Case study: Completing a complex high value developer exit case

by: Steve Eades, partner at REF Capital
  • 13/03/2018
  • 0
Case study: Completing a complex high value developer exit case
A client approached us in July 2016 for funding on a soon-to-be-completed development of nine four- or five-bed houses and a further nine flats, around the Battersea area of South London.

The client, an experienced developer, specialised in the high-end of the market, where developer exits can be more challenging than for vanilla buy-to-let schemes.

This case was certainly no exception.

As part of the development agreement, the land would be split and all of the flats, plus two of the houses, would form part of a scheme with another investor.

At practical completion stage, the gross development value of the remaining seven houses was estimated at £16.35m, with an average asking price of £2.35m per unit.

The existing development provider for the scheme put an expected completion balance of £11.34m on the remaining seven units.

As the facility with the existing development provider drew to a close, the client wanted a product that could repay the outstanding development finance and allow the sale of the remaining seven units over a 12-month period, avoiding the need for a quick-fire sale.

 

The deal

 

SLS.CASE STUDY_13.3.18

 

How it works

InterBay initially looked to fund the initial 70% net advance required to release the existing charge from the senior development provider at a rate of 0.64% per month with a 1% arrangement fee.

The design of the product meant that, as the client sold the units, the bank would retain full sale proceeds until the LTV fell below 50%.

Once this had been achieved, the developer would then retain a share of the profits, as long as the LTV didn’t exceed 50%.

The client went on to sell three of the seven units during the legal phase, so decided to reduce the funding requirement to £5.46m against a valuation of £7.8m.

By the first week of October 2017, the client had completed on the facility, and since then has sold two of the units, while the remaining two are currently under offer.

 

Specialist approach

We chose to work with InterBay on this case as it demanded a specialist approach and their entire proposition delivered for the client and us in this instance.

As soon as the case was submitted they arranged face-to-face meetings with us and the client to visit the properties.

They sought to understand the client’s business and then explain the nature of the arrangement.

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