Place AGM 2014: David Rainford and Stuart Stead

FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY

Overview of North West Funding Market

Place North West AGMThursday 22 May 2014

David Rainford Property Finance Director

Stuart Stead Head of Property & Construction


Upbeat Market Indicators

• Increase in developer activity• Distressed portfolios stabilised• Greater valuation consensus• Strong PRS demand• Increase in transactions from Q4 2013


Lenders – Key Trends

• Positive signs from high street lenders• Growth aspirations from challenger banks• Higher profile of specialist lenders• Investors and funders seeing increased value in the region• Bridging – new entrants, downward pressure on pricing


Benefits of Bridging and Specialist Lenders – Securing the Opportunity

• Quick decisions & premium price v lost opportunity • Improved chance of success against a cash buyer• Loan to Value (LTV) driven (asset rich but cash poor businesses able to compete)• Exit strategy as opposed to day one income (capitalise on added value/asset

management plays)• Distressed portfolios/part built schemes• Deliverable short term exit plan is essential

Example£750k facility for NW land acquisition Zoned for residential50% loan to purchase1.5% fee in/out, 1.5% pcm

Example£1900k facility (inc. VAT bridge) London land acquisitionPlanning for hotelDiscussions with end user but not secure50% LTV, 1% fee, 0.95% pcm. Ratcheted exit fee starting at 1%.


Medium term options

• Strong asset play but risk profile outside traditional lending parameters• Fund appetite for target debt £5m on 3-5 years• Stretched Senior Debt or Mezzanine• Up to 85% Loan to Value• Lender Target return 11-15% with element of

profit share

Works for:High yielding portfolios and pre-let developmentsAcquisitions, refinance or recapitalisation

Examples:£3m mezzanine facility for student accommodationportfolio at 75% LTV, interest 8.5% above libor, 5 year term

Equity release from high yielding industrial portfolio to assist with further acquisition


Residential Development

• Improving market• Downward pressure on bridging rates• Greater recognition of planning gain/land value in lieu of cash equity• Forward funding and pre-sale options• Government support• Specialist lenders – flexibility

Examples:

£1.8m facility, 12 houses in Cumbria 65% land value and development cost (85% + of hard cost), 3.25% / Base, 0.75% fee, 1.25% exit

Facility £3.84m, houses in South Cheshire 75% LTC / 60% GDV, interest rate 8.5%fee 1.5% / 1% exit on GDV

BUT – demand for funding still outstripping availability


Investment

Focus:Management experience Net income/interest coverPortfolio spread/occupancyInvestment yield

Larger portfolios:£10m+ debt, 65% LTV, interest only 5-10 year terms swapped libor +2.5-4%Benefits: longer term commitment interest only releases cash for further investment

Example: Residential Investment£6m facility for student and residential portfolio in ManchesterLTV at 70%, margin 3.25% 20 year term

Commercial Development – remains difficult without pre-let/pre-sale

Example: Commercial Investment£7.7 million facility to South Manchester office portfolio – multi let, LTV at 60%, margin 3.5%, Exit LTV 55% at end of year 5. £1.7M Facility – Wigan mixed use – Multi Let/Local covenant, 60% LTV,50% facility interest only / 50% amortising over 15 years.


On the horizon

Increased competition – both appetite for transaction and pricing.New fund entrants for commercial investment

Greater choice for North West development as funders target outside London Backing experience as opposed to lending by numbers

ChallengesDemand v Supply

High street appetite for speculative developmentInterest rate increases


Alternative Funding Sources

Individual Investors/High Net Worth Individuals• Relationships take time to build• Dependent on attitude to risk and reward

Pooled Investments – FCA/EU regulation• Increasingly a burden• Tarred with the same brush as fraudulent schemes• But works well with business premises renovation allowance (BPRA) and traditional

capital allowances• Investor expectations tend to be lower but higher fees to implement structure

Forward Funding Agreements• Pre-lets to strong covenants• Reputable contractor and robust development process required

The Taxman• BPRA• R&D Tax Relief


BPRA (Business Premises Renovation Allowance)

• Assisted areas to include many Manchester wards, including the city centre• 100% tax relief on renovations to business premises• Will help to bring back buildings into use for commercial development only• Building must have been empty for at least 12 months• Five year hold period

Coming this summer to Manchester

*Subject to EU approval


Pooled Investment (including BPRA) and forward funding

Structure

Bank

Pooled Investment

Developer with Site

Fund

HMRC

Example

Land Cost £3mConstruction £9mOther £1mTotal £13m

Dev Profit £2mPrice to Fund £15m


Pooled Investment (including BPRA) and forward funding

Bank £7.5m 50% HMRC (£9m & 45%) £4.05m 27%Pooled Investment £3.45m 23%

Total £15m 100%

Possible Funding Structure if acquired by a Collective Investment Scheme


R&D Tax Relief

R&D Case StudyUrban Regen

We reviewed all contracts undertaken

Identified potential qualifying projects

Reported to HMRC

Negotiations with HMRC

Secured six figure TAX

REFUND for client

The BasicsFor every £ of qualifying expenditure receive 45p back from HMRC. It doesn’t have to be rocket science…


For more information, please contact…

Stuart SteadHead of Property & Construction

07890 181 [email protected]

David RainfordProperty Finance Director

07794 490 [email protected]

Regency House45-51 Chorley New Road

BoltonBL1 4QR

01204 414 243

6th Floor, Sunlight HouseQuay StreetManchester

M3 3JZ0161 527 1200

5th Floor, Yorkshire House18 Chapel Street

LiverpoolL3 9AG

0151 255 2727

Follow us @CowgillProperty

Place AGM 2014: David Rainford and Stuart Stead

Real Estate

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