If you spend any time around development finance you will hear the term GDV within minutes. It is one of the two numbers every lender, broker and valuer wants to know about a project, and misunderstanding it is a common source of frustration for newer developers.
This guide explains what GDV means, how it is estimated and how it is used.
What GDV stands for
GDV is gross development value: the estimated total market value of a development once it is complete. For a scheme of houses or flats, it is the combined expected sale price of all the units. For a commercial scheme, it is the value of the completed building, usually derived from the rent it is expected to produce.
"Gross" is the important word. GDV is the value before any costs are deducted, before land, build, fees, finance or profit. It is the top line, not the bottom line.
How GDV is estimated
At the planning stage, GDV is an estimate based on evidence:
- Comparable sales. Recent sales of similar properties nearby, adjusted for size, specification and condition.
- Agent opinions. Local agents' views on what the finished units would achieve.
- Rental evidence and yields. For commercial or investment schemes, the expected rent and the yield at which similar properties trade.
When a lender is involved, they will commission a valuer to produce an independent GDV. This figure, not the developer's own estimate, is what the lender relies on. If the two differ significantly, the funding available changes, so it pays to be realistic from the start.
How lenders use GDV
Development lenders generally set two limits on how much they will fund:
- Loan to cost. The loan as a percentage of the total cost of the scheme, including land, build, fees and finance.
- Loan to GDV. The loan as a percentage of the end value.
Both limits apply and the lender will lend up to the lower of the two. The actual percentages vary widely between lenders, project types and developer experience, so it is not helpful to quote figures here. The point is that GDV directly caps the available funding, which is why it matters so much.
GDV and profit
GDV also drives the two measures of profitability that lenders look for.
- Profit on cost is the profit as a percentage of total cost: GDV minus total cost, divided by total cost.
- Profit on GDV is the profit as a percentage of end value: GDV minus total cost, divided by GDV.
Lenders typically want to see a healthy margin on one or both. It protects them against cost overruns, delays and a softer sales market, and it shows the project can absorb problems without becoming unviable. Again, the margins lenders look for vary, and a specialist can tell you what is typical for your kind of scheme.
GDV and land value
Developers also use GDV to work out what they can afford to pay for a site. The residual method starts with GDV, deducts build costs, fees, finance and the required profit, and what is left is the residual land value, the maximum sensible price for the site. If the asking price is higher than the residual, either the GDV is too low, the costs are too high, or the site is too expensive.
Common mistakes with GDV
- Using asking prices instead of achieved prices. Comparable evidence should be based on what properties actually sold for.
- Ignoring absorption. A scheme of many similar units may not all sell at the top price at the same time.
- Assuming the valuer will agree. Build your appraisal on evidence the valuer would accept, not on the best case.
- Confusing GDV with profit. A high GDV does not mean a profitable scheme if costs are equally high.
- Forgetting sales costs. Agent fees, legal fees and marketing reduce the net proceeds.
A simple illustration
Suppose a scheme is expected to produce four houses. If comparable evidence supports a sale price for each, the GDV is the total of those four prices. Deduct land, build, fees and finance costs, and the difference is the profit. Express that as a percentage of cost or of GDV, and you have the figures a lender will ask about. The numbers themselves will depend entirely on your scheme; the structure of the calculation is what to take away.
Where FundingFrame fits
FundingFrame does not value schemes or assess viability. When you tell us about a development, we ask for your approximate build costs and expected end value, your GDV, alongside the site, planning position, experience and exit. That goes into a Deal Snapshot which, where appropriate, we introduce to a specialist commercial finance broker who can discuss the options with you.
Key points
- GDV is the gross development value: the total expected value of the finished scheme before any costs.
- It is estimated from comparable sales, agent opinions and rental evidence, and lenders rely on their own valuer's figure.
- Lenders cap funding using loan to cost and loan to GDV, and lend up to the lower of the two.
- Profit on cost and profit on GDV both derive from GDV and total cost.
- The residual method uses GDV to work out what a site is worth.
- Realistic, evidence-based GDV avoids the most common funding surprises.