Martin Gilsenan

How to present a mezzanine finance deal

“May you live in interesting times.” This well-known expression — commonly perceived as a Chinese curse — comes to mind as I sit down to write my very first blog for Development Finance Today.

With Britain’s planned departure from the EU exposing many issues — political, cultural and economic, while also being undeniably a factor in an increasingly paralysed housing market — interesting times seems an apt description of the here and now for both developers and lenders alike.

Despite this, deals are being done and at Iron Bridge, we find ourselves happily busy with a healthy pipeline of business. For this, of course, we are grateful. Among many things, one of the reasons why mezzanine — which is essentially a second charge development facility — is becoming more popular is due to some senior lenders paring back their LTVs, reflecting current market uncertainty.

So, what’s a broker to do when approached to find a solution to this type of funding gap? That’s right, the correct answer is to seek mezzanine finance. Which brings me, right on cue, to the nub of today’s article, which is to highlight what information is needed for us to assess whether a particular development opportunity is the right one for mezzanine funding. Time being a precious commodity for all of us, three things initially allow us to get underneath a deal in order to gauge initial appetite.

Executive summary

This is typically put together by the developer for the benefit of potential investors and/or senior lenders. Among other key information, it should describe the developers’ experience and past projects, the property or site and its location, the product — what the developer is building, the demographic — their target market/who they are building for and the structure of the SPV or borrowing entity.

Developers’ appraisal

This is essentially a detailed analysis breaking down the costs and timelines from purchase, through the whole construction phase and through to practical completion. This will then enable us to assess whether the build programme and costs to achieve the GDV are realistic and achievable within the timeframe.

Senior terms

The basis of the senior debt provider’s development loan. This information enables us to model our mezzanine facility around the lender’s loan to GDV, interest rate and term. This in turn will show the profit in the scheme for the developer, their return on cost and whether the scheme looks viable.

Further detailed analysis around the micro-location — it’s accessibility, whether it can support the number of units being built and the individual cap sums of those units — is part of the wider due diligence process as you would expect. The above, however, is crucial in providing that initial assessment.

Rant of the day: ‘Rucksacks, rucksacks everywhere’

Now on to something completely different. Being a man of a certain vintage, I believe I have earned the right to sound off about certain irritating aspects of the modern world, so let me start with this one: rucksacks. Once the preserve of French schoolchildren on exchange trips, they are now everywhere. Worse still is the fact that adults — yes real grown-ups, actual businessmen and women — are walking around town, getting on tubes and trains with rucksacks strapped to their back.

What on earth are they carrying in there? Sorry, but are you going to work or climbing Mount Everest? Not only do they look unsightly — they immediately make a man in a suit go from smart to scruffy — they are a complete pain in enclosed spaces and now you even see people wearing rucksacks on their front.

Whatever happened to the briefcase and a sense of style?

Please, someone tell me…

*Editor’s Note — Martin, have you seen the Gucci GG Marmont backpacks?!

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