Often, it’s the speed at which large facilities can be accessed which is the key reason why brokers and borrowers choose Structured Finance over other funding vehicles. Other times it’s the complexity of the customer’s personal or business circumstances, the nature of their portfolio or the means by which they derive an income. Many just want the assurance of dealing with a specialist lender which can quickly understand a complex situation and suggest a straightforward solution.
In the following example, United Trust Bank’s Structured Finance team was approached by a broker seeking a £3.2m facility for a customer who needed to 100% fund his next project. The customer was an experienced building contractor and developer with a strong track record of successful projects in East London. Subsequently the customer had built a small portfolio of buy to let properties and was in the process of completing a development of 8 apartments with an estimated gross development value of circa £4m.
With this current project nearing completion, the customer had identified a site suitable for his next development. The site has planning permission for two blocks of 20 apartments with a GDV of circa £12.5m and the facility requested would enable the customer to acquire the site, settle the substantial Stamp Duty liability, make the required precommencement contributions to the local authority under the Section 106 agreement and settle the current debt on the current project of 8 apartments.
There were two key exits available and it was most likely that a combination of the two would eventually be used to repay the loan. The first was an investment finance loan on the block of 8 apartments based on the rental income generated once the units were let. Any shortfall in the investment finance available would be repaid from a full development funding package on the 40 unit project once pre-construction works had been completed.
The equity available between the two developments, plus additional guarantees provided by the borrower, provided sufficient assurance to the structured finance team that the loan met their criteria and the £3.2m facility was agreed and drawn down just a few weeks from receiving the initial proposal.
By quickly assessing the borrower’s situation, appraising his existing portfolio and the potential for the proposed new development, UTB were able to give a swift decision which enabled him to complete the negotiations to acquire the site with the confidence of offering a completion date within weeks. Subsequently he was able to purchase the site at an advantageous price and commence the planning proposal for his ambitious new project without delay.
Simplifying matters further, the client is now talking to UTB about providing an investment facility on the completed 8 apartment development and a development finance facility for the £12.5m follow-on project. This continuity would enable the client to make a considerable cost saving, removing the need for a new valuation, reducing legal fees and avoiding incurring additional new facility fees with a different lender. In addition, using UTB to fund both the site acquisition costs and the exits would also save the client time and reduce the administrative burden. Unsurprisingly, that’s something most customers are keen to pursue.