Fractional Lending
Fixed Return, Planning Gain Strategy
A structured planning gain strategy focused on commercial-to-residential conversions, designed to deliver diversified fixed income over a defined term.
March 4, 2026
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Why Loan Notes Work For Starfortis
Summary
Loan notes enable speed, certainty & scalability; boosting margins while benefiting HNW Investors, Distributors & Introducers. A winning model!
Why Loan Notes Work for Starfortis Asset Management
In alternative finance investments, having a strong and sustainable investment model is essential for long-term success. At Starfortis, we have evolved from joint ventures to loan notes, delivering consistent and measurably better results.
When properly structured and managed, alternative finance investments provide a secure and effective way to generate high yielding returns.
In this blog, we explore our past, present, and future investment models, offering real-world examples for each. By sharing the numbers, we aim to demonstrate the sustainability and effectiveness of our approach, providing valuable insights for investors.
We hope you find this information both informative and insightful.
Content:
The Evolution of Our Models
Joint Ventures – Where We Were
In the past, we relied on joint ventures partners to fund our projects. While this provided access to capital, it came at a significant cost as we had to share 50% of our profits with equity partners. This meant that despite the hard work put into sourcing, structuring, and executing deals, half of our margin was immediately forfeited. Additionally, capital was locked into single projects, limiting our ability to scale costs effectively.
Loan Notes – Where We Are Now
Transitioning to loan notes in late 2023 has revolutionised our investment approach. Unlike joint ventures, loan notes allow us to retain full control of our projects and improve our margins.
Instead of surrendering 50% of our profits, we pay high yielding returns to our investors and sustainable commissions to distribution agents while maintaining a strong profit position.
More importantly, our loan notes enable capital recycling, meaning we can execute four to five deals using the same funds within the investment term, significantly amplifying returns whilst reducing our fixed costs and risk.
Structuring Cost Overview
Using different models.
The full details are provided at the bottom of this blog; however, below is an overview of the costs at each stage of the development process using different structures.
RIBA 3 - Planning
|
Planning - RIBA 3 |
Joint Venture | Loan Note Investments | Regulated Investment Bond |
|---|---|---|---|
|
Planning Gain Equity |
£170,000 |
£162,500 |
£166,500 |
As you can see from the table below the “planning gain” margin is reduced slightly due to the distribution costs.
RIBA 4 - Technical Design
|
Technical Design - RIBA 4 |
Joint Venture | Loan Note Investments | Regulated Investment Bond |
|---|---|---|---|
|
Pre-Sales Equity |
£450,000 |
£450,000 |
£450,000 |
| Total Finance Cost | £23,500 | £37,750 | £19,750 |
|---|
Again the cost of raising capital is slightly increased using the loan note distribution model.
RIBA 5 - Construction
|
Construction - RIBA 5 |
Joint Venture | Loan Note Investments | Regulated Investment Bond |
|---|---|---|---|
|
Development Finance Costs |
£91,000 |
£91,000 |
£91,000 |
The cost of raising development finance stays the same, as we already use institutional lenders for this capital.
RIBA 6 - Handover
| Margins | Joint Venture | Loan Note Investments | Regulated Investment Bond |
|---|---|---|---|
|
Developers Profit |
£173,750 |
£325,750 |
£356,250 |
However, the developers margin increases significantly for loan note investment as they are not giving away 50% to joint venture partners.
The Advantages of Loan Notes
- Certainty: By using loan notes, we are not reliant on third-party funders to bridge projects giving us greater financial certainty whilst adhering to a strict underwriting process.
- Speed: With access to capital, we can act as a cash buyer in the marketplace. This allows us to negotiate significant discounts, securing project equity from day one and enhancing overall profitability.
- Cost Efficiency: The more times we can recycle funds, the lower the cost of funding becomes. In contrast, using institutional lenders repeatedly incurs the same high fixed costs, reducing margins when developing at scale. Loan notes provide a far more efficient way to deploy capital.
- Investor Alignment: Investors in loan notes benefit from a structured, asset-backed investment with clear investment terms and fixed returns. This ensures a win-win scenario where both the company and investors see strong financial outcomes.
Distribution Agent
There has been widespread discussion in the press about high commissions (8%) paid to distribution agents. However, these concerns often come from those unfamiliar with the financial realities of marketing investment products.
The Role of Distribution Agents
Distribution agents invest heavily in their infrastructure, including:
- Paid Advertising Campaigns: Driving targeted investor traffic.
- CRM & Technology: Automating and streamlining investor engagement.
- Regulatory Compliance & Investor Education: Ensuring investors make informed decisions.
While these introducers earn attractive commissions, their margins are not as excessive as critics suggest. Their costs are substantial, and their success is directly tied to delivering value to both investors and investment firms alike.
Why Our Model is Built Differently
Unlike models that rely solely on one off, high-margin, long turn around deals, our approach is built on volume and repetition. By structuring deals using loan notes, we create:
- Reduced Financing Costs: By structuring multiple investments using the same facility the overall cost of finance per project is lowered over a two-year period.
- Higher Margins Compared to Joint Ventures: Even after accounting for distribution fees, our overall profitability has improved significantly.
- Sustainable Commission Structures: Our distribution agents are fairly compensated while allowing us to maintain strong profitability.
- Increased Scalability: The ability to reuse capital across multiple projects gives us a compounding advantage over time.
Future Growth: Institutional
As we continue to grow and refine our investment strategy, our long-term vision is to enter the regulated bond markets and collaborate with institutional investors.
This transition will enable us to further reduce costs while securing more competitive funding lines.
In the meantime, we remain focused on partnering with high-net-worth investors and distribution agents to deliver strong investment returns within the alternative finance space.
Conclusion
Loan notes have emerged as the ideal investment model for Starfortis Asset Management.
They provide the flexibility, profitability, and scalability needed to succeed in today’s investment landscape.
By leveraging loan notes, we continue to create strong investment opportunities while ensuring our business thrives.
For investors seeking a robust, asset-backed investment strategy, loan notes remain one of the most effective options available.
Contact us today to explore how you can benefit from this high yielding investment opportunity.
Download our latest investment brochure
Worked Examples:
- Joint Ventures
- Loan Note Investments
- Regulated Property Bonds
Where We Have Been...
Joint Ventures
In the past, we have partnered with joint venture investors who contribute a relatively small amount of equity in the early stages of the property development lifecycle (RIBA 2/3). Their capital remains invested until project completion (RIBA 6), enabling them to generate substantial multiples on their initial investment.
Here’s the breakdown:
Planning
| Planning | Exchange and Delayed Completion |
|---|---|
|
£225,000 |
Purchase Price |
|
£50,000 |
Planning |
|
£5,000 |
Legal Costs |
|
£0 |
Working Capital Costs (6m) |
|
£0 |
Distribution Costs |
| Planning | Granted |
|---|---|
|
15 |
Apartments |
|
£120,000 |
Average Apartment Value |
|
£1,800,000 |
Gross Development Value |
|
£450,000 |
New Redbook Valuation |
| £170,000 | Planning Equity |
|---|
Technical Design
| Technical Design | Bridging Finance |
|---|---|
|
£13,500 |
Bridging Finance (6m) |
|
£10,000 |
Legal Costs |
|
£0 |
Distribution Costs |
| £23,500 | Total Finance Cost |
|---|
| Technical Design | Work |
|---|---|
|
£50,000 |
Technical Design |
|
£108,000 |
Pre-Sales Agents |
| £450,000 | Pre-Sales Equity |
|---|
Construction
| Construction | Development Facility |
|---|---|
|
£900,000 |
Construction Value |
|
£81,000 |
Development Finance (9%) |
|
£10,000 |
Legal Costs |
Margins
| Margins | |
|---|---|
|
£1,452,500 |
Total Cost |
|
£347,500 |
Project Margin |
|
19.31% |
Profit On GDV |
| £173,750 | Developers Profit |
|---|
| JV Partner | JV Partner ROI |
|---|---|
|
£173,750 |
347.50% |
Where We Are...
Loan Note Investments
Over the past few years, we have transitioned from joint ventures to loan note investments.
While this model comes with higher capital-raising costs due to distribution and introducer fees, it has significantly strengthened our bottom line.
More importantly, it allows us to create value for a broader base of high-net-worth investors; a shift we find both rewarding and strategically beneficial.
Here’s the breakdown:
Planning
| Planning | Exchange and Delayed Completion |
|---|---|
|
£225,000 |
Purchase Price |
|
£50,000 |
Planning |
|
£4,000 |
Legal Costs |
|
£4,500 |
Working Capital Costs (18% blended rate for 6 months) |
|
£4,000 |
Distribution Costs (8%) |
| Planning | Granted |
|---|---|
|
15 |
Apartments |
|
120,000 |
Average Apartment Value |
|
£1,800,000 |
Gross Development Value |
|
450,000 |
New Redbook Valuation |
| £162,500 | Planning Equity |
|---|
Technical Design
| Technical Design | Bridging Finance |
|---|---|
|
£15,750 |
Bridging Finance (14% blended rate for 6 months) |
|
£4,000 |
Legal Costs |
|
£18,000 |
Distribution Costs (8%) |
| £37,750 | Total Finance Cost |
|---|
| Technical Design | Work |
|---|---|
|
£50,000 |
Technical Design |
|
£108,000 |
Pre-Sales Agents |
| £450,000 | Pre-Sales Equity |
|---|
Construction
| Construction | Development Facility |
|---|---|
|
£900,000 |
Construction Value |
|
£81,000 |
Development Finance (9%) |
|
£10,000 |
Legal Costs |
Margins
| Margins | |
|---|---|
|
£1,474,250 |
Total Cost |
|
£325,750 |
Project Margin |
|
18.10% |
Profit On GDV |
| £325,750 | Developers Profit |
|---|
Where We Are Going...
Regulated Property Bonds
In the future, as our capital raises become larger, we aim to transition once again; this time to regulated property bonds working with institutional investors.
We anticipate that this shift will further reduce our cost of capital while also lowering distribution costs, due to the larger scale of these capital raises.
Here’s the breakdown:
Planning
| Planning | Exchange and Delayed Completion |
|---|---|
|
£225,000 |
Purchase Price |
|
£50,000 |
Planning |
|
£4,000 |
Legal Costs |
|
£3,000 |
Equity Costs (12% blended rate for 6 months) |
|
£1,500 |
Distribution Costs (3%) |
| Planning | Granted |
|---|---|
|
15 |
Apartments |
|
120,000 |
Average Apartment Value |
|
£1,800,000 |
Gross Development Value |
|
450,000 |
New Redbook Valuation |
| £166,500 | Planning Equity |
|---|
Technical Design
| Technical Design | Bridging Finance |
|---|---|
|
£9,000 |
Bridging Finance (8% blended rate for 6 months) |
|
£4,000 |
Legal Costs |
|
£6,750 |
Distribution Costs (3%) |
| £19,750 | Total Finance Cost |
|---|
| Technical Design | Work |
|---|---|
|
£50,000 |
Technical Design |
|
£108,000 |
Pre-Sales Agents |
| £450,000 | Pre-Sales Equity |
|---|
Construction
| Construction | Development Facility |
|---|---|
|
£900,000 |
Construction Value |
|
£81,000 |
Development Finance (9%) |
|
£10,000 |
Legal Costs |
Margins
| Margins | |
|---|---|
|
£1,443,750 |
Total Cost |
|
£356,250 |
Project Margin |
|
19.79% |
Profit On GDV |
| £325,750 | Developers Profit |
|---|
As you can see, greater financial sophistication leads to lower borrowing costs. Fixed costs also decrease, primarily due to the larger scale of capital raises. While distribution agents receive a smaller percentage of the overall raise, the higher volume means their commission value remains relatively stable.
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