place agm 2014: david rainford and stuart stead
DESCRIPTION
David Rainford, property finance director, and Stuart Stead, partner and head of property and construction, Cowgill HollowayTRANSCRIPT
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
Upbeat Market Indicators
• Increase in developer activity• Distressed portfolios stabilised• Greater valuation consensus• Strong PRS demand• Increase in transactions from Q4 2013
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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%.
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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.
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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…
FUNDING • DEBT ADVISORY • STRUCTURING/TAX • ACCOUNTANCY
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