ABSTRACT
Speculative development (and hence its financing) in Western economies was very limited up to the end of the 1930s except in the residential sector. The focus of this chapter is therefore on the evolution of the different models of funding development from World War II. The traditional model takes the form of a property company receiving incremental debt funding from a bank to pay out outlays through the development period. The debt is then repaid on completion through selling or taking out a mortgage on the property. However, market conditions rarely enable this simple model to work, and property cycles dominate the availability and terms of debt finance from banks with easy credit in booms followed by droughts in downturns. One alternative is forward funding/equity sharing partnerships between developer and a financial institution. Other innovations include non-recourse or limited recourse loans, usually involving a separate property vehicle for the sole purpose of individual developments, and very occasionally mezzanine finance. Another source of finance for property companies listed on a stock exchange is the issue of shares, bonds, and commercial paper. This approach is seen to transmute into asset securitization of properties set within a single purpose vehicle. Global integration has meant that development finance is available on a competitive basis from banks around the world, a trend that has gone hand in hand with larger construction projects. Large-scale development projects are also often dependent on a funding partnership with a public agency.
