The developer loan is the bank financing of a real estate development, drawn down by work certifications and secured by a mortgage. It requires a percentage of pre-sales and the developer's own funds, and that requirement is what leaves out viable projects that cannot sell before building.
A developer loan is the bank financing that covers the construction of a property development and is drawn down against construction certificates. It is the sector's main route, and also the one that leaves some projects out for a simple reason: it requires a percentage of pre-sales and own funds that not every developer has when they need them.
How it works
The lender grants a limit tied to a specific project, with a mortgage on the land and the construction work. It is not paid out all at once: it is drawn down as construction progresses and against the certificates issued by the technical supervision. At the end, the loan is assumed by the buyers or repaid with the sales.
The three requirements that decide the deal
- Pre-sales. Lenders require a percentage of units sold before opening the drawdown. It is the requirement that slows down the most deals, because it forces selling before having financing to build.
- Own funds. The developer contributes a portion, usually the land already paid for and a percentage of the construction cost.
- Creditworthiness and experience. Developer track record, viability of the market study, and quality of the location.
The gap it leaves
The classic problem is one of sequencing: pre-sales are needed to obtain the loan, and construction must have started to sell smoothly. That mismatch, plus the own funds required before drawing the first euro, is what leaves viable projects unable to get off the ground.
That is where the structures that finance equity instead of construction come in: instead of asking for more debt, the developer opens part of the project's capital to investors.
The alternatives, ordered by what they cost and what they require
Participatory loan
Debt with remuneration linked to the project's performance. It counts as equity for capital reduction purposes, which helps the balance sheet, and is usually subordinated.
Crowdfunding
Fundraising through an authorised platform. It is a real and fast route, with an important cap: Regulation (EU) 2020/1503 sets a maximum of five million euros per developer over twelve months, across all platforms.
Co-investment or joint venture
A partner contributes capital in exchange for a share of the project. It solves the amount, at the cost of sharing control and, usually, negotiating a different deal each time.
Issuance of securities, tokenized or not
The developer issues shares or bonds of the project vehicle and places them with investors. Without the five-million limit, under a transferable security regime and, if represented using distributed ledger technology, with the ownership register maintained by an ERIR in accordance with Ley 6/2023.
What tokenization brings here, specifically
It does not make an unviable project financeable, and it is worth saying so. What changes are three practical things:
- The cap. The five-million limit specific to crowdfunding disappears.
- The register. Each investor's ownership is recorded with legal effect and updates automatically, instead of being kept in a ledger that someone has to maintain by hand.
- Distributions. Paying yields to dozens or hundreds of investors is no longer a manual process.
In return, it requires what a securities issuance requires: appointing an authorized ERIR, an issuance document, and checking whether the prospectus obligation applies. It involves more structure than a developer loan, and less than going to an organized market.
The right question
Before choosing a route, it is worth answering three things: how much needs to be raised and in how many months, whether the project needs debt or equity, and what can be offered to the investor. With those three answers, the route chooses itself; without them, the conversation revolves around the instrument instead of the project.
We cover the issuance route applied to a development in tokenization for real estate developers, and the ownership register in what is an ERIR.
Frequently asked questions
What is a developer loan?
It is the bank financing that covers the construction of a real estate development, with mortgage security over the land and the construction work. It is not disbursed all at once: it is drawn down as construction progresses and against certificates issued by the construction supervision team.
What requirements does the bank require for a developer loan?
Fundamentally three: a percentage of pre-sales before opening the drawdown, equity contributed by the developer, usually the land already paid for and part of the construction cost, and the developer's own creditworthiness. The pre-sales requirement is the one that holds back the most deals.
What alternatives are there to a developer loan?
The usual routes when bank financing does not arrive or arrives late are specialized alternative financing, the entry of an equity partner into the project vehicle and directly bringing in investors through a securities issuance. Each one changes the cost, the timeline and how much control the developer gives up.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
