Home » Funding construction projects – the role of cost data

Funding construction projects – the role of cost data

Published: 02/04/2025

Understanding the story behind the numbers – How Aros Kapital uses BCIS data to assess funding for residential projects

Aros Kapital specialises in real estate finance, playing a key role in supporting SMEs that require capital for their residential developments across the UK and Ireland. As Director at Aros Kapital Léon Karens notes, the housing sector offers relative stability as ‘people will always need homes’ compared to other real estate sectors.

But whether the firm’s looking to fund the development of a manor house conversion on the north coast of Scotland or a sweep of terraces in Cheshire, the financial viability of each project needs careful consideration before funding is released. This is where BCIS construction cost data plays a vital role. As a core part of Aros Kapital’s lending process, it helps them to benchmark costs, verify estimates, and assess feasibility of a residential development scheme.

As Karens says: ‘Numbers on paper and the actual costs can be two very different things. BCIS helps us understand the bigger picture – why a project’s costs are what they are and whether they reflect reality.’

Verifying construction budgets

In the initial stages of a project, Aros Kapital assesses data from Office for National Statistics (ONS) and Rightmove to understand any high-level, broader risks associated with the project, such as location and market demand. BCIS data comes later – but this early-stage due diligence helps ensure the right product fit is built for the right market. For example, a development consisting of detached, executive homes designed to a high-spec may work in principle, on paper, and look fantastic on completion. But if they’re built in an area where demand for terraced housing outstrips executive homes, they could struggle to sell, as they’re not aligned with the buyer demographic.

During the credit process, the main counter parties will be financially assessed – these normally include the borrower, or ultimate beneficiary owner of the borrower, and main contractor. Subsequently, the gross value of the development is independently verified. Once these stages are complete, it’s time to analyse the granular data within the construction costs – as outlined in the quantity surveyor’s monitoring report.

This is where BCIS data becomes an indispensable tool in assessing commercial viability. The ability to benchmark and verify the costs in the developer’s budget helps to reduce the risk for Aros Kapital, as they can check whether the borrower’s figures match the most up-to-date market rates. If they’re under or overestimated, they’ll examine the possible reasons for this.

As Karens explains: ‘If an estimate to build comes in at £800 per square metre, but BCIS data contradicts this with a cost of £1000 per square metre, we’re armed with the knowledge to ask – how is this possible? It could be that the developer has a long, trusted partnership with a particular contractor who’s happy to lower their prices, due to the amount of work they’ve benefitted from over the years.’

Equally, if a project’s costs exceed BCIS figures, they’ll investigate the reasons that might justify the higher costs. For example, an investment in more expensive materials upfront could result in cost savings overtime, or the developer and contractor could have agreed to finish well in advance of the completion date. Either way, it’s important for any funding company to have this information before they proceed on a project.

Maximising return on investment

Benchmarking estimates also helps to reduce risk for funders by ensuring costs aren’t based on tender estimates deliberately kept low to secure the job. It’s particularly important for the lender to verify this, not least when there’s evidence (albeit anecdotal) that the industry is increasingly under pressure to compete for work.

Karens says: ‘We size our loans to ensure a fully funded scheme – borrower equity plus our loan should be enough to achieve practical completion. But if the construction budget is based on an artificially low bid, this could lead to significant cost overruns that eat into the budget and, ultimately, the borrower’s profit which may lead to diminishing commitment of the borrower to the project.

‘BCIS helps to initiate conversations with the borrower to fully understand their construction budget, before the project even begins.’

Real-time market insights

Beyond cost benchmarking and verifying, Aros Kapital uses data to identify the potential impact of supply chain issues on scheduling and construction timelines.

Specifically, it can help with anticipating labour and materials shortages that could disrupt the development, resulting in delays and budget erosion.

Karens says: ‘The interplay between materials and labour shortages can have a significant impact. If we’re not able to get materials on site within a specific timeframe, there’s no guarantee the workforce will still be available once they’ve been delivered. Before you know it, you’ve lost a month in construction time.’ He adds: ‘That’s why BCIS data on labour and materials is so critical – it helps us ensure we can plan more efficiently and have an adequate amount of finance to cover all contingencies.’

Construction cost data can also help to identify the inflationary impact of any lengthy delays, which may necessitate the need to embed contingency funds into loan agreements.

Conclusion

Reliable construction data helps to increase cost certainty. It gives lenders the knowledge and understanding they need to make better-informed decisions regarding the projects they’ll fund.

As Karens explains: ‘If BCIS data aligns with the budget, it reassures us the financials are robust. Without it, we’d be relying purely on surveyor reports and speculative estimates.’ This is particularly important in a sector where construction inflation, supply chain disruptions, and skilled labour shortages can all impact the bottom line.

He acknowledges there may be times when it feels right to put all the analysis to one side and take a chance on a development, even if it does carry potential risk. But access to BCIS data provides the knowledge that makes it possible to understand the risk. It’s this knowledge that Karens particularly values, as once a risk is understood, it’s easier to mitigate.

‘BCIS ensures the process is far less challenging,’ Karens concludes. ‘It gives us the clarity and confidence we need to proceed and, ultimately, increases the chances of more successful outcomes for our projects.’

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The Building Cost Information Service (BCIS) is the leading provider of cost and carbon data to the UK built environment. Over 4,000 subscribing consultants, clients and contractors use BCIS products to control costs, manage budgets, mitigate risk and improve project performance. If you would like to speak with the team call us +44 0330 341 1000, email contactbcis@bcis.co.uk or fill in our demonstration form

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(1) RLB – Procurement Trends Report 2024 – here

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