We have had success in helping clients who are being ‘Managed Out’ – here is a good story:
Customers ran a small hotel/guest house in the Midlands – superb building (an old hunting lodge) in lovely grounds. They had a Term Loan with their bank which they were servicing adequately and which was very well secured (loan £360,000 against property value of £1.8m – so 20% LTV). It was however originally lent at very fine interest rates and the bank decided they would prefer to have this off their books. They had a technical opportunity to subject the lending to a ‘stress test’ using the assumption that interest rates increased significantly. The hotel didn’t earn enough to show it could service the borrowing under such a harsh (hypothetical) increase in rates and they were asked to go elsewhere.
We (through association with Stirling Partners Finance) were asked to refinance the loan but we first, naturally, found out what the clients ideal outcome would be – which was that they would really like to convert the building into luxury apartments. They had this ambition to get out of the hotel business, retain the freehold, have the maintenance of the building paid for under FRI leaseholds and live in the finest of the apartments – no more cooking breakfasts for everyone! – plus there would be a signficant profit in the development which would become their ‘pension pot’
The challenge was that they are not developers. So traditional bank development lending wasn’t available and nor would our normal specialist development lenders help (as they had no track record of doing this and would have no income to cover the interest during development).
We were however able to find a specialist lender who liked the proposition so much that they would accept their credentials and provide them with a very bespoke facility – including the additional project support to oversee the work and co-ordinate with builders and architects. We have ‘hand held’ the case from the very outset and overcome numerous ‘deal breaking’ barriers along the way.
The good news is that they have just drawn down their loan of £1 million. The bank are ‘off their back’ and repaid and the development is phased such that with this ‘pump priming’ it will be repaying the borrowing after refurbishment of only half of the building. Still a lot of work to do but pleased to see a client’s wishes fulfilled against the odds in this difficult market.