How can I maximise the amount of money I can raise against a property?
Fri, 26 Oct 2007
The upper limit that you can borrow using a commercial mortgage is currently approximately 85% of the property value and in practice many situations can only raise 70% to 75%. However there are options such as sale and leasebacks through which you can raise larger amounts and if this is of interest please contact us to discuss your requirements.
Some commercial mortgage lenders will go up to 100% loan to value providing they are able to take additional security over other assets which might involve another building or plant and machinery.
In a sale and leaseback, you sell your property to an investor realising its full open market value and in return take out a lease on the property typically of 15 or 25 years on normal institutional terms (for example including rent reviews every five years). The new owner then holds this as an investment property and will be looking for the rent charged to provide a reasonable current market yield against the price paid for the property.
As the property is to be held as an investment, sale and leaseback is usually only applicable to larger properties (say over £500,000 in value), and the investors will be concerned to ensure not just with the value of the bricks and mortar but with the strength of the rental convent being acquired (which is the company’s likely ability to pay the agreed rent for the period of the lease).
Sale and leasebacks are often very useful in MBO/MBIs, where the ability to realise 100% of the open market value eliminates the need to tie up the available equity in bricks and mortar as would be needed with a commercial mortgage.
In some cases, the actual sales price achieved can be in excess of the surveyor’s opinion as to open market value and the value attributed to the property in the business sale, resulting in an injection of working capital into Newco at the outset.
It may also be possible to agree a ‘buy back clause’ to allow you to repurchase the property at a specified date.
If timing or minimum value achieved is of critical importance there is a service available in the market which offers an underwritten sale where for payment of a premium, the selling agents guarantee that the property will sell within a specified period for a specified amount. If this is not achieved, the agents will buy in the property themselves at this minimum price and seek to resell it. The level of premium charged depends on the speed of sale and value sought, as well as how any profit subsequently made by the agents on selling the property on is shared between you and the agents.
Please contact us to discuss your requirements.
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