Revolving credit facilities (RCF) are invariably utilised by developers seeking growth.
RCF’s can be used in a range of property sub-sectors including residential, student, hotel and restaurants.
Here is a summary of the product and some parameters.
Sectors
• Private open market sales.
• PBSA / Student accommodation.
• Permitted development.
• Commercial including hotels, restaurants and retail.
Legal structure
Most developers currently have a SPV by SPV model or a holding company and SPV’s below that. This is an acceptable model to replicate, albeit a new holding company and project by projects, SPV’s will be required.
The new structure invariably mirrors the old so there is nothing odd in the RCF structures adopted.
Duration
The facilities are set up to allow for the capital to be utilised at least twice. This links in to a minimal term of 4 years and a maximum of 5 years. Exiting earlier is possible, if the funds annualised return is met for that period.
Equity pledge
To access a RCF an element of contribution is required. Not usually cash, but pledged equity shareholding in projects or currently owned income producing assets. These are taken by a first/second debenture or by a share pledge over the available equity (asset value of £1,000,000 with 70% LTV leverage leaves 30% equity that can be offered as a pledge).
Project sizes
They can vary from small (£1,000,000 to £5,000,000) to large (£50,000,000 to £100,000,000). GDV’s above £5,000,000 are on the small side with GDV’s above £10,000,000 more normal.
Purchase prices of sites can be below a million as the focus is on equity growth, that planning gain, development profit or investment yield compression.
RCF sizes
At the lower end it’s £25,000,000, as there is an element of cost in setting them up so below this doesn’t make financial sense. At the upper end it’s as high as £500,000,000. For developers looking to simplify and improve their capital base away from a multi banked/multi equity model then the norm is £50,000,000 to £100,000,000. It’s driven by the number of opportunities the developer can acquire and the calculation that balances out RCF scale with supportive equity.
Process and timescales
• Email indicative terms in 5 days from the day we provide the information needed and have discussed with the funder.
• Heads of terms supported by investment committee in another 5 days.
• Due diligence and legals within 5 to 10 days after the heads are signed.
• Deal completion in a minimum of 6 weeks and a maximum of 3 months.