Taking advantage of commercial auction property and the buoyant property market

buoyant property market

Gross Loan Amount:

£1,755,000

Property Value :

£2,700,000

LTV:

65%

Initial Circumstances

One of our recent bridging clients returned to us with a new opportunity that they wanted to capitalise on, that resulted in two new large bridging loans.

Initially, they took a bridging loan to purchase a shopping centre. Several other lenders had rejected the commercial asset due to its empty units caused by businesses leaving that had needed to exit their leases early. Most exits were due to financial losses incurred during the Coronavirus pandemic.

The client reached out to MFS and we were more than happy to help. Unlike other lenders, we took the client’s commercial background and business experience into consideration. We then provided the loan on both the assets held and the applicants’ individual merits.

In the time since the client had purchased the shopping centre, it had increased in value, and they had therefore put the asset on the market. By selling the commercial building, it would provide a large amount of extra capital for the owner.

Whilst waiting for the sale to complete, they decided to buy their second new shopping centre in the South of England from an auction. The auction house had issued a notice to complete, which meant the client had 10 working days to complete their purchase. Due to this short turnaround time, they needed urgent bridging finance. Again, the asset had several units that were currently empty, but the client knew they could count on us to provide fast finance despite the complexity of the deal.

During the sale of the original shopping centre, we were also able to assist once more! As we were the lenders who provided the initial loan, we were able to offer the same bridging deal for the asset to the new clients. This new bridging loan then became the exit strategy for the initial client.

MFS Solutions

Due to the size of the asset, we were quick to deploy a member of our valuation panel as it would take more than one day to complete.
Upon inspection, minor defects with the building work came to light. Firstly, the shopping centre had replaced a petrol station in the late 2000s upon its construction.

This raised a flag within the report as a ‘high contamination issue’ by solicitors. Our underwriter had to work closely with both the valuers and solicitors to understand the risks, and how we could move forwards. As it transpired, the area where the petrol station had been previously located was very small. Also, the previous planning permission granted by the local authority on the new build of the shopping centre had required evidence of no contamination issues – so with both of these points satisfied, we were able to come to an agreement that favoured all parties.

The second concern facing our underwriting team was a standstill agreement regarding a small area of stonework. Unfortunately, there was no one available to verify the agreement price of the current standing agreement. Our underwriter had to uncover the greatest potential cost of this issue with the solicitors. They also had to determine if this would affect the property’s value. Once calculated, it was realised that the projected income of the asset covered the potential cost of rectifying the standstill agreement. Combined with the age of the property, the value also remained high and unaffected, and we were therefore happy to move forwards.

The Benefits

Despite all these complications, the MFS underwriter was able to resolve all issues. Even though each individual lease had to be reviewed for the new asset, we completed the loan before the end of the client’s deadline. They were once again pleased with our service and ability to overcome complex circumstances.

As our bridging loans are bespoke and accepted on a case-by-case basis, we can look at the bigger picture and base our loans on more than just the asset. Instead, we evaluate both the asset and the client’s experience. By taking a commercial view on the overall picture, we were able to tailor our bridging finance to find a solution.

Whilst many lenders would not lend on this due to the empty units and issues flagged at valuation stage, we trusted the experience of the client, worked closely with the solicitors, and ultimately got the deal over the line.