of meeting building costs, such as the cost of the land, building materials, labour and professional fees, before a property has been successfully marketed and sold.  In addition, whilst senior lenders will commit to providing finance it is often released in staggered drawdowns to cover costs already incurred, and as such does not allow for working capital needed up front to get projects off the ground.

A bank or other senior lender will not normally finance the full costs of a project, expecting the developer to find the remainder themselves, and because these funds are not always accessible, mezzanine finance can be used. 

What you need to know about mezzanine finance

Like mezzanine finance, PDLs will be secured against the value of the project as a second charge behind the senior lender. The PDLs will also typically be secured over the assets, property and undertakings of the property developer via a second ranking debenture given to the Security Trustee on investors’ behalf and a second ranking legal charge over the property.

Mezzanine finance is a riskier type of funding than senior loans as they take lower priority in repayment and for this reason it offers higher potential returns – perhaps even interest rates in double-figures.

But potential investors should not be seduced by high returns on offer.  A sound understanding of how PDLs work, alongside thorough examination of the loan support materials (such as the loan brochure) will aide in decision making to ensure PDLs are a comfortable fit with each investor’s portfolio.

There are certainly some clear advantages to investors including confidence in the robustness of the project which will have been thoroughly assessed by the senior lender even before going through the due diligence processes of the mezzanine lender. 

Disadvantages include that, as a second charge loan, the mezzanine lenders are only repaid once the senior lender has been repaid. To help mitigate this PDLs will only top up development finance to a total of 75% Loan to Gross Development Value, meaning that the final expected sale value achieved can fall by up to 25% of its predicted value before it affects the ability of the developer to repay the debt in full. 

What else should I know?

PDLs are P2P Loans which are eligible to be held as part of your annual ISA Allowance and it is possible to transfer in previous years’ ISA money from your existing ISA investments.