Funding a Development in Stages: A Worked Drawdown Example in SAR

An illustrative SAR walkthrough of staged funding on a development, showing how each tranche is sized, what a partner must evidence, and where a request gets cut back.

Staged funding protects an investor by tying money to work that has actually been done. This worked example sizes the total requirement, splits it between contributed land, cash equity and debt, builds a tranche schedule, then tests one drawdown request against certified progress and cuts it back. Every figure is an illustrative assumption used to show the method.

The situation

You are the cash investor in a development venture with a Saudi landowner. The venture will build a residential building for sale. The landowner contributes the plot, you contribute cash, and a bank facility funds the later part of construction. You want a funding mechanism that releases money against evidence rather than against requests, and you are not resident in the Kingdom.

Assumptions (illustrative)

• Total project cost assumed at SAR 30,000,000, made up of land at SAR 8,000,000, construction at SAR 18,000,000, soft costs at SAR 2,500,000 and contingency at SAR 1,500,000.
• The landowner contributes the plot in kind, valued for the venture at SAR 8,000,000.
• Your cash equity commitment is SAR 12,000,000, called in four equal tranches.
• A bank facility of SAR 10,000,000 is available once cash equity is fully applied.
• Construction progress is certified monthly by a consultant acting for the venture, measured against the contract sum of SAR 18,000,000.
• Contingency is drawn only on written approval, and is tracked as a percentage consumed against works completed.

Step 1: Size the total requirement

Add the components: SAR 8,000,000 of land plus SAR 18,000,000 of construction plus SAR 2,500,000 of soft costs plus SAR 1,500,000 of contingency, which totals SAR 30,000,000.

The funding plan must cover the full 30,000,000, not the construction contract alone. Ventures that budget the build and treat fees, approvals and contingency as details run short at the least convenient point.

Step 2: Split the sources and confirm they add up

Land in kind SAR 8,000,000, which is about 26.7 per cent of cost, plus your cash equity SAR 12,000,000, which is 40 per cent, plus the facility SAR 10,000,000, which is about 33.3 per cent, equals SAR 30,000,000.

Two thirds of the cost is equity, so the venture can absorb a moderate overrun without breaching the facility. It also means your cash is a bigger share of the money at risk than your share of the profit may reflect, which is a negotiation point.

Step 3: Build the equity tranche schedule

Four tranches of SAR 3,000,000 each: at execution for design, approvals and mobilisation, at completion of foundations, at completion of the structure, and at the start of fit-out. Four multiplied by 3,000,000 equals SAR 12,000,000.

Tranches tied to physical milestones give you four decision points. At each one you can ask whether the cost to complete still works before the next 3,000,000 leaves your account.

Step 4: Set the order in which sources are spent

Cash equity of SAR 12,000,000 funds soft costs of SAR 2,500,000 and the first SAR 9,500,000 of construction. The facility then funds the remaining construction of SAR 18,000,000 minus SAR 9,500,000, which is SAR 8,500,000, plus contingency of SAR 1,500,000, totalling SAR 10,000,000.

Equity first is the usual lender requirement, and it also suits you: your money is spent while the project is least committed, so a decision to stop is still possible.

Step 5: Test a drawdown request against certified progress

The manager requests the third tranche of SAR 3,000,000 at structure stage. Certified construction progress is 62 per cent, which on a contract sum of SAR 18,000,000 is SAR 11,160,000 of measured work. Construction already funded is SAR 9,500,000. The amount properly due is SAR 11,160,000 minus SAR 9,500,000, which is SAR 1,660,000.

The request exceeds the certified entitlement by SAR 1,340,000. You release the certified amount, ask what the balance was intended for, and the answer tells you whether the venture is ahead of itself or funding something outside the budget.

Step 6: Track contingency consumption as a warning system

Contingency of SAR 1,500,000 is 8.3 per cent of the construction sum. If SAR 1,100,000 has been drawn at 60 per cent completion, the implied full requirement is SAR 1,100,000 divided by 0.6, which is about SAR 1,833,000, against SAR 1,500,000 available, a shortfall of roughly SAR 333,000.

Contingency spent faster than work completed is the earliest reliable signal of an overrun. Detected at 60 per cent, a 333,000 gap is a manageable conversation. Detected at practical completion, it is a funding emergency.

What changes the answer

• If the certified progress percentage is measured generously, every calculation above inherits the error, which is why the certifier should be independent of the contractor.
• If the facility is delayed or reduced, the equity-first sequence means the venture stops at the point where your money is already spent.
• If construction cost rises, contingency is consumed sooner and the shortfall appears earlier than this example suggests.
• If units are pre-sold and deposits are held in escrow, those funds are not freely available to the venture and must be excluded from the funding plan.
• If the land valuation used for the contribution was optimistic, your effective share of value at risk is higher than the percentages imply.

What the numbers tell you

• Fund against certified measurement, not against requests, invoices or programme dates.
• Sequence equity before debt so the expensive decision to stop remains available while it is still cheap.
• Ask for the evidence pack to be defined in the agreement, so refusing an unsupported call is procedure rather than conflict.
• Watch contingency consumption against works completed as your early warning of an overrun.
• A request larger than the entitlement is information about the venture cash position, and it deserves a direct question.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.