There from start to finish

By Gerard Morgan Jackson, head of structured finance, United Trust Bank

While there are several development lenders in the market to choose from, most tend to specialise in one or two areas. This can often mean that clients must refinance their schemes with different lenders as they move through the various stages of a development and beyond. For example, acquisition, planning assembly, development, sales period and/or investment. Each change of facility can trigger additional costs, including solicitor and valuation fees and these can take a substantial bite out of the developer’s margin. But perhaps more importantly, and especially in the current uncertain economic environment, there can be a lack of certainty when it comes to agreeing a new facility with a new lender. The relationship built up with the lender during a previous stage of the project counts for nothing if the developer then has to seek out a new funder to accommodate their next step.

Once a client has established a strong relationship with UTB, we are able to move with the client, adapting as the scenario and the client’s needs change. If necessary, we can support a developer or housebuilder with structured finance, development finance and bridging finance with the three divisions working closely together to provide the most suitable solution.

For example, UTB refinanced the completion of a development of flats and offered a nine-month sales period facility in order for the borrower to sell the units and repay the borrowing. The facility was secured by the development and a security package comprising other properties held in third-party vehicles.

The development reached practical completion and while some initial sales were achieved, the clients felt they could maximise profits by holding some of the units and selling these gradually. We were approached to restructure the facility and we agreed a three-year £12.8m loan offering the borrower the flexibility to sell or rent individual flats, subject to covenants during the term of the loan. Repayment could be achieved through a combination of sales or refinance with this structure offering the borrower flexibility during the course of the facility and giving them the opportunity to maximise their return on the completed development.

Typically, this customer would have had to take a sales period loan and, therefore, be under pressure to achieve sales by certain deadlines, or an investment loan to retain the flats which would require specific income levels and exit fees if the client elects to sell any of the units. In a market which is susceptible to rapid change, our solution enabled the client to do both and thereby provided flexibility and certainty while keeping their additional project costs to a minimum.