Case Study: City Edge – Birmingham

Finance 4 Business (F4B) recently completed the refinancing of an iconic building in Birmingham City Centre.

This deal was structured with Cambridge & Counties, one of the new breed of banks.

We issued a press release relating to the deal, which was well received. But, if this was a book or a 3-part drama series, it would be the final chapter and you would have to try and work out what happened in the other parts.

If we continue with this theme, then we were the authors creating the beginning, a middle and an ending.

Just like with no author there is no book, without a specialist broker there would have been no development. It is about time the role of a broker is detailed and this tells the whole story.

The beginning

We were approached by our client to look at financing for the purchase of an iconic office block and lease extension. The offices are situated on the Hagley Road in Central Birmingham, designed by renowned architect John Madin. The building had become vacant and neglected and was in a prime location for a new lease of life.

Birmingham has become a thriving city, with many new developments in progress. Due to expansion of the universities in and around Birmingham, an opportunity to create high specification self-contained student accommodation was sort.

As with many major developments, several shareholders were involved, not just the developer. This de-risks the project, but can also have a negative impact on funding and getting agreements in place. The shareholding structure needed to be revised into a format that could be fundable. This also assisted in obtaining the planning permission they were after, following the submission of the planned student accommodation.

The clients were well known to F4B’s MD, Russell Martin having arranged their finance for many years. Whilst they had completed some property developments they had never delivered anywhere near something of this scale.

Russell guided the clients in suggesting they bring on an experienced developer of this type of asset class as shareholding Directors. The funds released from this allowed for a non-active shareholder to be removed from the company.

This allowed Russell to place the deal with award winning Amicus Property Finance as a bridging loan initially whilst planning was sought. The initial loan was £2m.

Development

The acquisition of the building and the extension of the lease was duly completed, in conjunction with planning permission for the conversion of the office block. The building would still be classed as commercial, but a change of use would still need to be granted. After this was granted, the clients engaged with F4B for the next stage.

Understandably, the shareholders wanted to move ahead as soon as possible. We arranged for a development facility with Amicus Property Finance for £7.8m providing for 100% of the build costs. The drawdown facility was fully utilised and the conversion was completed in 8 months allowing sufficient time to attract students to the cutting-edge accommodation prior to the start of the academic year. Following practical completion in July 2016, by the end of August 90% of the rooms had been committed.

The development was rebranded as City Edge and was a clear asset to Birmingham and the thriving student community. Its modern look and feel was in keeping with the major redevelopments happening in and around the city centre.

F4B Dev 2

Refinancing

The uncertainty created by the Brexit referendum, was felt across the UK. It was not a result that many people were predicting, therefore creating uncertainty on something not bretplanned for. This had an impact on funding channels and development projects alike, as many cases are interconnected.

F4B were instructed to provide an exit strategy to repay the development finance, via a long term commercial mortgage. Whilst this may sound like a straight forward solution, the complexities of transaction were intensified by

Brexit, time constraints and that the developer wanted to release 100% of their interest, retaining no holding in the project.

As the property had no previous lettings history, the shareholder wanting to release all interest in the development, this was not one for the mainstream lender. Compounded with the uncertainty of the referendum vote, we had to utilise our commercial expertise to get this transaction through.

If there was to be a retained interest, it would not have been such a challenge. An overrun on the development finance facility, would create fees of around 3% per month. This is a cost that needed to be avoided. Utilising our excellent lender relations, we arranged for a number of interested parties to meet with the client at the development. This would provide access to the building and gain assurances and answers they required to see if this was something they could facilitate.

With several confirmed offers, Cambridge & Counties provided all the requirements the shareholder was after. The £7,762,000 deal would be the banks largest to date, an outstanding achievement for a bank that has only been lending since 2012.

We structured a 30-year term at 5.6% variable, with the first year on interest only. This enabled a period of grace to get lettings established and any snags in the development to be corrected. The loan will then revert to a capital repayment arrangement.

Summary

From the outset until completion, F4B were involved in every step of this development. The case to have a dedicated broker for such developments has never been clearer.

Stephen Shaylor, chief executive of Shaylor Group, said: “We are eternally grateful for all of the hard work and professionalism that Paul and his team have shown. They have been in this from start to finish, delivering on every aspect that was required.

“To be able to play a significant part in bringing a John Madin building, one of our city’s most influential post-war architects and planners, back into use is an incredible achievement and one we are very proud of.”

Neil Reddington, Cambridge & Counties director of business development for the West Midlands, said:  “The West Midlands Cambridge & Counties team is very proud that this deal – the Bank’s biggest to date – was led from Birmingham, using Birmingham professionals, for an important addition to the burgeoning student accommodation market in the city.”

Russell Martin, managing director of Finance 4 Business, said: “The successful completion of a project of this size, that required immediate short term funding, an exit strategy for that loan and the establishment of a long-term arrangement for our client, highlights, for me, the value of our relationships with lender and client and most importantly the experience that F4B has had of putting intricate deals like this together over many years.

“F4B is very much hands on reactive broker but that approach only works if all the other parties involved in the project have a similar approach. Thank you, Amicus Property Finance and Cambridge Counties Bank.”

Keith Aldridge, managing director of Amicus Property Finance, said: “The success of the City Edge project is founded on the excellent relationship Russell Martin and, importantly his whole team, have established over many years with their client and lender partners.

“Amicus Property Finance needs to be confident that through proactive collaboration with all stakeholders, the challenges that a major development of this nature presents are overcome by harnessing the specialist expertise of brokers such as F4B.

“Relationships are at the core of their expertise and having established a very strong relationship with F4B I was confident that our exit demands would be fully understood by the client and met, as indeed they were.

“In summary F4B give a lender confidence that they know their business, they know their clients and they know their lenders requirements….and they know that through their experience, their expertise and very personable approach, they will generate repeat business for all parties.”

Produced by Bret Jackson, marketing manager, Finance 4 Business.

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