Post on 04-Jul-2015
Issues in real estate financing
Robert McNally
18 January 2008
Finance arrangements
Investment finance
Development finance
Company purchase – trading business, tax saving
Securitisation – CMBS, conduit loans
REITs
Equity, joint ventures
Sale and leaseback, opco/propco, outsourcing
Property derivatives
Investment finance
Borrower purchasing or refinancing
Clean SPV, limited- or non-recourse finance
Term loan
Equity, shareholder agreement, subordination
Rent or operating income – net of deductions
Account waterfall
Loan to value
Interest cover
Investment finance - lending
Investment finance - property
Occupational leases
Certificate of title, report on title, overview report
Environmental, structural, valuation and other reports
Property management
Sale and purchase agreement
Insurance – joint or composite, prepayment, broker
Land Registry and other purchase or refinancing matters
Development finance - features
Borrower builds on real estate
Often combined with investment finance
Designer, engineer, contractor, surveyor et al
Step-in
Monitoring surveyor, project manager
Planning permission
Agreement for lease
Development covenants
Collateral
Real estate – legal mortgage
Shares in borrower – fixed charge
Immovables – fixed charge
Movables – fixed charge
Rental income – assignment of right to receive
Bank accounts – fixed charge, blocked (except current)
Duty of care agreement
Collateral
Agreements (including hedging, leases, construction, acquisition) – assignment of rights
Collateral warranties
Insurance proceeds – assignment of right to receive
Sale and purchase agreement – not unless put option
Possibly parent guarantee and further collateral
Others if relevant, eg intellectual property
Finance documentation
Facility agreement
Borrower debenture
Charge over shares in borrower
Subordination deed
Intercreditor deed
Duty of care agreement
Finance documentation
Hedging documents
Parent guarantee
Parent floating charge
Parent deed of indemnity
Collateral warranties
Cost overrun guarantee
Fee letters
Taxation
UK value added tax
- no VAT on sale or lease of commercial real estate
- election to waive exemption from VAT
- effect of election on tenants and purchasers
UK capital gains tax
- payable by landowner on disposal of real estate
- acquisition of real estate with low base cost
- effect on security and repayment
Taxation
Stamp duty land tax (UK)
- payable by purchaser on acquisition of real estate
- stamp duty payable at lower rate on company acquisition
- exemption in certain areas
General
- lenders may insist on borrower using relief
- loan facility
- reserve account
- parent deed of indemnity
- local taxes
Market
Securitisation – CMBS, conduit loans
UK margins decreasing
UK development activity slowing
European – Cevahir Shopping Centre
Equity
Joint ventures
Funds
Sale and leaseback, opco/propco, outsourcing
Hotels
REITs
SH Real Estate Finance Group
Richard Light
Robert McNally
Ted Harrison
John Fox
Clients include:
Royal Bank of Scotland
HSBC Bank
Fortis Bank
Bank of Scotland
Lloyds TSB Bank
London Development Agency
St Martins Property Group
London & Regional Properties