Lease-up finance

What lenders look for on a letting-up asset

Lease-up lenders fund an asset that is complete but only partly let, so the case rests on the credibility of the lettings plan more than on today's income. They want practical completion confirmed, the current occupancy and the bookings or signed leases for the next period, a realistic lettings strategy with absorption assumptions that the local market supports, and the track record of whoever is letting the asset. Because day-one income is low, they size the facility on the projected stabilised income with a defined path as occupancy climbs, and they test the loan to value against value at each stage of the ramp, indicatively up to 65 to 75 percent. They assess the planned term-loan exit from the outset, because lease-up finance only works if a term lender will refinance it once the income stabilises. We package the lettings evidence, the occupancy model and the term exit so the lender funds the climb with confidence.

Loan sizing during the lease-up period

Lease-up finance is sized on the income the asset will reach, not the income it shows on day one, which is what distinguishes it from an ordinary investment loan. A term lender applies a minimum interest cover ratio to current net income and lends what that supports, which on a barely-let asset is very little. A lease-up lender instead underwrites the projected stabilised income, applies its cover test to that, and advances on a path as occupancy grows, indicatively up to 65 to 75 percent of value. The facility is often interest-only or rolled up while occupancy is low, then serviced from rental income as the asset fills, so the structure follows the income curve. As occupancy climbs the value on an investment basis rises with it, and the asset moves toward the position that supports a long-term term loan at the keenest pricing. We model the occupancy trajectory, the income at each stage and the loan to value against it. All bands are illustrative, vary by lender and asset, are subject to principal sign-off, and are not an offer.

What lease-up finance costs and what drives it

Lease-up finance is priced above a stabilised term loan, because the income is projected rather than proven, and below pure construction debt, because the building risk is gone. The cost is driven mostly by how long the lease-up takes: an asset that fills quickly in a strong, undersupplied market reaches its cheaper term loan sooner and costs less in total, while a slow lease-up extends the dearer money. Expect a lender arrangement fee, indicatively around 1 to 1.5 percent, a valuation that reflects the lease-up position, and legal costs for both sides. Because interest is often rolled up early on, the all-in cost across the lease-up period matters more than the headline rate. We disclose our broker fee in writing, quote the all-in cost to the term exit, and never claim an exclusive panel or an exclusive tie to any lender. The figures are indicative and not an offer of finance.

Lease-up finance against a term loan or stabilisation finance

Lease-up finance, stabilisation finance and a term loan all sit on the path from a completed asset to a held, income-producing one, and the difference is timing. Lease-up finance funds the asset while occupancy is actively climbing, sized on the ramp. Stabilisation finance is the broader label for short-dated debt that carries a completed asset to stabilised income, of which funding the lease-up is the core job. A long-term investment term loan is the cheapest money but only fits once the income is stabilised and proven, which is exactly what the lease-up has to deliver. Trying to put an ordinary term loan on a barely-let asset fails, because the current income will not pass the interest cover test. We size the debt to the asset's actual position on the ramp, then refinance it onto term money at the top.