Overview:
Our client was coming to the end of their 4th development projectThe Site or Property that a Developer wishes to improve or re-build, in order to add value. It is quite common for someone to refer to a 'Development' instead.; two semi-detached properties, both had undergone a full refurbishment. The current lenderA company or person that lends money to another. wanted to be redeemed and was charging an extremely high-interest rate on the loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More. The client came to us via a referral asking to look at redemption options. High leverage was needed.
LocationUsed by us to distinguish where the property is that the loan will be made against. Lenders can be location agnostic, and believe that different locations should attract different Underwriting Criteria and pricing: Surrey
LoanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More Type: Bridging LoanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More – DeveloperAn individual or entity that buys and improves property, or builds entirely new properties, that are typically sold at completion of the project. ExitVitally important for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. Expect the Lender to evaluate the plausibility of either option and amend the terms accordingly.
LoanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More Size: £1.55m
Loan-to-ValueThe ratio of debt to property value, expressed as a percentage; for example a Borrower that obtains a Loan of £ 6,000,000, against a property value of £ 10,000,000, would be expressed as 60% LTV.: 75% (NET)
The Situation:
The properties were finished and ready to go on the market, but the existing lenderA company or person that lends money to another. was not prepared to wait for the saleReferring to the sale of a property. We use the term in Development Finance and Bridging Finance to describe the Exit Strategy the Borrower expects to use to repay the Loan.. Their interest rateThe proportion of the overall Loan that is charged to the Borrower as Interest by the Lender. This is normally expressed as an annual percentage of the remaining loan. was so high that had they remained in the deal, then any profits our client stood to make would have been eroded by the lendersA company or person that lends money to another. astronomical interestRegular payments made by a Borrower to a Lender in return for the money that has been lent to them. charges.
We needed to exitVitally important for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. Expect the Lender to evaluate the plausibility of either option and amend the terms accordingly. the loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More immediately to preserve profit for our client and make sure her hard work was rewarded.
The Challenge:
The main challenge we faced on this case was the high leverage. We had to take both a first chargeA legal charge executed against a property equating to the value of the Lenders Loan. This Lender has priority over all other Lenders that may secure a Loan against the same asset. Also known as the Senior Loan. and a second chargeA legal charge executed on behalf of a Lender that sits junior to the First Charge. Second Charge Loans are generally more expensive than First Charge Loans, due to them being more risky. In a default scenario the First Charge Lender is redeemed entirely before the Second Charge Lender can state their claim. Also known as a Mezzanine Loan. bridgeIn Real Estate a Bridge Loan is a short-term loan that is used to cover a funding need until a longer-term arrangement can be put in place. People bridge for a number of reasons; to purchase an asset quickly (perhaps at auction), to re-furbish a property (add value), to purchase a property from a receiver / foreclosure, or if a property is not yet financeable by a traditional lender (fire damage is one example). Bridging is more expensive, due to its shorter term nature, and perceived higher risk. The repayment source or Exit Strategy, is normally sale of the asset or Re-finance (once value is added / works are completed)., with 2x different lendersA company or person that lends money to another. to get to the redemption figure needed.
Using two lendersA company or person that lends money to another. on any case adds extra work and takes more time; 2x valuation reports, 2x lenderA company or person that lends money to another. credit committees, and 2x solicitors.
All of this needed to be done against the backdrop of an aggressive lenderA company or person that lends money to another. wanting redemption, and the high, daily interestRegular payments made by a Borrower to a Lender in return for the money that has been lent to them. charges.
The Outcome:
Through the strong relationships we had with both lendersA company or person that lends money to another., we were able to get them to work together on a deal for the first time.
We were able to negotiate a fixed redemption with the existing lenderA company or person that lends money to another., which meant that the loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More could be redeemed. Without this agreement, then the properties would have been put into receivership and the client would have lost control of the deal.
We managed to deal with 3x lendersA company or person that lends money to another., 4x solicitors and get to completion, all within 3 weeks. An incredible feat. We also managed to substantially reduce the monthly interestRegular payments made by a Borrower to a Lender in return for the money that has been lent to them. charges, so that our client should hopefully still walk away with a decent profit.
Client testimonial:
“The team at PFG did a great job for us with a recent refinance. It was complicated and involved multiple parties and various legal advisors. PFG kept the momentum up even over the Christmas period and saw the difficult deal through to completion.
I wouldn’t hesitate in recommending PFG to anyone who needs specialist finance. They’re diligent, they listen, they’re proactive and they get the job done. “
Gemma Zimmerhansl, RGZ Properties
Lender testimonial:
“The team at PFG were highly involved throughout the execution of this complex development exitVitally important for both Bridging Finance and Development Finance. The term refers to how the loan will be redeemed; typically this is Sale of Property, or Re-Finance. Expect the Lender to evaluate the plausibility of either option and amend the terms accordingly. loanWhen something is borrowed by one person / entity from another. Normally it refers to money, and a rate of Interest is charged whilst the debt remains outstanding. More. They facilitated communication between all parties, making sure that everyone was working together in order to hit tight deadlines. They showed great understanding of the needs and requirements of the lendersA company or person that lends money to another. and solicitors involved, all while ensuring the best deal for their client. It was a pleasure to work with PFG on this case and we’re looking forward to working closely with them again in the future.”
Funding 365