The client, an experienced property investor and developer, was looking to purchase a £3.1M industrial site comprising 28 commercial units across three buildings. The goal was to secure a 75% LTV mortgage and enhance the property’s rental income potential.
The deal presented unique complexities, as the lease arrangements included a mix of short-term, long-term, and holding-over leases, with rental income streams from unconventional sources such as shipping containers and parking spaces – factors that many traditional lenders were hesitant to consider. Complicating matters further, the transaction involved a minority shareholder with a 24.99% stake proposed at the outset.
Despite the lender’s vacant possession valuation of £2M, which was £1.1M below the agreed purchase price, the client remained committed to proceeding with the transaction (lenders market value of £2.6m), confident in the site’s potential (the property was ‘under rented by £0.1M per annum).
Key Challenges
This transaction presented several challenges:
- Navigating the complex lease structures required lenders to recognise diverse income sources, including those from unconventional assets (unique site comprising former mill, industrial units and storage facilities).
- Time constraints added further pressure, with the vendor imposing a £10,000 commitment fee and a tight deadline to finalise the purchase.
- The financing structure had to account for the investor providing a £1.1M short-term loan while maintaining lender affordability criteria. The investor loan included an element of debt for equity ‘swap’ if not fully extinguished within 2 years.
- Bridging the valuation gap of £1.1M between the lender’s assessment and the agreed purchase price posed a significant hurdle.
Solution
Through a proactive underwriting process and direct collaboration with the underwriter, we structured a hybrid transaction that addressed the valuation gap, accounted for all income streams, and satisfied the requirements of all stakeholders.
This approach ensured the deal progressed seamlessly within the vendor’s tight timeframe.
The Client, said
Great hands from Kevin and Ben. Very tricky constantly moving deal they got over the line against the odds. Thanks
