P1 #3769996 V2 Issues In Real Estate Finance Talk To Baf

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P1 #3769996 V2 Issues In Real Estate Finance Talk To Baf

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

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