Post by chris on Jan 24, 2014 16:30:23 GMT
Whilst this post is targetted at answering questions raised by mrclondon and batchoy it does provide a lot of background information on our property development deals so would be worth a quick read by other lenders, so I thought it worth putting in its own thread. The following text has been written by David and Ken in order to clarify how our property deals work in general and hopefully to allay some fears lenders have expressed on the forum about the risks involved, securities taken, and how deals are typically structured.
This loan successfully repaid a couple of months ago.
David has 25 years experience as a development property lender and Ken was, until recently, MD of an established bridging lender called Pure Bridging.
We appreciate that, as the property development side of the business has been less prominent than it will be in AC going forward, we need to and will produce a piece of work to help explain property loan structures.
There is a brief note on our site at www.assetzcapital.co.uk/lenders/development-risk/
To address your specific questions, it is absolutely standard industry practice, particularly in property development, to establish individual SPVs for each development.
This is an effective structure to ensure that the only liabilities and cash flows in respect of a development are ring fenced within the actual development vehicle.
It avoids the commingling of funds and security with the developer's other projects - and lenders to those projects. You will almost always find that Assetz Capital takes guarantees from the developer's master company, plus personal guarantees from the directors (and sometimes, shareholders - if they are different) of the development company. We will always take security over the primary development site, of course.
As the developer remains anonymous, we will not comment on your specific suspicions on how many projects the developer may have on. However, we have spoken to the developer and as part of our initial checking, have satisfied ourselves that he has the physical and financial resources as well as the incentive to concentrate his attentions on the subject loan facility. Development deals come in a number of forms, but key to our questioning is to determine whether, for instance, any developer has a handful of deals each at the same stage of development. An experienced developer will ensure his deal types are spread such that his attentions are not distracted around a number of projects all at critical stages. We are satisfied that that is the case here. We always question a developer on both his experience and his own thoughts on how many projects he can handle at any one time and his justification for his assertion. Good developers will give a clear view on this and the depth of their team and their business model; equally, we have been in the business long enough to be able to sniff out somebody who is just telling us what he thinks we want to hear. The developer here falls into the experienced category.
Another key fact is a developer's experience in any particular location. The developer in this case has worked in the area for 8 years. A good, experienced developer will be able to spot value and opportunity where others cannot. He can take whatever view he likes if he is using all his own equity, but if he wants support from a lender, his view has to be franked by a professional and only the appropriate proportion of lending compared to valuation made. In this case, the developer has demonstrated that he has the wherewithal to add value to ''our'' security from his own resources. He is requesting a bridge to acquire the site, but will build it out with his own money (monitored by us so we can be comfortable that he is always adding value to ''our'' security). You are correct is wondering whether a part completed building might be worth less than site value and I agree with your conclusion. There are no prizes for ending up with a half built development (even though here you actually have ongoing income from the retail units), which is why we have looked at the cash the developer is putting in post acquisition (i.e. he and his colleagues have it) and are also monitoring the development even though it is developer money being spent. It is all about hitting the ultimate target and creating an asset with enhanced marketability and value.
Assetz Development Capital Ltd said:
David Penston and Ken Purchase look after the property development and bridging side of the business. David is one of the founders of Assetz Capital and put together the Nottingham student development loan on the back of which AC launched last April.This loan successfully repaid a couple of months ago.
David has 25 years experience as a development property lender and Ken was, until recently, MD of an established bridging lender called Pure Bridging.
We appreciate that, as the property development side of the business has been less prominent than it will be in AC going forward, we need to and will produce a piece of work to help explain property loan structures.
There is a brief note on our site at www.assetzcapital.co.uk/lenders/development-risk/
To address your specific questions, it is absolutely standard industry practice, particularly in property development, to establish individual SPVs for each development.
This is an effective structure to ensure that the only liabilities and cash flows in respect of a development are ring fenced within the actual development vehicle.
It avoids the commingling of funds and security with the developer's other projects - and lenders to those projects. You will almost always find that Assetz Capital takes guarantees from the developer's master company, plus personal guarantees from the directors (and sometimes, shareholders - if they are different) of the development company. We will always take security over the primary development site, of course.
As the developer remains anonymous, we will not comment on your specific suspicions on how many projects the developer may have on. However, we have spoken to the developer and as part of our initial checking, have satisfied ourselves that he has the physical and financial resources as well as the incentive to concentrate his attentions on the subject loan facility. Development deals come in a number of forms, but key to our questioning is to determine whether, for instance, any developer has a handful of deals each at the same stage of development. An experienced developer will ensure his deal types are spread such that his attentions are not distracted around a number of projects all at critical stages. We are satisfied that that is the case here. We always question a developer on both his experience and his own thoughts on how many projects he can handle at any one time and his justification for his assertion. Good developers will give a clear view on this and the depth of their team and their business model; equally, we have been in the business long enough to be able to sniff out somebody who is just telling us what he thinks we want to hear. The developer here falls into the experienced category.
Another key fact is a developer's experience in any particular location. The developer in this case has worked in the area for 8 years. A good, experienced developer will be able to spot value and opportunity where others cannot. He can take whatever view he likes if he is using all his own equity, but if he wants support from a lender, his view has to be franked by a professional and only the appropriate proportion of lending compared to valuation made. In this case, the developer has demonstrated that he has the wherewithal to add value to ''our'' security from his own resources. He is requesting a bridge to acquire the site, but will build it out with his own money (monitored by us so we can be comfortable that he is always adding value to ''our'' security). You are correct is wondering whether a part completed building might be worth less than site value and I agree with your conclusion. There are no prizes for ending up with a half built development (even though here you actually have ongoing income from the retail units), which is why we have looked at the cash the developer is putting in post acquisition (i.e. he and his colleagues have it) and are also monitoring the development even though it is developer money being spent. It is all about hitting the ultimate target and creating an asset with enhanced marketability and value.
