Cost Overrun Absorption Capacity (£ and %) represents the financial resilience of a property development project, indicating the total funds and percentage buffer available to cover unexpected increases in construction, planning, or professional costs. In property development finance UK, this metric helps lenders and developers assess how much additional expenditure the project can withstand without compromising the loan to value (LTV) ratio or project viability. It is calculated by comparing available contingency funds and capital reserves against potential cost overruns, providing a crucial measure of financial stress tolerance and risk management within a capital stack.
This sits beneath Capital Cushion Metrics, introducing a more specific variant of the measure without changing its core interpretation. It is commonly considered alongside Sensitivity Margin (GDV fall required to breach covenants), as both are closely related measures used to assess similar aspects of performance or risk. In funding terms, Cost Overrun Absorption Capacity (£ and %) is most commonly encountered in connection with Secured Note with PG within the property development capital stack.
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