Glossary
The language of
bridge & development finance
Plain-language definitions of the terms borrowers meet most often, with the parameters we typically see in our five markets.
- Bridge loan
- A short-term, asset-backed facility, typically 3 to 24 months, drawn in a single advance against an existing asset. Used to acquire under time pressure, release equity ahead of a sale, refinance maturing debt, or fund a transitional business plan. Indicatively priced from around 8% per annum, with leverage up to around 70% of value on a senior basis.
- Development finance
- A facility that funds ground-up construction, conversion or substantial refurbishment over 18 to 36 months, drawn in tranches against a monitoring surveyor's certification and sized on loan-to-cost and loan-to-gross-development-value. Indicatively priced from around 8% per annum, with leverage up to around 60% of gross development value.
- Arranger
- A party that acts on the borrower's side to structure a financing requirement, approach suitable lenders and run the process through to drawdown, without lending its own balance sheet. Passy Partners is an arranger, not a lender; the borrower keeps the lender relationship after completion.
- Senior debt
- The most secured layer of financing, ranking first for repayment and secured by a first charge over the asset. It carries the lowest risk for the lender and therefore the lowest pricing within a given structure.
- Stretch-senior
- A senior facility taken to a higher loan-to-value than a conservative senior loan, blending senior and mezzanine-style leverage into a single first-charge instrument. It avoids a separate junior tranche while giving the borrower more proceeds.
- Whole-loan
- A single facility from one lender covering the entire debt requirement, from the senior portion through to the higher-leverage layer, rather than splitting the debt between separate senior and junior lenders. Simpler to document and execute than a tranched structure.
- Mezzanine / junior debt
- Subordinated debt that ranks behind the senior lender for repayment and security, usually priced higher to reflect the greater risk. Passy Partners arranges senior, stretch-senior and whole-loan facilities, and does not place subordinated or second-charge junior debt behind a third-party senior loan.
- First charge / second charge
- The ranking of security registered against a property. A first charge is repaid before any later charge; a second charge sits behind it and is repaid only once the first is satisfied. Lenders price and size facilities according to the charge they hold.
- Loan-to-value (LTV)
- The facility amount expressed as a percentage of the property's value. A primary measure of leverage and risk: the lower the LTV, the greater the lender's security cushion. Senior bridge facilities are typically available up to around 70% of value.
- Loan-to-cost (LTC)
- On a development facility, the loan amount as a percentage of the total project cost, including land and construction. Used alongside loan-to-gross-development-value to size and monitor the facility as works progress.
- Loan-to-gross-development-value (LTGDV)
- On a development facility, the loan amount as a percentage of the projected value of the completed scheme. Development finance is typically available up to around 60% of gross development value.
- Gross development value (GDV)
- The estimated open-market value of a development once complete. It anchors how a development facility is sized and is a central figure in the lender's underwriting of the scheme.
- Drawdown
- The release of loan funds to the borrower. A bridge is usually drawn in a single advance at completion; development finance is drawn in tranches as works are certified by the monitoring surveyor.
- Interest reserve
- An amount set aside within a facility to cover interest during a period when the asset produces little or no income, common on development loans. It is built into the facility size so the borrower does not service interest out of pocket during the works.
- Monitoring surveyor
- An independent surveyor appointed by the lender on a development facility to certify cost incurred and works completed before each drawdown, protecting the lender against over-advancing relative to progress on site.
- Exit / exit strategy
- How a short-term facility is repaid at the end of its term, most commonly the sale of the asset or a refinancing onto longer-term debt. A credible, evidenced exit is one of the first things a lender underwrites on a bridge.
- Term sheet
- A document setting out the proposed principal terms of a facility, amount, term, rate, leverage, security and conditions, before full legal documentation. Indicative terms are non-binding and are confirmed only on completion of underwriting.
- Special purpose vehicle (SPV)
- A company, often UK, Jersey or BVI, set up to hold a single property or portfolio. Common in prime real estate for tax, liability and exit reasons; the holding structure directly affects lender eligibility and the security a lender can take.
- SCI (société civile immobilière)
- A French civil property-holding company widely used for French real estate, particularly by non-residents. The choice between the IR and IS tax regime affects financing, IFI exposure and succession planning, and is settled with the borrower's notaire.
- SOPARFI
- A Luxembourg financial holding company (société de participations financières) frequently used to hold European real estate across borders. Facilities can be arranged at the SOPARFI level, secured by share and account pledges.
- Lex Koller
- The Swiss federal law restricting the acquisition of residential real estate by persons abroad. It is the primary structuring constraint on Swiss financing involving a non-resident; exemptions exist for commercial assets, qualifying hospitality and residence-permit holders.
- KYC and source of funds
- The lender's checks on the identity of the borrower and beneficial owners (know-your-customer) and on the origin of the equity. Expectations are higher for non-resident borrowers and multi-layered structures, and are best prepared before approaching the market.