How to get money for a real estate project - experience of real estate lawyers from ARROWS

Financing real estate projects is one of the biggest challenges faced by developers and investors. The construction of apartment buildings, office buildings or property renovations requires significant capital and careful planning. There are a number of ways to raise the necessary money - from traditional bank loans to private investors to modern crowdfunding. Each option has its advantages, disadvantages and legal specifics. It is important to choose the right mix of sources, handle all contractual and permitting requirements and avoid risks that can jeopardise the financing. In this article, we will provide an overview of real estate project financing options, highlight the legal aspects and risks, share examples of good and bad practices and offer tips on how to get the best terms. You will also learn how ARROWS, a law firm that specializes in real estate projects, can help you with all of this. The aim is to equip you with the knowledge and boost your confidence so you can go into your project financing with confidence and see it through to completion.

Author of the article: ARROWS (JUDr. Jakub Dohnal, Ph.D., LL.M., office@arws.cz, +420 245 007 740)

Financing options for real estate projects

Today, developers and investors have a wide range of financing sources at their disposal. Each source is suited to different situations and it is often best to combine several options. 

Here is an overview of the main options for raising capital for a real estate project:

Bank loans

For most larger projects, bank loans are the mainstay of financing. Banks offer specialised loans for developers, such as development loans for construction or mortgage loans secured on real estate. 

The advantage of bank financing is the possibility to obtain large sums of money at a relatively low interest rate (compared to other sources). However, the bank imposes strict requirements: you will need a good business plan, a project budget, an estimate of the future value of the property and often some investment of your own (typically 10-30% of the project cost). The bank usually requires security for the loan - for example, a mortgage on the land and the building under construction, or a guarantee by the parent company. The loan approval process can be lengthy and banks carefully examine the risks of the project (e.g. whether you have planning permission, pre-sold units, experience as a developer, etc.). 

Advantage: a large amount of finance and a long maturity (e.g. a 10-15 year loan) with reasonable interest. 

Disadvantage: demanding administration, strict drawdown conditions (e.g. proving a certain percentage of pre-sales of apartments before releasing the money) and less flexibility - once you commit to the contract, you have to comply with the agreed conditions, otherwise you risk defaulting on the loan.

Private investors and partners

Another way is to involve private investors or strategic partners. These can be individuals with free capital, investment companies, or even other development firms that will invest in your project in exchange for a share of the profits or co-ownership. 

This is often called a joint venture - you and the investor put capital into the project and share the risks and future returns. The private investor may provide funding in the form of equity or a mezzanine loan (a subordinated loan at a higher interest rate to supplement bank financing). 

The advantage is greater flexibility - you can agree on the terms individually, the investor can accept a higher risk than the bank and often brings experience or contacts in addition to money. 

The disadvantage is of course the need to share profits and to some extent control over the project. 

The key is to have everything covered by a contract - for example, a shareholders' agreement that specifies exactly who puts what into the project, how profits are divided, how important issues are decided, and how an exit (the investor leaving the project) is handled. Private investors are usually dealt with discreetly, without a public offer - often through personal or business contacts. Bringing in such a partner can substantially increase the credibility of the project for other financiers (e.g. a bank), as they can see that more parties are investing in the project.

Investment funds and qualified investor funds

For larger or more specialised projects, investment funds, especially qualified investor funds (QIFs) focused on real estate, may be the solution. These funds raise funds from institutional and more affluent private investors and invest them in a variety of projects. They can be real estate funds managed by investment companies looking for profitable development projects. Fund financing can take various forms - for example, the fund will buy a stake in your project company (i.e. enter into the equity of the project), or provide mezzanine financing in the form of a subordinated loan or a pre-purchase of part of the project. The advantage is that funds have a large amount of capital at their disposal and can finance projects that a normal bank would not be able to finance or would consider too risky.

 They also often offer deferred returns - for example, the fund only collects its share of the profit when the project is sold, so you don't have to pay high ongoing interest during construction. The downside can be more complex and lengthy negotiations and thorough due diligence by the fund. The fund will also take a significant share of the profits in return for its capital and may want to influence key decisions. In order to work with a fund, it is necessary to prepare a detailed project presentation, financial model and expect that the fund will require professionally prepared contractual documentation (master investment agreement, shareholder agreement, etc.). There are a number of funds operating on the Czech market that invest in residential and commercial real estate - getting their attention requires a quality project and often a high-level personal negotiation.

Crowdfunding (group financing)

An increasingly popular option is crowdfunding, or the mass financing of a project by the general public through an online platform. In the real estate sector, platforms allowing smaller investors to invest in development projects are gaining ground in the Czech Republic - they typically invest units or tens of thousands of crowns in exchange for appreciation.

Crowdfunding can take two main forms:

1. Investment crowdfunding - investors get a stake in a project, often by buying bonds or units issued specifically for the project. De facto, they lend money to the developer and become lenders with a claim to interest or a share of the profits.
2. Loan (credit) crowdfunding - a crowd of investors provides a project loan, which the developer repays. The platform typically structures this loan and handles the paperwork.

The advantage of crowdfunding is the speed and marketing effect. If you have an attractive project, you can reach hundreds or thousands of small investors and raise money within a few weeks or a few months. You don't have to meet as strict criteria as a bank - retail investors often invest based on potential returns and basic information about the project. At the same time, you increase the publicity of the project (people who invest spread the word). 

The disadvantages lie in the fees to the platform and also in the limited volume - the legislation now stipulates that a maximum of about EUR 5 million (~ CZK 120 million) per project per 12 months can be obtained in this form. Crowdfunding has been regulated since 2022 (Act No. 96/2022 Coll. implementing the EU Regulation 2020/1503), platforms must be licensed and comply with the rules under the supervision of the CNB. 

For the developer, this means that they have to work with a licensed platform and, for example, produce a key investor information document about the project. Legal requirements must therefore be taken into account, even if it is an alternative financing. Crowdfunding is more suitable for medium-sized projects or as a complement to a bank loan. The interest rate for investors tends to be higher than bank interest (to attract investors, e.g. 6-10% per annum), which is the price for raising money faster and with less administration compared to a bank.

Equity

Any funder will want to see that the developer itself puts its own capital into the project. Financing a project entirely without equity is virtually impossible and also risky. Equity can come from the developer's savings, reinvested profits from past projects, or the sale of another property, for example. For smaller investors, equity can be, for example, a guarantee of their own property or land. 

The advantage of equity is that it increases the credibility of the project - you show that you believe in the success enough to risk your own money. 

In addition, no interest or repayments are applied to the equity, reducing the financial burden of the project. A higher proportion of equity often leads to better terms with banks (lower interest, willingness to finance the rest). 

The disadvantage is obvious: not everyone has sufficient resources. By putting most of your wealth into one project, you are taking a concentrated risk - if the project fails, it puts your finances directly at risk. That's why many developers combine equity with other sources to spread the risk. 

As a general rule, the riskier or less prepared the project, the higher the percentage of own resources the financier will require. For fully developed projects with permits and pre-sales, financing with very low equity can sometimes be negotiated, but the standard is the aforementioned 20-30%.

Subsidies and public support

Subsidies or other forms of public support can be used for certain types of real estate projects. These are mainly projects of public interest or with elements of innovation and sustainability. Examples include:

Subsidies for energy-efficient 

e.g. the New Green Savings Programme, which provides contributions for environmentally friendly and energy-saving technologies in housing construction (insulation, renewable energy sources, etc.).

Support for the construction of affordable or social housing

the state or municipalities sometimes offer programs to support affordable housing, such as discounted loans from the State Housing Development Fund or subsidies for social housing.

Revitalisation of brownfields - if you as an investor are revitalising a neglected site or industrial brownfield, you can get subsidies from land regeneration programmes (often co-financed by EU funds).

Other regional or EU programmes - according to current calls for proposals, funds can be drawn for innovative architecture, green roofs, smart cities, etc.

The advantage of grants is that they are "cheap money" - you don't have to pay them back as a loan (if you meet the conditions). Grants can typically cover 10-40% of the project costs, which will significantly improve the economics of the project and can make it easier to get the rest of the funding (you show the bank or investor that part of the costs are covered). However, the disadvantages and pitfalls are considerable: obtaining a subsidy is administratively demanding, often lengthy (the approval process takes months) and uncertain. A detailed application has to be prepared, many criteria have to be fulfilled and conditions have to be carefully followed once the subsidy is obtained (e.g. sustainability of the project for a certain period of time, achievement of certain energy performance parameters, etc.). 

Failure to comply with the conditions may lead to the need to repay the subsidy, which could financially ruin the project. You also need to take into account that grants are usually only paid retrospectively after completion or during the project, so you need to have other resources available in the meantime and the grant is then used to reduce or refinance the debt. It therefore makes sense for developers to keep an eye on subsidy opportunities and, where appropriate, consult subsidy consultants (e.g. ARROWS has its own subsidy support team). A properly used subsidy can make a project a significantly more profitable venture, but it must not be relied upon as the sole source of finance.

Bonds

Financing in the form of bonds has become a popular instrument, especially among medium-sized developers in recent years. The developer (through its project company) can issue corporate bonds that are bought by public or private investors. By purchasing a bond, the investor lends money to the issuer and the issuer agrees to pay interest and repay the face value of the bond at a specified time. For the developer, it is a way to raise money without a bank - the advantage can be less restrictive conditions than a bank loan and sometimes faster fundraising. Investors are often promised a relatively attractive interest rate (perhaps 5-8% per annum) as compensation for the risk they are taking.

However, the issuance of bonds is subject to legal rules. Each bond must have terms and conditions of issue that define the rights and obligations of the issuer and bondholders (interest rate, maturity, collateral, etc.). If you want to offer the bonds publicly to a larger number of people, Czech legislation sets limits: a public offering without a prospectus (approved by the CNB) is only possible up to an issue volume of EUR 1 million (approx. CZK 25 million) or when addressing a maximum of 150 retail investors. 

For larger issues, you have to have a prospectus prepared and approved by the Czech National Bank, which is a costly and lengthy process that is more suitable for large issues. Therefore, many developers choose the private placement route (they reach a limited number of investors, often well-known or qualified, and avoid public advertising) or split the issue into smaller tranches below the limit. However, this must be done prudently and in accordance with the law - the CNB actively supervises the bond market and imposes fines for circumventing the rules. Another aspect is the collateralisation of bonds: most developer bonds are unsecured (investors basically trust that the developer will be able to pay). To strengthen confidence, bonds can be secured - for example, by a mortgage on the property, a guarantee by another group company, or a bank guarantee. Secured bonds are more likely to attract investors and may carry a slightly lower interest rate, but again, securing costs extra time and money. 

The advantage of bonds is therefore the possibility of obtaining financing from smaller investors and diversifying resources. The disadvantages are the costs of issuance (legal advice, administration associated with the registration of owners, possibly a prospectus) and the obligation to pay interest regardless of the economics of the project. If the project is delayed or fails, the bonds have to be repaid anyway - which can lead to the bankruptcy of the company if there is nothing to pay. Therefore, this form of debt should not be underestimated and ideally not exceed a reasonable level of debt.

Alternative and complementary forms of financing

In addition to the main sources mentioned above, there are various additional forms of financing that can help to compose the project's financial plan:

Mezzanine loans

As mentioned, these are subordinated loans from specialist investors or funds. They carry a higher interest rate than a bank loan but can cover the part of the investment that the bank will not lend. They are usually repayable after the bank has been repaid and can be convertible into a stake in the project if not repaid on time.

Pre-sales and deposits from prospective buyers

In residential projects, developers often sell apartments or houses before the construction is completed. The buyer pays a reservation fee or a deposit (e.g. 10-20% of the price) in advance. These funds can be used to finance the construction. Banks take this into account and sometimes require a certain percentage of pre-sold units before releasing the next tranche of the loan. Advances reduce the need for other financing, but need to be properly handled (they usually go into escrow and the developer only gets them when they meet the conditions - this protects the buyers).

Supplier credit

Sometimes it can be agreed with the construction company or contractors that part of the payments for work and materials will be made after the project is completed or after the units are sold. De facto, the contractor finances the construction out of his own pocket until he is paid in full. This deferred payment arrangement will ease cash flow during construction. Of course, not every contractor is willing to agree to this and will often charge extra for it, but with reliable partners it can be a welcome help.

Selling part of the project or partnering with a larger developer

If you have a project in the land and permitting phase, but lack the financing for the actual construction, you may consider selling the project to a larger investor or entering into a partnership. For example, you sell a 50% stake in the project to a strong developer who provides the financing and implementation while you share in the profits. You may lose some control and some of the future profits, but you ensure that the project gets built at all and make some profit with less risk.

Each project is unique and is often funded by a combination of these sources. For example, a typical model might be: 20% equity + 60% bank loan + 20% mezzanine or pre-sales. It is important to continuously monitor the cost of financing (interest, fees, profit sharing) and their impact on the resulting profitability of the project. Also maintain some cushion in case of unexpected expenses or failure of one of the sources - financing should never stand on a single pillar without a backup plan.

Legal aspects of financing real estate projects

Financing a development project is not only about numbers and percentages, but also largely about law and administration. Every form of financing carries with it a set of legal requirements, contracts and permits that must be secured. Underestimating the legal aspects can derail even the best financial plan. Here are the key legal areas to focus on:

Contract documentation and legal relations

Already when preparing the financing, you need to think about what contracts you will need to enter into and how you will set up the relationships between all parties:

Loan agreements with the bank

These are robust contracts, often dozens of pages long, in which the bank regulates in detail the terms of the loan, interest, repayments, collateral, the developer's obligations (e.g. regular reports on the progress of the construction, insurance of the construction, prohibition of changes to the project without the bank's consent, etc.) and penalties for breach. Before signing, it is essential to read the contract thoroughly (ideally with the help of a lawyer) and negotiate adjustments to unclear or overly strict terms. For example, covenants (financial ratios that you have to meet for the duration of the loan) should be realistic and achievable, otherwise you run the risk of the bank prematurely repaying the loan.

Contracts with investors/partners

If you are funding a project in partnership, you need to contractually address how the collaboration works. Typically, there is a memorandum of association for the new company (SPV) or a shareholders' agreement in an existing company that describes the division of shares, contributions, profits and responsibilities. In addition, an investor agreement or framework agreement can be useful, where the partner commits to provide certain capital under certain conditions. For a mezzanine loan, you will again enter into a loan or credit agreement with a subordinated lender. It is always necessary to think about what happens if one party fails to deliver the funds on time, if there is a dispute, or if the project needs to be terminated or sold - contracts should also address such situations (e.g., the investor's right to withdraw from the project under certain conditions, the developer's obligation to find alternative financing, etc.).

Issue terms of the bonds

When financing through bonds, it is mandatory to draw up the terms of issue - a document that sets out all the parameters of the bonds (issue price, nominal value, interest rate, maturity date, method of interest payment, collateral, if any, purpose of the issue, etc.). The terms of issue are de facto a contract between the issuer and each investor-bondholder. They should be drafted precisely and in accordance with the Bond Act. Moreover, if it is a public offer of bonds, a prospectus must be drawn up and approved by the CNB (unless it is a limited under-limit offer of up to EUR 1 million or up to 150 investors, as discussed above). A prospectus is not required for a private placement of bonds, but it is still necessary to comply with the legal limits and not to distribute the offering publicly.

Contracts with crowdfunding platform and investors

In the case of crowdfunding, you will enter into a contract with a platform that will arrange the funding for a fee. The platform has its own terms and conditions and contractual framework that you must abide by - for example, it regulates how and when you will receive the money you raise, what information you must provide to investors, what happens if the project is delayed, etc. Small investors then usually enter into a contract with the platform or directly with you (the platform acts as an intermediary). You need to ensure that the information presented on the platform is truthful and not misleading - the law now requires the aforementioned key information document that summarises the risks and conditions of the investment in a clear way for investors. Again, if you make a promise that you then fail to deliver (e.g. overstating expected returns), this may have legal ramifications.

Purchase contracts and agreements on future contracts with future buyers

If you are financing part of the project from the pre-sales of apartments or commercial units, you will enter into future purchase agreements with individual bidders. These agreements will set out the terms of the future sale (price, completion date, unit parameters) as well as the amount and maturity of deposits. From a legal standpoint, you must include provisions for what will happen if the project is delayed, if the buyer pulls out, or if construction does not take place at all - to protect buyers, the Real Estate Brokerage Act imposes certain obligations (such as the aforementioned attorney escrow to keep the money safe until the property is transferred). These pre-sale agreements can significantly affect financing, as the bank will want to see them and assess their quality (whether the deposits are high enough and the contracts binding so that buyers don't get off easy).

Pledge agreements and other security documents

If you provide collateral to creditors, you must contractually regulate this. Typically, a mortgage agreement is drawn up in favour of the bank (which is then entered into the Land Registry so that the bank has a lien). It can also be a pledge of receivables (e.g. future receivables from the sale of flats in favour of the bank), a pledge of a business share in a company, surety declarations (where, for example, the parent company of the developer guarantees the loan) or promissory notes. All these documents must comply with legal requirements, otherwise the security may be invalid. Thus, a notarial form is required for real estate pledges, correct wording for guarantees, etc. The security documents are often prepared by the bank's lawyer, but the developer should have them checked by his lawyer - for example, so that the security does not interfere with property unrelated to the project, etc. For larger projects with multiple lenders, an Intercreditor Agreement is also entered into to determine how the proceeds of the collateral will be divided if the worst should happen (e.g., bank has priority over mezzanine, mezzanine over unsecured bonds, etc.). This agreement also needs to be legally protected.

In short, any flow of money into a project should be supported by a contract or document. This applies even if you are financing the project yourself - you should be clear about whether you are putting money into the project company in the form of a loan (shareholder) or a capital increase, as this has different implications if it fails (a loan is a debt that is repaid before the owner; a capital contribution is not repaid until there is something left over after liquidation). Good legal documentation protects your investment, sets the rules of the game and can prevent many misunderstandings and disputes during implementation.

Authorisation, approval and regulatory requirements

In addition to contracts, the second crucial area is securing all necessary permits and meeting the legal requirements associated with the project:

Building permits and related consents

No bank or sensible investor will put more money into a project that does not have the necessary administration for implementation. It is crucial for a development project to have a valid zoning decision (or regulatory plan) and especially a valid building permit. The building permit proves that the project can be legally built. You are in an even better position if you also have contracts with building contractors or are at least at the tender stage - the financing body then knows that implementation can start immediately. Permits also include, for example, an EIA (environmental impact assessment) for larger projects, opinions from the authorities concerned (fire brigade, hygiene, transport authority, etc.) and any consents from neighbouring landowners (if you need to run utilities across someone else's land). All of these permits and consents should be sorted out before you take out most of the finance - it is very risky to take out a loan for a project and only then see if you get permission. In addition, many contracts (especially with a bank) have conditions precedent that the money will only be provided once planning permission has been submitted, and if it takes longer to obtain, you may have to pay fees or the lead time is reduced.

Capital market requirements

If you raise funding through a public offering (bonds, shares, crowdfunding), you must respect regulatory restrictions. As mentioned above, a prospectus approved by the CNB is required for bonds above a certain limit. For crowdfunding, you can use licensed platforms to take care of the regulatory stuff, but you still have to provide truthful information and comply with the limit of EUR 5 million per project per 12 months. If you would like to approach the public directly (outside the platform) with an offer to invest in a project, it is always better to consult lawyers - even an advert on the internet can be considered a public offering of securities or an investment instrument and subject to CNB supervision. You don't want to get into a situation where, in the middle of a project, the regulator bans you from continuing to raise money or imposes a fine.

 

Land registry and the legal status of land

The legal status of the real estate on which the project stands is checked before the funds are drawn (especially by the bank). You need to have the ownership of the land sorted out - ideally be 100% owner, or have a long-term building right or lease that allows for construction. The land and future building will serve as collateral, so it must not be encumbered by irreparable encumbrances, ownership disputes, etc. Also, access roads (walking and driving easements unless the land is directly on a public road) must be in order. Any defects in the legal status of the property can delay or derail the financing - banks do their legal due diligence and if they find a problem, they will want it rectified before disbursing the money (e.g. exchange part of the land, lift the easement, etc.).

 

Contracts with public bodies

It often happens that the developer has to conclude a contract with the municipality or region - e.g. a contract on cooperation or on an investment contribution to infrastructure. The municipality may condition the issuance of a building permit on the investor contributing to the construction of a road, school, etc. Such contracts need to be negotiated and signed early as they may represent an additional financial commitment that needs to be factored into the budget and financing (the bank will ask about this). From a legal point of view, be careful that such a contract is valid - public bodies have strict rules on what they can sign. It is advisable to have proposals checked by a lawyer to ensure that the terms are fair and enforceable.

 

Insurance and OSH

While not directly a legal permit, most funding bodies require that the project be properly insured. This means having construction and installation insurance, liability insurance, etc. These contracts with the insurance company should be prepared before construction begins, and often the bank wants to be named as a beneficiary on the policy (so that in the event of an insurance claim, the money goes primarily to repay the loan). Compliance with construction site health and safety (CHS) is then a legal obligation - breaches could lead to work stopping and thus jeopardise funding, so don't underestimate this either.

Tax aspects

Financing also has tax implications - interest on loans is a tax-deductible expense (if it meets the requirements), whereas no interest is deductible when using equity, for example. For more complex structures (funds, foreign investors), it is necessary to discuss with tax advisors whether tax should be withheld on the interest, whether it is optimal to structure the investment as a loan or a deposit from a VAT perspective, etc. While these aspects are not "permits", they should be covered legally and tax-wise in order to make the financing efficient and compliant with the law.

In summary, legally, it is necessary to have a clean slate - all permits for the project, resolved ownership and relationships to the land, and all financial flows and obligations addressed by contracts. The legal preparation prior to disbursing the money may seem lengthy, but it will avoid crises later. Therefore, the wise investor or developer will engage lawyers specialising in real estate from the outset to identify and resolve potential problems early.

Risks associated with financing and how to avoid them

Every project financing carries with it certain risks. The task of a good developer/investor is to identify these risks and actively prevent or at least mitigate them. Here are the most common risks associated with real estate project financing and tips on how to protect against them:

Financial risk (over-indebtedness and liquidity)

If a project takes on too much debt or an inappropriate financing structure, it may run into repayment problems. The typical financial risk is that you don't meet the terms of the loan (e.g. you don't sell the units on time and can't afford the interest payments) or that interest rates rise and the loan becomes dramatically more expensive. It can also happen that you run out of money before the building is completed - perhaps because of unexpected extra costs. How to avoid: Be conservative in your planning - allow for reserves in your budget (e.g. +10% for unexpected costs) and allow for time. Don't borrow the whole amount "on the spot", try to have a reserve source (extra money of your own, possibility to invite an investor additionally, etc.). Consider hedging the interest rate - if there is a period of low interest rates, it may make sense to fix the interest for the duration of the construction period to ensure stable costs. Carefully plan the cash flow of the project - when will the money come in from sales and when do you have to pay for the loan or contractors. If you find that there will be a shortage of cash at a particular time, address this in advance (e.g. by short-term bridging, deferring repayments in agreement with the bank, etc.). Most importantly, do not hide problems from financing partners. When you see that a repayment problem is imminent, communicate this early and look for a solution together. Most lenders will appreciate a proactive approach and will be more accommodating than if you confront them with the fait accompli that "there is no money to pay".

Market risk

Real estate is subject to market fluctuations. There may be an economic recession, a drop in demand, an increase in offers from competing projects or a change in customer preferences. This may mean that planned sales slow down or you may have to reduce prices or rents. As a result, the income from which you intended to repay the financing will fall. How to prevent: A thorough market analysis before the project is essential - find out what the demand is, what prices are realistically achievable, who the competition is. Never build purely "on speculation" that hopefully it will sell. Ideally have pre-bookings or expressed interest from buyers/tenants before the investment decision is made. Diversify within the project as well - for example, don't just build luxury apartments, try a mix of sizes to make the pool of buyers wider. Have a plan B: What if you don't sell all the apartments? - Can you rent them out and wait for a better time to sell? What if you don't get enough tenants for the office building? - Do you have the capital to last longer, or the ability to sell the building as a whole to an institutional investor? Hedging market risk is difficult, but careful financing helps (better to borrow less and have lower debt that you can tighten even in a weaker sale) and insurance - there are insurance policies for example in case a tenant doesn't pay, etc., which won't cover market fluctuations but will mitigate the impact.

Legal risk

Underestimating the legal details can cause the postponement or cancellation of funding, or additional costs. Examples of legal risks: finding out that the building permit came into force late due to an appeal and you should have already taken out the loan - the drawdown stops but the costs run. Or someone challenges the ownership of the land in court. Or you have an ambiguously defined profit share in your contract with the investor, and after completion you have an argument about who is entitled to what. In the extreme case, you can get into litigation that complicates the financing (the court orders an interim injunction and prohibits the disposition of the property, etc.). How to avoid: The best prevention of legal risks is a good legal service from the outset. Have all contracts reviewed by a professional who is knowledgeable in both real estate and finance. Legal due diligence of the land and project will reveal any hidden defects (easements, zoning restrictions, risk of archaeological findings, etc.). Avoid vague wording in financing agreements - rather make everything explicit. Ensure that the planning permission becomes legally binding before committing to firm drawdown dates. If you are entering into a contractual relationship with a new investor or fund, check out the counterparty (its reputation, background, legal history). Preventing legal risk is, in short, about consistency and caution - better to spend a few more hours on contracts now than spend years litigating in court later.

Risk of non-compliance with financing conditions

Each financing entity sets certain conditions - either one-off (so-called conditions precedent for the provision of money, e.g. documentary evidence) or ongoing (e.g. to complete a certain stage of construction by a given date, to achieve X% pre-sales, to keep the debt/price ratio below a certain value, etc.). Failure to meet these conditions may lead to sanctions: the bank may not pay the next part of the loan, the investor may withdraw from the contract, the crowdfunding platform may demand the return of the funds raised to the investors, etc. This risk is real - all it takes is a delay in construction due to weather and you may not formally meet a milestone. How to prevent: When negotiating contracts, try to negotiate the terms so that they can be met with a margin. Don't sign unrealistically strict deadlines or targets in the hope of "it'll be fine" - insist that the schedule allow for potential delays. Have a plan of action in place in case a default is imminent: for example, if you know you will not be able to roll over 50% of the loan by the date because the supplier has fallen behind schedule, inform the bank and try to negotiate a deferment or variation before the default occurs. Transparent communication helps with investors/funds - they usually appreciate it when you inform them of problems openly and propose solutions in a timely manner (e.g. by injecting additional capital yourself to keep the project going). If you keep quiet and simply don't meet the condition, they will lose trust and may react harshly, whereas a compromise can be found after an agreement.

Partner or co-funder risk

If you rely on one key investor or perhaps a general contractor to wait for payments (supplier credit), you are exposing yourself to dependence on a third party. There may be situations where the partner does not deliver the money promised - for example, the investor has its own financial difficulties and cancels the investment promise. Or the relationship deteriorates and the partner decides to pull out of the project. A contractor may go bankrupt mid-construction (then you don't pay anything, but you have to find a replacement quickly and the project is delayed). How to avoid: First, choose carefully who you do business with. Check the financial health of the investor/contractor, references, history. Second, always have a contingency plan - what do you do if a partner pulls out? Do you have someone in place to replace him/her? For example, you can put penalties or guarantees in contracts (e.g., the investor puts a portion of the money in escrow up front, which is forfeited if they withdraw without cause). With a contractor, you can require a bank guarantee for proper completion of the work - if they go out of business, the bank will pay a certain amount, for which you hire a replacement contractor. Don't involve a critical person/company in the project if you have no control over what they will do - split the project between multiple entities rather than have one hold all the cards (e.g., prefer 2-3 smaller investors rather than one, prefer multiple contractors for parts of the construction rather than one for everything if it's an extremely large undertaking).

External risks (legislation, macroeconomic changes)

There are some things you can't control - e.g. the state will change legislation (for example, increase VAT on real estate, which will make apartments more expensive and threaten demand, or limit the availability of mortgages for end buyers), or the CNB will tighten rules for banks (which will lend less). The macroeconomic environment can be changed by inflation, which makes materials more expensive, or by the geopolitical situation. How to prevent: You can't directly avoid these risks, but you can monitor developments and have flexibility. Keep an eye on legislative changes - a good lawyer or advisor will alert you to them early (e.g. is there an amendment to the Building Code coming? What does this mean for your project?). If you feel interest rates will rise, secure financing before they do or lock in rates. If you know that material prices are going to go up, try to negotiate a fixed price turnkey build with contractors (pass the risk of price increases on to them - they will pass it on, but you will have price certainty). Insurance and hedging instruments are also good tools - e.g. credit insurance, insurance against price rises (this is less common, but there are derivative instruments to hedge some commodities or interest). Again, this is the domain of financial specialists, but as a developer you should know that such options exist, and consult experts if you are exposed to a lot of external risk.

The key to risk management is to be proactive. Identify what could go wrong, and for each major risk ask yourself, "What do we do if this situation arises?" Such a risk management plan may seem unnecessary in the beginning (when everything looks rosy), but at a critical moment you will appreciate having options ready. Funding partners will also appreciate it - they will see that you have thought through the project for worse scenarios, which increases their confidence and willingness to provide money.

Examples of good and bad practice in fundraising

Theory is important, but nothing explains successes and mistakes better than concrete examples from practice. Let's look at two model situations - one where funding was handled in an exemplary way, and one that contains some cautionary lessons.

Good practice

Example: the company ABC planned to build an apartment building with a budget of CZK 80 million. Its team knew that to raise that amount of money, it would need to combine resources. First, the investors (ABC's owners) put up CZK 20 million of their own capital, which they used to acquire the land and arrange project documentation and building permits. With the permit already sorted out and the project partially financed, they approached the bank.

The bank promised a development loan of CZK 50 million, but on the condition that at least 30 % of the units of the future building would be sold in advance and that the loan would be secured by a mortgage on the land and the completed building. ABC therefore launched a marketing campaign and soon managed to obtain reservation contracts for a third of the apartments, with the reservation fees from the buyers going to the solicitor's escrow.

In the meantime, ABC negotiated with another investor - a private investor, Mr. Novák, who was willing to invest CZK 10 million in exchange for a 20% stake in the project and a share of the profits from the sale of the apartments. A shareholders' agreement was concluded, in which it was defined that Mr Novák would preferentially receive the profit in the amount of his investment + 8% return and everything above this limit would be shared with ABC in a 20/80 ratio. With these secured resources, ABC then entered into a loan agreement with the bank and was able to start drawing down funds for the construction. With sufficient financing, the project was completed on time and to the required quality. The remaining flats were sold before completion (which enabled ABC to meet the bank's conditions early and draw down the final part of the loan). Once all the apartments were completed and sold, the company repaid the bank loan and the investor's share.

The result: everyone involved was happy - the bank got its money back with interest, the investor made a profit of slightly more than 8% p.a. and the developer ABC also made a good profit on its capital. This example shows that a combination of multiple sources (equity + bank + investor + pre-sales) together with careful preparation (upfront permits, contractual treatment of everything) leads to a successful project financing.

It was also important that ABC thought about the risks - it had a reserve in the budget for extra work, fixed the interest with the bank for 5 years in advance, and had a treatment in the contract with the investor that if the profit was not enough to pay the 8% return, the investor would become a co-owner of one unsold apartment as a fallback (which in the end did not need to be used, but it gave the investor security). Thanks to these steps, the project avoided crises and financial problems.

Bad practice

Example: developer XY decided to quickly develop a small office complex for about CZK 50 million, but did not want to waste time negotiating with the bank or finding a partner. He bet on a seemingly simple solution - issue his own bonds and pay for everything from them. He imagined that he would offer investors 7% annual interest and surely the bonds would be dusty.

However, the developer XY underestimated the preparation: he did not have a building permit yet (only an application) and yet he started to advertise the possibility of investing in his company's bonds via the Internet and social networks. Within two months, he actually managed to raise about CZK 30 million from about a hundred small investors (each subscribed to a few hundred thousand worth of bonds). This gave him confidence and he started to finance the construction work with these funds. But - the building permit was still pending, the process was delayed due to an appeal by a neighbour. Time passed, the money from the bonds was dwindling, and no more investors could be found (the project started to have a reputation of being "stuck").

Moreover, the CNB registered that there was a public offering of the bonds, which may have exceeded the legal limits - the developer XY addressed more than 150 people publicly and raised over EUR 1 million without having a prospectus. The Central Bank launched an investigation and could have fined and banned further bond offerings. Developer XY found itself trapped: it did not have enough money to continue building, it could not find new investors because of its bad reputation, and it could not pay existing investors the interest it had promised after one year. Construction stopped halfway - the complex began to deteriorate, neighbouring disputes continued to block permits. Eventually, the developer had to declare bankruptcy. Small bond investors were left with minimal chance of seeing their money (they were not covered as unsecured creditors in the bankruptcy). This unfortunate story illustrates a few mistakes: 1) Overpricing bonds - it seems easy to issue bonds, but if you don't have a real secured project, it's a big gamble. 2) Violating legislation - a public offering without a prospectus doesn't pay, regulatory issues can completely derail a project. 3) Lack of diversification of resources - XY relied on only one source of money and had no backup plan when that source dried up. 4) Underestimating permitting - starting financing and construction without a building permit is extremely risky, once you run into a problem the financing stalls. The lesson: always prepare the project in all aspects and don't build financing on unrealistic assumptions.

How ARROWS can help

The process of obtaining financing for a real estate project is, as we have shown, a complex matter involving finance, business negotiations and law. ARROWS is one of the leading experts in real estate law and project financing in the Czech Republic. For developers and investors, we offer comprehensive services that cover the entire project life cycle - from initial negotiations to completion and sale. Here are a few ways ARROWS can help you achieve successful financing and implementation of your project:

Legal support for the project

Experienced lawyers from the ARROWS team will examine your project in detail from a legal perspective. They will help you ensure that you have all the contracts and documents needed for financing in order. They will prepare or revise loan agreements with the bank, investment agreements with partners, bond issuance terms or agreements with the crowdfunding platform to protect your interests and be balanced. ARROWS has experts dedicated specifically to development projects who know the usual market conditions and legal pitfalls - so they can negotiate better terms and eliminate risky wording. In addition, they will arrange all the security instruments - prepare pledge agreements, surety statements, inter-creditor agreements, etc. to ensure that the entire financing is on solid legal footing. Thanks to professionally handled contractual documentation, future disputes and ambiguities will be avoided, which will be appreciated by you and your financing partners.

Dealing with authorities and permits

ARROWS lawyers will also help you with the administrative side of the project. Do you need to obtain a building permit or are you dealing with a neighbor's appeal? ARROWS has extensive experience with zoning and building procedures, can negotiate with the authorities and defend your interests. They will ensure that all necessary permits and approvals are processed in accordance with the law and as quickly as possible. If the municipality imposes conditions (e.g. an infrastructure investment agreement), ARROWS will negotiate a fair wording of such an agreement. If you have a project that requires special permits (e.g. exemptions, EIA), you can rely on their expertise here as well. In short, they will handle the communication with the authorities for you so you can focus on the business side of the project. A quick and valid permit is often crucial to whether you get financing - ARROWS will help minimize bureaucratic delays.

Negotiations with landowners and other parties

Before a project can get off the ground, it is often necessary to buy out the land or negotiate with the current owners for buyouts or easements. ARROWS can provide a complete legal service for land acquisition - it will check the legal status (due diligence), prepare purchase agreements or agreements on the establishment of easements, and ensure a smooth transfer in the land registry. If you encounter a complicated owner or perhaps a tenant who does not want to leave the property, ARROWS lawyers will take over the negotiations, propose a solution (e.g. land exchange, compensation, expropriation in the last resort) and bring the agreement to a conclusion. Thanks to its knowledge of the real estate market, ARROWS is able to estimate what is acceptable to the counterparty and find a mutually beneficial compromise. In addition to the land owners, ARROWS normally negotiates with other interested parties - for example, construction companies (when concluding a works contract that also affects financing), future buyers/tenants (when setting up contracts that also suit the bank) or public investors (when the project is co-financed by a municipality or region).

Securing financing and financial advice

ARROWS is not just a purely legal firm - it also offers tax and financial advisory, subsidy consulting and insurance services under one roof. This means that lawyers and financial advisors can work together to find the optimal solution for you when looking for financing. They can help prepare documents for banks and investors that are convincing and credible - from a business plan to a financial model to securing the necessary expert reports or audits. Thanks to a wide network of contacts, ARROWS can connect the client with suitable investors or financial institutions. For example, if a project looks better for a particular investment fund, they can broker a presentation of the project to the right people. Likewise, they can advise what grants are currently available and help with the application process, increasing the chances of getting "cheaper money". The advantage is that ARROWS can assess the legal, economic and tax implications of the funding and design a structure that makes sense comprehensively. So if you don't know whether it's better for you to issue bonds, take out a bank loan, or bring in an investor - ARROWS experts will walk through this strategy with you and help you decide. They can also negotiate with the bank or investor on your behalf, or arrange a refinancing of a non-performing loan if you wish.

 

Mediation of the sale or exit strategy

The goal of any development project is to successfully complete and value it - either to sell it off to end customers or to sell the entire project (building) to an investor, such as a real estate fund. ARROWS also assists in this final phase. It prepares real estate transfer agreements for individual apartments or houses, arranges attorney escrow for the purchase price and ensures a smooth transfer of ownership to the new owners. If you decide to sell the entire project to a single investor (exit from the project), ARROWS will prepare the structure of the sale (e.g. sale of a business stake in the company owning the project vs. outright sale of the property) so that it is legally safe and tax efficient. Thanks to their experience, the sale will not be tied up in formal errors or missed deadlines. In addition, within the ARROWS group, they also work with real estate professionals and experts, so they can arrange a property valuation, advise on marketing the sale or recommend a reliable real estate agency if needed. In short, ARROWS can act as a coordinator of the entire process up to the final valuation of the project.

Building trust and representing your interests

Beyond the specific activities, one of the biggest benefits of advocates is that they bring credibility and calm to the project. When funding partners see that you have a reputable law firm behind you overseeing the legal side of things, they view that very positively. ARROWS is known for its emphasis on speed and professionalism - they can deal with matters promptly, which is key in the dynamics of a development project. In addition, they can protect your interests in the event of disputes or unexpected situations - whether it's negotiating a deferment of payments with the bank or legal defence against unjustified claims, you have them backing you up. ARROWS has been awarded Law Firm of the Year 2024, a testament to its quality and broad expertise. With more than 60 advisors (lawyers, tax and grant experts), it is able to cover truly all the needs of real estate entrepreneurs under one roof. Clients thus save time and get a comprehensive service - they do not have to deal with each sub-issue separately with a different advisor.

In short, ARROWS will help you minimize the risks and maximize the chances of success of your project. From the initial financing negotiations, through the conclusion of contracts, negotiations with the authorities to the final sale - at every stage, we stand by you as an experienced partner. This builds trust not only between you and ARROWS, but also between you and the financing entities, because they know that the project is legally sound. The result is a smoother financing process, less stress and often better negotiated terms than if you were on your own.

Practical tips on how to get the best financing terms

Finally, here are some practical tips and recommendations for developers and investors who want to get the best financing for their real estate project. These tips are based on best practice and can help you save a lot of money or avoid complications:

Prepare a top-notch project plan

The better you have the project thought out and planned, the better you will be at negotiating finance. Have a feasibility study, a realistic budget, timeline and market research. By presenting professional materials to a potential funder (ideally backed up by an independent expert's opinion, for example), you will earn their respect and trust. This prevents a bank or investor from dictating overly conservative terms just because they don't have enough information about the project.

Diversify sources of finance

Don't rely on just one source. For example, even if you prefer a bank loan, consider combining it with other forms (investor, crowdfunding, pre-sales). When funders see that a project has multiple funding pillars, they feel safer - for example, the bank will be happy to see that an experienced investor is giving some of the money, and the investor will appreciate that you have a commitment of a bank loan. Plus, you can compete terms with each other - if you know you have an alternative, you are in a better position to negotiate interest or terms.

Reach more institutions and investors

Never put everything on one card in a negotiation. Send your financing request to multiple banks at once, present your project to multiple investors. This will increase the chances of you getting financing at all, and you can also compare the offers. When you know that Bank A is offering you a loan at 6% interest and Bank B is offering you a loan at 5.5%, you have room to negotiate. But be careful to maintain discretion and not create pressure in an unfair way - the financial market is interconnected and representatives of institutions may talk to each other. The ideal is to conduct the negotiations in parallel, but to inform fairly that you are negotiating elsewhere and that you will opt for the best offer.

Negotiate terms, not just interest

Many people focus only on the interest rate when financing, but neglect other important conditions. Yet fees, requirements and contractual arrangements can have a big impact on the ultimate success of a project. For example, try to negotiate: a longer loan term so you are not pressed for time; the possibility of extra repayments without large penalties if the project sells well; reasonable covenants (financial ratios) or ideally none at all; a lower loan origination fee (banks sometimes charge 1% of the amount, try to negotiate less); and for investors, limit their preferred return so you are left with a fair share of the profits. Every point in the contract can be modified to some extent - don't take the first proposal as immutable. If you're not sure what all can be improved, consult an adviser or solicitor who knows what is common in the market.

Consider collateral and guarantees

Offer stronger collateral to the financing partner if it's not too restrictive for you - you may get better terms. For example, giving the bank collateral for another property you own in addition to the project under construction (if you can) may result in lower interest or a higher amount borrowed. Or provide a guarantee for the loan from the parent company or project owners (only to the extent that is acceptable, of course). You can offer the investor that if the project does not achieve certain results, they will receive some bonus or additional share. By demonstrating your own confidence in success, you reassure the counterparty. But be careful to always calculate what this means for you so that you don't promise more than is reasonable - the collateral should not jeopardise the existence of your other assets should the worst come to the worst.

Take advantage of subsidy and discounted programmes

Find out what public programmes are available to support housing, business or regional development. In addition to direct subsidies, there may be soft loans (e.g. the National Development Bank sometimes provides favourable financing for certain projects) or loan guarantees (a government guarantee may allow a bank to lend to a riskier project because the government guarantees repayment of part of it). If your project has a special element - perhaps it is a brownfield site or has a social dimension - be sure to check if there is a suitable programme for it. While you won't get these funds overnight, they can dramatically improve a project's financial balance sheet. In addition, funding partners like to see that a third party (e.g. a sovereign wealth fund) bears some of the risk and will then be more accommodating.

Maintain goodwill and history

The credibility of the developer is important for investors and banks. If you have already completed projects where you have duly repaid loans or paid off investors, be sure to point this out. Build a reputation for delivering on commitments. This opens the door to better terms in the future - the bank will be more willing to deal with you as a proven client, perhaps offering a faster process or a lower margin. Small investors would rather give money to someone they've read positive references about than to an unknown newcomer. So keep it fair - pay on time, be open about the progress of the project (perhaps in the form of regular investor reports). Reputation is an intangible asset that turns into very tangible benefits when funded.

Get advice from the experts

Financing large projects is a complex discipline. No one can understand everything in detail - law, finance, civil engineering, marketing... Surround yourself with experts and delegate specialised tasks. An experienced financial advisor will help you to create the optimal financial mix and approach the right institutions. A law firm (like ARROWS) will look after the legalities and negotiate a better contractual position for you. A project manager will oversee the milestones to ensure you meet the financing conditions. By bringing in experts, you may spend some extra money on their fees, but you greatly increase the chances of getting the money faster and cheaper - which ultimately pays off many times over. Plus, it frees up your hands to focus on the key management of the project as a whole and dealing with key partners.

Do not hesitate to act in time

Start addressing financing in advance. Ideally, you should map out the financing landscape when you have the project in the planning stage and are preparing the documentation for the building permit. Secure preliminary non-binding commitments from banks or investors up to a year in advance. First, you will know where you stand (whether your project is financeable on reasonable terms), and second, you will have time to fine-tune what the financiers require. For example, a bank might say, "We'll lend to you, but get a partner with 20% equity." - You will have time to find one. Or an investor might say, "I'm investing, but I want you to have a building permit." - you focus on getting it done. If you leave everything until the "you have to dig" moment, you put yourself under time pressure and that never creates a good negotiating position. So a proactive approach and time margin = better terms.

Following the above tips will greatly improve your starting position when raising money for a real estate project. Remember, the goal is not just to get financing at any cost, but to get it conveniently and safely. A short-term tempting offer of finance can become expensive if it comes with risks or unfavourable arrangements. It is better to go to the trouble of negotiating now than to deal with the consequences of poorly set up financing later.

Conclusion

Raising money for a real estate project is a complex process that requires strategy, diligence and knowledge in many areas. In this article, we've shown that there are a variety of financing options - from traditional bank loans, to investors, funds, crowdfunding, equity, grants or bonds. Each of these can play a role in a successful project financing plan. The key is to have everything legally underpinned and thought through to minimise risk: good contracts, clear permits and regulatory compliance are essential to ensure that financing goes smoothly. Practical examples have reminded us that careful preparation and diversification of resources leads to success, while haste and underestimation of rules can lead to failure.

ARROWS is ready to stand by you every step of the way. With its experience and comprehensive approach, it can help you with both the legal aspects of securing financing and the practical aspects of negotiating with partners and authorities. Cooperation with professionals significantly increases the chances that you will get the necessary money on time, on favourable terms and your project will be implemented without unnecessary setbacks.

Whether you're a seasoned developer or an investor embarking on your first major project, don't hesitate to get advice and use the tools available. With well-set up financing and a strong team of professionals by your side, you can turn your real estate vision into reality. Contact ARROWS for a consultation on your plan - they'll be happy to help you find the best path to financing and successful project completion. Raising money for a real estate project can be challenging, but with expert support and the right strategy, you can do it and your project will have a solid foundation for future success.