Commercial Property Repositioning: An Early Stage Fund (£2m-£100m)
January 7, 2021
Commercial Property Repositioning
This facility is ideal for office blocks, nursing homes, hotels etc. The product could be considered as a restructuring or stressed facility for the current owner or an opportunistic investor.
Example 1:
An office block purchase price £4 million with short lease commercial tenants generating £350,000 in rental income.
Request:
Funding to allow a client to purchase the target property. Once purchased, the client will apply for planning permission to reposition the office block as 77 PRS units. With the planning gain the client will enjoy a profit of £2 million. If the PRS scheme is built out, the client will enjoy a profit of £4 million.
Solution:
A specialist debt provider will advance 75% of the purchase price with no profit share. Alternatively, two independent joint venture or equity provider will fund the majority of the purchase price in return for 50% of the profit.
Example 2:
Opportunities to obtain planning permission to build out one of the following:
• Residential Housing Scheme
• Build to Rent Scheme
• Warehouses/Logistics.
Solution:
A specialist fund which likes to invest at an early stage will deploy between £2 million and £100 million as equity participation or mezzanine finance.
We are able to arrange equity investment to cover the funding shortfall for residential and commercial development projects on a profit share basis. In addition to this, I can confirm that we have broadened our product offering even further by engaging with a national network of High Net Worth Individuals, who wish to invest in Trading Businesses. Such trading businesses should have the potential to grow to a fair size. The level of investment is negotiable, as is the level of shareholding. The Investor will wish to be a passive Investor, although the Investor will be supportive by bringing additional skills set top the business. The Investor will not have any preference as a shareholder because the investment will be by way of the EIS Scheme. The Network with whom we are involved has a wide range of backgrounds, ranging from: Digital Restaurants Manufacturing Property Professional services etc The individual Investors are basically people who have built a business, sold out and require a return on their money, but also an interest in a business.
Property Purchase: A client wished to buy an apartment in Mayfair for £1.2 million. The property had been valued at £1.4 million and was owned by a limited company. My client had only £200,000 cash as an input to the transaction. Solution: the client was advised to buy the share capital of the vendor company to reduce the Stamp Duty liability. This also assisted the tax liability of the vendor. Thereafter, I arranged a long term finance facility of £1 million based upon the valuation as opposed to the purchase price. A client is able to buy residential properties at a 30% discount to value because of a variety of distressed situations. He buys and sells 15 houses per week. His private funder charged 7% annual interest on the monies as well as a 25% share of the profits. Solution: Our Finance contact arranged a facility of £4 million to discharge the private lender and provide an additional £2 million for working capital. The lender charges only 9% interest on the finance and no profit share. 100% Property Development Finance: A client found an opportunity to build out 8 apartments in Surrey to achieve a profit of circa £1 million. Unfortunately she had no available cash to input into the project. Solution: A high net worth individual provided the equity required (cash input of £400,000) in return for 50% of the profit i.e. a return of 125% on the investment. This office also arranged the debt finance. 100% Property Finance with no Profit Share: A developer client was involved in two projects and had all his working capital tied up. He came to my office with a new proposal requiring £1.3 million to build out 8 houses and 6 apartments. He confirmed that he had no available cash. Solution: Our finance contact demonstrated to a specialist lender that the client had built out during his career more than 40 units. Because of the client's experience and the potential profit of the project, this office arranged the full requirement of £1.3 million (with no profit share) to build out. Social Housing: A client was invited by a local authority to tender to build out 2000 houses for the Council. He won the tender but could not fund the project. Solution: Our finance contact brokered a joint venture with an overseas construction company who is funding the build out. Finally, an insurance company will be the ultimate owner on a 2.7% yield. Director with Personal Guarantees: A former Director of a failed company had personally guaranteed £600,000 worth of unsecured creditors for the company. The client faced bankruptcy. Solution: Our finance contact arranged the funding and worked with an Insolvency Practitioner to organise a single premium IVA for £150,000. The creditors accepted and the client was overjoyed.
During the 2008 banking crisis, our funding contact worked closely with the "special measures" departments of HSBC, NatWest, RBS and Yorkshire Banks. He recalls vividly that businesses and individuals did get into financial difficulties in 2008 but it was in 2009 and 2010 (some 18 months on) that I witnessed a tsunami of casualties. These were the businesses that had hung on for grim death but when they visited their bank for funding, because of the recent financial performance, no support was forthcoming and financial collapse was the result. Despite the government's initiatives, unfortunately there will be businesses collapsing principally because of a lack of capital. In anticipation of such events occurring this office has created the following facilities: A Regulated Short Term Funder: This short term fund is ideal to help to annul or reverse a personal bankruptcy or vary an Individual Voluntary Arrangement. Flexible Secured Funding: Funders who will provide funding secured upon personal and business assets be it first or second charge to enable financial restructuring. Sale and Lease Back: Very often the fixed assets of a business have good value but are tying up working capital. In turn this office is able to arrange sale and lease back of such assets to stabilise a business. Equity Funding: Many businesses that survive an economic crisis have financial difficulties as their order book begins to expand back to pre-crisis levels. The business has excellent prospects and the projections are encouraging. However, because of the recent economic crisis, the recent management information is insufficient to justify bank support. In such circumstances equity funding can be arranged from £100,000 to £20 million to support such businesses. Assets of Business in "Transition": A global fund with whom we have access will, in certain circumstances, provide funding from £30 million to £250 million to stabilise the situation. What are these circumstances and when is an asset or business in transition? • A development project that runs out of funding. • An investment property where the tenant is not going to renew and will leave the property empty and the landlord in breach of banking covenants. • A landlord without the working capital to carry out essential property refurbishments. • An investor/landlord has a succession plan issue and has reached an age where he/she wants "out". • An asset or a business which is over leveraged i.e. has too much debt on the balance sheet. • An asset or business in breach of banking covenants. What type of securities would be eligible? • Large apartment/student accommodation developments. • Office block. • Hotels. • Nursing home group. • Leisure parks. Our contacts within the global fund will step in, stabilise the situation, add value and then move on in 3 to 5 years.
