Development Exit Bridge for Monaco Resident on London New Build

• Client: Experienced property developer with an international profile
• Development: 41 new-build flats in Balham with a combined value of approximately £28.4 million
• Challenge: Required refinancing to reduce expensive mezzanine debt while retaining sufficient time to sell the individual units
• Finance: £19.88 million bridging facility at 70% net LTV, with interest rolled up, at 0.7% per month

Refinancing development finance can be particularly valuable where a developer is looking to reduce the cost of existing borrowing while retaining sufficient time to sell completed units. Enness was approached by an experienced property developer seeking to refinance existing senior development finance and mezzanine debt on a large residential development in South London.

The development comprised 41 new-build flats in Balham, with a combined value of approximately £28.4 million. The development was already subject to senior development finance alongside mezzanine borrowing, and the client was looking to refinance as much of the mezzanine debt as possible.

The existing financing structure created the main challenge. The combined level of senior and mezzanine borrowing was too high for both facilities to be cleared entirely through a single new loan. While the proposed refinancing could repay the senior debt, it could not initially clear the full mezzanine facility because of the level of leverage involved.

The objective was therefore to find a lender prepared to take a flexible approach to the existing capital structure, allowing a portion of the mezzanine borrowing to remain in place while providing sufficient new finance to reduce the overall cost of the development funding.

Following detailed negotiations, Enness secured a structure under which a small portion of the existing mezzanine facility could remain behind the new development bridging loan as a second charge.

The lender also agreed that 40% of the proceeds from individual unit sales would be used towards repaying the outstanding mezzanine finance. This provided a clear mechanism for reducing the more expensive borrowing as units were sold while allowing the developer additional time to achieve sales.

The resulting facility provided £19.88 million at 70% net loan to value (LTV), with interest rolled up on top. The facility was arranged at 0.7% per month with a 1.5% arrangement fee over a 12-month term, with an option to extend for a further three months.

Enness also negotiated an additional £1 million release once the first £7 million of property sales had exchanged. Importantly, the release was triggered at exchange rather than requiring the sales to have completed, providing the developer with earlier access to the additional capital.

The case demonstrates how property development finance can sometimes be structured around an existing capital stack rather than requiring all historic borrowing to be cleared immediately. Where senior and mezzanine facilities are already in place, a bespoke refinancing structure can provide greater flexibility around the timing of unit sales and repayment of existing debt.

For experienced developers with substantial schemes and complex existing finance, access to specialist lenders can be particularly important where conventional refinancing would not accommodate the existing level or structure of borrowing.

Disclaimer:
This case study is for illustrative purposes only and does not constitute financial, legal, tax or investment advice. Finance is subject to status, underwriting, valuation, development viability, property suitability and lender criteria. Terms, rates, LTVs, fees and availability may vary depending on individual circumstances.

Risk Warning:
Property development and bridging finance involve significant risks. Property values can fall as well as rise, and delays, cost increases or changes in market conditions may affect the viability of a development and the ability to repay borrowing. Property securing finance may be repossessed if repayments are not maintained. Borrowers should ensure they have an appropriate exit strategy and sufficient contingency for unforeseen costs or delays.