Background
A real estate investor and developer was seeking a £3m development exit loan for a new build block of over 100 apartments on the edge of Birmingham.
The client’s sort to sell a minority of units and retain the remainder. The HTB team highlighted that the asset base was suitable for significantly higher gearing and subsequently the clients were engaged to give an overview of their wider business objectives. The introducer and clients confirmed that the group’s corporate goals included the acquisition of new sites and the development of smaller projects without finance due to concerns regarding possible event driven negative market conditions.
Challenge
The security had not received sufficient marketing due to issues with some elements of the build team and a change of management strategy regarding the asset.
Subsequently, the occupancy levels were low and could not support a large debt capital facility. A more serious issue was that the existing finance term was soon to expire.
Solution
Firstly, the team reviewed the substitutes available in the local market and concluded that the proposed security consisted of the superior units available. Crucially, the rental prices were on par with inferior substitutes enhancing demand and rental liquidity.
Second, financial statements from the different entities within the sponsor group were reviewed to identify an interest servicing source. One company had a clear surplus net income, consistent over a period of years and a uniform shareholding with our borrower.
The team examined the fixed assets held within the entity and confirmed that the income generated was stable and sustainable. Confident in the trading potential of our proposed security, a temporary corporate guarantee was put in place securing the cross utilisation of income, allowing our facility to perform. This had been calculated to the optimum average tenancy rate needed to service our loan at which point the 3rd party corporate guarantee would be removed.
Furthermore, a 20% annual overpayment ceiling was agreed which would allow the clients to dispose of units without penalty.
Outcome
The £5.7m deal was completed within 11 weeks from receipt of documents to draw down, and had a 75% LTV. The facility allowed the clients to take advantage of the group’s net income yield, exit expiring short term lending and pursue further business objectives.
HTB engineered a unique financial solution offering an unmatched transactional basis. HTB out-competed numerous competitors who could not offer the same level of service resulting in large volumes of further business. HTB took the time to understand the client’s business and wider objectives and created a bespoke facility that exceeded initial customer expectations.