Typical Terms
Indicative ranges — actual terms depend on individual project assessment.
What is Development Equity?
Development equity involves a third-party investor providing some or all of the equity capital needed for a development project, in exchange for a share of the profits. Unlike debt finance, equity does not require monthly interest payments and there is no obligation to repay the investment if the project does not generate sufficient returns — the equity provider shares in both the upside and the downside.
For developers in Brent, equity partnerships can unlock projects that would otherwise be beyond their personal capital capacity. This is particularly relevant for the larger schemes emerging in the Wembley regeneration area, where total project costs can significantly exceed what a developer can fund through personal equity and senior debt alone.
Equity vs Debt: Key Differences
| Feature | Debt (Development Finance) | Equity |
|---|---|---|
| Repayment | Must be repaid with interest | Shared profits, no guaranteed return |
| Cost | Fixed rate (known cost) | Profit share (variable, potentially higher) |
| Risk | Lender has priority claim | Equity absorbs first loss |
| Control | Lender has limited control via covenants | Equity partner may have governance rights |
Typical Profit Share Structures
Equity arrangements vary significantly depending on the parties, project, and negotiation. Common structures include:
Pari Passu
Profits shared proportionally to equity contributed. If the equity partner provides 70% of equity, they receive 70% of profits. Simple and transparent.
Preferred Return + Promote
The equity partner receives a preferred return (e.g., 8–12% per annum) before any profit split. Remaining profits are then divided, often with a 'promote' structure favouring the developer for outperformance.
Waterfall Structure
Profits are distributed through tiered hurdles. For example: first return of capital, then a preferred return, then profits split 50/50 up to a target IRR, then 60/40 to the developer above target.
Joint Venture Structures
Many equity arrangements operate as joint ventures (JVs), where the developer and equity partner form a special purpose vehicle (SPV) for the project. JV structures typically include formal shareholders' agreements covering decision-making authority, developer responsibilities and obligations, reporting requirements, dispute resolution, and exit mechanisms including buy-out provisions.
JV equity is particularly suited to first-time developers in Brent, as an experienced equity partner can provide not only capital but also credibility when approaching senior debt lenders, project management expertise, and access to their professional network. The same structure works well on rooftop schemes: see our guide to airspace development funding for how a freeholder can contribute airspace into a joint venture.
Suitable Project Types
Common scenarios where development equity is used in Brent.
Frequently Asked Questions
Common questions about development equity.
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