In this article, we're going to run through how to add finance to your Aprao development project. You can follow along with an example project by watching the video below.
Add a Lender
To get started, click the "Add A Lender" button. For example, this lender could be a senior debt lender - ie the main bank providing the majority of the funding. You can edit the name of this lender under the "Lender's name" section to suit whoever you are working with.
Here, you can set the total loan as a percentage of either the GDV or the Total Costs.
You have a few different options here when inputting the interest. Firstly, you need to specify the type of interest you're working with. To do this, go to where it says "Type of Loan" and select from the drop-down menu either "Interest on drawn balance,"; "Interest on full loan amount", or "Profit Share". Interest on drawn balance means that you only pay the interest on the money that is being used at that moment in time and is usually the most typical for Senior Debt.
Once you've selected the type of interest you are working with, you can set an interest rate, either on an annual or monthly basis. You can choose the type of calculation for your interest - to do this go to the "Calculation" section and select from the drop-down either "Estimated", "Override", or "Cashflow".
Once you've done your cashflow forecast, you'll find that in this section, you'll be able to get a really accurate interest estimate.
If you click "Estimate", the high level estimated interest works using an algorithm that simulates an S-curve. This S-curve simulates a standard construction phasing over a term that you've set, and will give you an accurate estimate of interest. Once you've done your cashflow, that will take it to the next level of accuracy but for a high level or initial appraisal or feasibility, this is a great place to start!
The final part of the Interest section is choosing between "Retained", "Rolled-up" or "Serviced" interest from the drop-down menu under "Payout", as you can see below.
What do the payout terms mean?
- "Retained" allocates part of that total facility to cover the cost of the interest - this means if you choose this option, there is a little less money available for the actual project because the lender is essentially lending the money to cover the interest.
- "Rolled-up" interest doesn't set up a pot of money like "retained", instead, interest is calculated on an ongoing basis, but it's only paid from the sales proceeds at the end of the project.
- "Serviced" interest is used when the interest payments are actually covered out of the pocket of the developer throughout the lifecycle of the project - that might be on a monthly or quarterly basis but either way, it has to be covered as equity in the project.
Different lenders charge different fees - in Aprao, you can specify which fees easily!
By default, Aprao shows you a commitment and exit fee to start with. You can set these either as an amount or as a percentage of the gross loan, or as a percentage of the GDV.
Here you can choose whether the fee is paid either by the loan itself, out of equity, or if it's paid by the sales.
Once you've filled in all the information about this primary lender, you can minimise the tab. Now you'll see a summary of all the important information about the lender including the Finance cost, the Development cost; the Total Borrowing (as a percentage of both development cost, and development cost with finance) and finally, the Developer's Equity (as a percentage of both the development cost and development cost with finance).
You can add as many lenders as you would like, for example, Mezzanine lenders; but make sure to think about the interest types as different lenders prefer different interest types. For example, "rolled-up" is most typical for Mezzanine lenders.
The up and down arrows on the right side for each lender allow you to re-order the finance stack. The lowest stack is utilised first, followed by the subsequent stacks in ascending order. Simply put, arrange the fund that is being drawn down first at the bottom of the stack.
Once you've added in all the lenders' information, the summary tab will also update and hey presto! You have a breakdown of the Finance cost, Total Borrowing and Developer's Equity associated with the project.
The last element of the Finance tab is the Forward funding tab and this can be very useful to keep all your summary finance information well-ordered.
Here you can exclude elements from the financing if needed. You can use this tool to strip out and finance these elements separately.
Based on how you have created your appraisal in the Revenue and Build tab, these same elements will populate here - you can see in the above example, different elements such as "Open Market Residential" and "Affordable Housing Build" populated under Revenue and Build. Simply tick the elements you would like to exclude from the Financing.
Now, when you return to the Financing section, you will see that everything in the appraisal or feasibility for the financing is only for the remaining elements that were not ticked in the forward funding tab, changing the facilities and stripping the forward funding out as a separate element in the summary; as you can see from the example below.
Hopefully, this article has answered your questions on the Finance section of Aprao. Check out the Aprao blog for more feature updates and articles. If you still have a general question please do post it to our forum, or any specific questions are welcome at email@example.com.