Student accommodation stabilisation finance

Lending criteria and term during lease-up

Stabilisation lenders underwrite a scheme that is built but not yet mature, so the case turns on practical completion and the credibility of the lease-up. They want confirmation of practical completion, the current occupancy and bookings for the next cycle, the operator's track record at filling schemes, and evidence that the local university market can absorb the beds, which in an undersupplied city Savills measures at around three students per bed. Because the income is still building, they size the facility on current income with a defined path as occupancy grows, and they term it to cover the lease-up, typically twelve to twenty-four months. They assess the planned investment-loan exit from the outset, because the stabilisation facility only makes sense if the term refinance is achievable once occupancy matures. We package the completion evidence, the occupancy trajectory and the operator record, and we line up the term exit so the stabilisation facility has a clear destination.

Loan to value during lease-up and the path to refinance

During lease-up a stabilisation facility runs indicatively up to 65 to 70 percent of value, sized on the income the scheme produces now with a path as occupancy builds, rather than on the full stabilised income an investment lender would underwrite. As the scheme fills, the income rises, the value on an investment basis rises with it, and the scheme moves toward the occupancy and rent roll that support a long-term investment term loan at the keenest pricing. The facility is usually interest-only or rolled up so the rising income is not all consumed by debt service during the build-up. The path to refinance is the heart of the product: the stabilisation loan is sized and termed so that, by the time it matures, the scheme is stabilised and supports a term facility that repays it. We model the occupancy trajectory, the income at each stage and the term loan it leads to, so the route from completion to stabilised investment debt is clear. All bands are illustrative, subject to principal sign-off and not an offer.

Occupancy, income and the cost of the facility

Stabilisation finance is priced between development finance and a stabilised investment loan: cheaper than the development facility it replaces, because the scheme is now built and de-risked, but dearer than the long-term investment loan it leads to, because the income is not yet proven. Replacing a maturing development loan with a stabilisation facility therefore usually lowers the cost of debt immediately, while buying time for the income to mature. Expect a lender arrangement fee of around 1 to 1.5 percent, a valuation reflecting the lease-up position, and legal fees for both sides. The cost is driven by how long lease-up takes, so an operator that fills the scheme quickly, in a strong city, reaches the cheaper term loan sooner. We disclose our broker fee in writing, compare the all-in cost to the term exit, and never claim an exclusive tie to any lender.

Stabilisation finance, development finance or an investment loan

Stabilisation finance is the right product for the specific window between a completed scheme and a stabilised one. Development finance is the wrong tool once the build is finished, because it is priced for construction risk that no longer exists, which is exactly why replacing it with stabilisation finance saves money. A long-term investment term loan is the cheapest money but is not yet available, because the lender wants proven occupancy first, so stabilisation finance fills the gap until the scheme qualifies. Some schemes in the strongest cities lease up so fast that they move straight from development finance onto an investment loan without a stabilisation facility at all; others need the bridge. We assess the lease-up realistically and only arrange stabilisation finance where it genuinely lowers the cost or secures the time the scheme needs.