Overview
Our client owned a multi-tenanted property in Central London. The property consisted of commercial ground and first floor, together with residential uppers (27 apartments). The commercial tenantsA person that occupies a property owned by somebody else, and pays rent for that privilege. were a mix between food retailAs a Commercial Property type this refers to properties used as shops of any kind; e.g. grocery, clothes, opticians, etc. (Sainsburys), officesUsed in Development Finance and for Commercial Mortgages, to describe any asset which is to be used as office space. and leisureAs a Commercial Property type this could refer to Hotels, Pubs, Restaurants, or other Hospitality related industries. (a gym). The client owned the freehold of the building and wished to re-financeThe replacement of an existing Mortgage with a new Mortgage. Normally used when a Borrower moves form one Lender to another, and doesn't necessarily mean that the Loan amount changes. and release some equityThe difference between the debt and the asset value; the part that the Borrower actually owns. The equity value can increase in value over time, if debt is reduced and / or the property increases in value. The reverse can also happen. See Negative Equity. to pursue other property investments.
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 : Central London
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 : Commercial Finance
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 : £11.5m on £23m value
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 to Value : 55% LTVThe 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.
The Situation
The client’s 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 was due for renewal and the existing lenderA company or person that lends money to another. was a mainstream bank. He’d found that the relationship had deteriorated due to his relationship manager being constantly replaced. He also felt that they were taking advantage of the longevity of the relationship and not offering him the most competitive termsThe period of time agreed between Lender and Borrower, at the end of which the Loan should be repaid or an extension negotiated. Also known as Loan Term.. The current 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 was £ 6m, so the additional £ 5.5m being raised was to be put towards advancing planning permissionOfficial permission from a local authority to build or alter a building. and therefore enhancing value on other property assetsAn item of property owned by a person or company, that has a value and could be used as Security for a Loan..
The Challenge
Multi-tenanted properties always prove a challenge, due to the mix of tenancy lengths and covenantA contractual stipulation in a Loan Agreement which needs to continually met, so that the loan does not fall into Default. Cure Rights may apply. If the Loan continues to be in default for a period of time, then the Lender may exercise their rights to recover their loan. strengths. The retailAs a Commercial Property type this refers to properties used as shops of any kind; e.g. grocery, clothes, opticians, etc. space was occupied by a national retailer, so this was fine, but part of the office space was occupied by a relatively new, serviced office operator and this was only their 2nd site. The other office tenantsA person that occupies a property owned by somebody else, and pays rent for that privilege. were predominately small companies with little public profile. The gym had been a tenantA person that occupies a property owned by somebody else, and pays rent for that privilege. for a number of years, but there had been some recent press reports about the long-term prospects. All in all, it made for a complicated underwrite.
The Outcome
We were able to work with the client and lenderA company or person that lends money to another. and help allay some of the lendersA company or person that lends money to another. fears around some of the tenantA person that occupies a property owned by somebody else, and pays rent for that privilege. profiles. We were also able to navigate a lower offer from the lenderA company or person that lends money to another. by supplementing some of the perceived rental shortfall by leaving some money on depositThe net difference between the acquisition price of the property and the value of the Mortgage. It can be expressed as a monetary value, but more often as a percentage figure; e.g I can get 65% LTV Mortgage, therefore my deposit is 35%. to cover the shortfall. The lenderA company or person that lends money to another. normally preferred a fully amortising loanA Capital & Interest Loan, that is all payments are made in full and on time, would be fully repaid by the end of the Loan Term. The Loan Term and Payment Schedule are synchronised. over the termThe period of time agreed between Lender and Borrower, at the end of which the Loan should be repaid or an extension negotiated. Also known as Loan Term., but our client didn’t want to tie up their cashflowThis refers to the inflows and outflows of cash within a business. In Development Finance to project the Build Budget / Build Costs over the Build Term. This is important as when Borrowers require monies to fund the build, and when they expect to sell the properties at the end, directly affects their profit; the greater the distance between the two variables increases the cost of funding the project. Lenders generally assume equal draws of the Build Loan across the Build Term; e.g. if you have a Build Loan of £ 1m, and a 10 month Build Term, the Lender will assume that £ 100k is drawn every month for the Build Term. This is wholly unrealistic, and as a result means that the cost of the funding is skewed. By providing an accurate projected Cashflow at the outset, and keeping it up to date through the build, will only help you to actively monitor (and hopefully reduce) your funding costs. unnecessarily, so we settled on a part amortisingAlso referred to as paying Capital & Interest. Each month part of the payment is assigned to servicing the Interest, and the rest is used to reduce the Capital. As Capital payments are made, the outstanding Capital balance reduces. Therefore the portion of the payment assigned to interest reduces, and the portion assigned to Capital repayment increases. If you have a Fully Amortising Loan then providing all payments are made are made in full and on time, then the mortgage debt would be fully repaid at the end of the mortgage term. 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 to 50% LTVThe 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., which meant only a 5% capitalThe value of a financial asset in monetary terms. See Capital Value. reduction over 8 years.
Our client’s preference was for a long-term fixed rateWhere your Loan Interest Rate remains the same for a defined period. The best option for borrowers that want certainty of the borrowing costs. Fixed rates normally attract Early Repayment Charges if broken before the defined period finishes, so you should be certain you want to retain that asset for at least that period of time., and we managed to secure a phenomenally low fixed rateWhere your Loan Interest Rate remains the same for a defined period. The best option for borrowers that want certainty of the borrowing costs. Fixed rates normally attract Early Repayment Charges if broken before the defined period finishes, so you should be certain you want to retain that asset for at least that period of time. of 3.05% fixed for 8 years.