- Property: Underground car park in West End, London
- Property value: £4M
- Loan amount: £1M
- LTV: 25%
- Facility: 12-month CBILS facility
- Interest: No interest payable
- Purpose: Refinance existing commercial property debt
Refinancing commercial property can become more challenging when an existing lender is unwilling to renew a facility and the underlying property has experienced a temporary reduction in income. Enness was approached regarding a London commercial property valued at approximately £4M, where the existing £1M loan was approaching maturity.
The property was an underground car park in the West End of London. Its existing high street lender had declined to renew the £1M facility, creating a requirement for alternative short-term finance.
The car park had experienced a significant reduction in income as a result of the COVID-19 restrictions. However, the expectation was that income would recover once restrictions were lifted and normal trading conditions returned. This created a situation where a conventional long-term refinance was not necessarily the most appropriate immediate solution.
The relatively low level of borrowing compared with the property value provided substantial underlying equity. The required £1M facility represented a 25% loan to value (LTV) against the £4M property.
Rather than simply replacing the existing loan with another conventional commercial mortgage, Enness explored alternative funding structures that could provide the business with sufficient time to recover its income position.
The solution was a 12-month Coronavirus Business Interruption Loan Scheme (CBILS) facility. The structure provided the required £1M of funding without interest payable, giving the business additional breathing room during a period of disrupted trading.
The intention was to use the 12-month facility as a temporary solution before refinancing back onto more traditional commercial property finance once the car park’s income had recovered.
The transaction demonstrates the importance of considering alternative funding structures when an existing commercial property lender will not extend finance. In this case, the combination of substantial property equity and temporarily reduced trading income meant that a short-term government-backed facility provided a practical alternative to immediate long-term refinancing.
Enness works with clients requiring commercial property finance and complex property funding structures. The appropriate solution will depend on the property, borrowing requirement, financial circumstances, available security and lender criteria.
Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. The Coronavirus Business Interruption Loan Scheme (CBILS) was a temporary UK government-backed scheme and is no longer available for new applications. Finance is subject to lender criteria, underwriting, valuation, due diligence and individual circumstances. Terms, rates, fees and availability may vary.
Risk Warning:
Commercial property finance involves risk. Property securing finance may be repossessed if repayments are not maintained. Borrowers should ensure that any refinancing strategy is realistic and achievable, particularly where repayment depends on a recovery in property income or market conditions.
Information contained in our case studies is for market and illustrative purposes only. In some cases, these may be made up of multiple cases and are for illustrative purposes only.
Some case studies are made up of enquiries that have come into the business, not all business completes, and the posting of a case study does not represent a completed piece of business.
Property values can fall as well as rise, and you may not get back the amount originally invested. Property investments can be illiquid and may take time to sell. Where borrowing is used, your property may be repossessed if you do not keep up repayments on a mortgage or other loan secured against it.
