Loan to value during lease-up
Before an asset stabilises, its income is only part-built, so a lender sizes the leverage carefully. This guide explains which value a lender uses during lease-up and why the loan to value is set where it is.
During lease-up a lender sizes loan to value against the asset's current, part-let value and the income it has proven so far, not its eventual stabilised value, so leverage is more conservative than on a standing asset, typically 65 to 75 percent. The lender prices the remaining letting risk: the further through the income ramp the asset is, the higher the loan to value it will support. As the asset stabilises, the value rises to the stabilised level and the leverage can lift on the take-out refinance. We size the lease-up leverage against the proven income and structure the facility so it grows into the stabilised loan.
At a glance
- Sized againstCurrent value and proven income
- Typical LTV65 to 75% during lease-up
- DriverRemaining letting risk
- Lifts whenIncome proves and the asset stabilises
- Standing-asset LTVHigher, at the take-out
- Calculator/calculators/loan-sizing/
Which value the lender uses
The central question during lease-up is which value the loan is sized against. A lender does not lend against the eventual stabilised value of a part-let asset, because that income is not yet proven. The valuation it relies on sizes the loan against the asset's current value as it stands, partly let, and the income proven so far. The stabilised value matters for the exit, but during lease-up the leverage is anchored to where the asset is today, not where it is going.
This is commercial lending against investment property, a form of specialist bridging finance held across the income ramp. The leverage is unregulated and sized on the asset, not on a consumer affordability basis.
Why leverage is more conservative
A part-let asset carries the risk that the remaining units do not fill as quickly or at the rents assumed, and its cash flow is still too thin to service debt in full. A lender prices that risk by holding the loan to value below the standing-asset level, typically 65 to 75 percent during lease-up against a higher level once stabilised. The leverage is not fixed across the ramp: the further through lease-up the asset is, with more units let and cash flow building, the more comfortable the lender is and the higher the loan to value it will support.
Two schemes completed on the same day can carry very different leverage if one has pre-lets or a nomination in place and the other is empty. A lender sizes against proven income, so contracted or pre-let income lifts the day-one leverage, while a fully speculative scheme starts more conservative and grows its loan to value as it fills.
How the value and leverage move through stabilisation
| Stage | Value basis | Indicative loan to value |
|---|---|---|
| Practical completion, empty | Day-one value, discounted | More conservative, lower end |
| Part-let, leasing | Current value plus proven income | 65 to 75%, rising as it fills |
| Stabilised | Stabilised value at the prime yield | Standing-asset level on the term loan |
The gap between the day-one value and the stabilised value is what the income ramp delivers, and it is the headroom the take-out refinance draws on. You can model that gap at /calculators/stabilisation-gap/ and size the lease-up loan at /calculators/loan-sizing/.
Topping up the leverage
Where a sponsor wants more leverage than the senior lender will give during lease-up, the gap is usually filled with mezzanine debt or equity rather than by pushing the senior loan past its comfort. A layer behind the senior debt and ahead of equity stretches the total funding while keeping the senior lender within its loan to value. That route sits at /services/mezzanine-and-equity/. The trade-off is cost: the mezzanine layer is priced higher to reflect its position, and each layer carries its own arrangement fee and valuation on top of the senior debt.
- Senior stabilisation debt sized at the lender's lease-up loan to value
- Mezzanine behind the senior debt to stretch the total funding, at a higher rate
- Equity at the top, carrying the most risk and the residual return
- The whole stack repaid or refinanced when the asset stabilises
How we size the lease-up leverage
We size the lease-up leverage against the income the asset has genuinely proven, present any pre-lets, nominations or contracted income that lifts the day-one loan to value, and structure the facility so it grows into the stabilised loan at the take-out. We are an arranger, not a lender, and we place the facility with the funder whose appetite for lease-up risk fits the asset. The core facility sits at /services/stabilisation-bridge-finance/.
Loan to value during lease-up: common questions
What loan to value can you get during lease-up?
Typically 65 to 75 percent during lease-up, more conservative than a stabilised asset because the lender is pricing the remaining letting risk. The leverage rises as the asset fills and the income proves, then lifts to the standing-asset level on the take-out refinance once it is stabilised.
Which value does a lender use before an asset stabilises?
The asset's current value as it stands, partly let, together with the income proven so far, not its eventual stabilised value. The stabilised value matters for the exit, but during lease-up the leverage is anchored to where the asset is today, because the future income is not yet proven.
Why is leverage lower during lease-up?
Because a part-let asset carries the risk that the remaining units do not fill as quickly or at the rents assumed. The lender prices that risk by holding the loan to value below the standing-asset level, then lifts it as more units let and the income proves out through the ramp.
Can pre-lets increase the loan to value during lease-up?
Yes. A lender sizes against proven income, so contracted, pre-let or nomination income lifts the day-one leverage, while a fully speculative scheme starts more conservative and grows its loan to value as it fills. Presenting that contracted income well is one of the strongest things a sponsor can do.
How do you get more leverage than the senior lender allows?
Usually with mezzanine debt or equity rather than by pushing the senior loan past its comfort. A mezzanine layer sits behind the senior debt and ahead of equity to stretch the total funding while keeping the senior lender within its loan to value, at a higher rate. That route sits at /services/mezzanine-and-equity/.
Funding a student accommodation scheme?
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