Are you looking to cash in some of your investments?, are
During the past few months rumours have been rife within
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5 July 2012
A well-off private investor is presently providing a unique development financing product through specialist packager.
Having worked on a few deals already this year, this unique product is not found anywhere else in the marketplace and here’s how it works.
A client who requires financing for a development, with a GDV of at least £25 million to be concluded within 3 years, contacts us and ascertains whether they qualify and have the essential experience. We will then embark on the required initial research and background checks on the developer ensuring that they are suitable for the funding.
We are involved to make sure the developer has appropriate and existing experience with similar developments, which is a total pre-requisite for the finance.
If successful, and terms acceptable by each parties, the investor offers tangible assets and a personal guarantee to an organisation as security in order to provide the capital to help in the development.
A Special Purpose Vehicle company (SPV) is placed with equity shared between the investor and the developer, with the investor always being the majority shareholder. The investor owns at the least 51 per cent of the SPV /development and the developer owns 49 per cent, profits being divisible appropriately.
The organisation offering the liquidity advances 100 per cent of the funding into the SPV. It is from this SPV that the client is able to get the funds to finish the developement. The SPV has a project manager / director required by the investor set up to supervise the works. There is an obvious desire by the investor to avoid engagement in the practicalities of the development and also the agent representing the investor is required to simply make sure the project is being managed professionally.
Not wanting to expose the identity of the investor to the general public, that the investor has global and diverse interests but in the past made significant earnings from share trading. However, as a consequence of that market becoming very unstable, he desired to transfer his investment into tangible assets.
Although mainly looking at developments in London, the investment opportunity likewise stretches, if the deal and developer are appropriate, to the rest of the UK. It is likewise open to businesses that are well founded, can show success and has a requirement for joint venture investment to take advantage of a clear and definable prospect that has solid returns.
Clearly the investor demands the controlling interest to make sure protection of his exposure and liability to the loan arrangement and for offering his portfolio on the line as security. Each arrangement contains a ‘step in shoes’ clause and will only be evoked if the developer defaults on his obligations to finish the project in a timely and professional manner. However, this would be heinous as far as the investor(s) is concerned, hence the thorough due diligence undertaken on the developer at the embryonic stage of the relationship.
We prepare a report on the initial due diligence and only after successful completion does the investor get to see the full presentation. Checks are comprehensive and embrace previous projects, previous sales, marketing initiatives, experience and depth of management, personal credit and back ground checks and HM Land Registry searches.
Benefits for the…
- Good margin;
- A tangible investment (i.e. a completed development);
- Working with development professionals;
- The investor gets to appoint the professional project management team for the SPV with guaranteed updates;
- A relationship could form as a result of a deal and subsequent future funding could result from this;
- Rent roll from the investor’s portfolio is uninterrupted
- Dealing with a blue chip investors who provide a strong security backed proposal and outstanding covenant;
- Default on the loan is very unlikely, and even in the event of default serviceability from the existing rent roll provides substantial assurance
- 100 per cent funding to complete a development that might otherwise have stagnated and a continued interest reflected in the returns and profits
To discuss your requirements, please contact our Mark, commercial loan officer, on 0161 241 6127