A wealthy private investor is currently offering a unique development funding product via specialist packager Centrado. Jason McGee-Abe spoke to Centrado’s CEO Mel Fordham to find out more about the proposition and know how it all works…

Having worked on a few deals already this year, this unique product is not seen anywhere else in the marketplace and here’s how it works.

A client who needs finance for a development, with a GDV of at least £25 million to be completed within three years, contacts Centrado and ascertains whether they are eligible and have the necessary experience. Centrado will then undertake the necessary initial due diligence and background checks on the developer to ensure that they are appropriate for the funding.

Centrado are engaged to ensure the developer has suitable and current experience of similar developments, which is an absolute pre-requisite for the finance. 

If successful, and terms agreeable by both parties, the investor offers tangible assets and a personal guarantee to an organisation as security in order to provide the capital to facilitate the development.

A Special Purpose Vehicle company (SPV) is set up with equity shared between the investor and the developer, with the investor always being the majority shareholder. The investor owns a minimum of 51 per cent of the SPV /development and the developer owns 49 per cent, profits being divisible accordingly.

The organisation providing the liquidity advances 100 per cent of the funding into the SPV. It is from this SPV that the client is able to access the funds to complete the developemnt. The SPV has a project manager / director mandated by the investor installed to oversee the works.  There is a pronounced desire by the investor to avoid involvement in the practicalities of the development and the agent representing the investor is mandated to simply ensure the project is being managed professionally.

Not wanting to reveal the identity of the investor, Mel informed B&C that the investor has international and diverse interests but historically made significant returns from share trading. However, as a result of that market becoming very volatile, he wanted to transfer his investment into tangible assets.

Although predominantly looking at developments in London, the investment opportunity also extends, if the deal and developer are appropriate, to the rest of the UK. It is also available to businesses that are well established, can demonstrate success and has a need for joint venture investment to exploit a clear and definable opportunity that has solid returns.

Obviously the investor demands the controlling interest to ensure security of his exposure and liability to the loan arrangement and for offering his portfolio on the line as security.  Every arrangement contains a ‘step in shoes’ clause and will only be evoked if the developer defaults on his obligations to complete the project in a timely and professional manner. However, this would be heinous as far as the investor(s) is concerned, hence the comprehensive due diligence undertaken on the developer at the embryonic stage of the relationship. 

Centrado prepares a report on the initial due diligence and only after successful completion does the investor get to see the full presentation. Checks are comprehensive and embrace previous projects, previous sales, marketing initiatives, experience and depth of management, personal credit and back ground checks and HM Land Registry searches.

Benefits for the…

Investor:

- Good margin;

- A  tangible investment (i.e. a completed development);

- Working with development professionals;

- The investor gets to appoint the professional project management team for the SPV with guaranteed updates;

- A relationship could form as a result of a deal and subsequent future funding could result from this;

- Rent roll from the investor’s portfolio is uninterrupted

Capital Provider:

- Dealing with a blue chip investors who provide a strong security backed proposal and outstanding covenant;

- Default on the loan is very unlikely, and even in the event of default serviceability from the existing rent roll provides substantial assurance

Developer:

- 100 per cent funding to complete a development that might otherwise have stagnated and a continued interest reflected in the returns and profits