P1 #3769996 V2 Issues In Real Estate Finance Talk To Baf
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Transcript of P1 #3769996 V2 Issues In Real Estate Finance Talk To Baf
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Issues in real estate financing
Robert McNally
18 January 2008
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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
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Investment finance
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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
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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
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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
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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
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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
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Finance documentation
Facility agreement
Borrower debenture
Charge over shares in borrower
Subordination deed
Intercreditor deed
Duty of care agreement
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Finance documentation
Hedging documents
Parent guarantee
Parent floating charge
Parent deed of indemnity
Collateral warranties
Cost overrun guarantee
Fee letters
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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
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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
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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
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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