Why Choose Us?
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In This Section
- Advice On The Recoveries And Enforcement Process Against Defaulting Borrowers
- Alternative And More Complex Loan Structures
- Bridging Finance Contracts For Borrowers
- Bridging Finance For Corporate Borrowers
- Bridging Finance Security Documentation For Lenders
- Debentures
- Deeds Of Priority
- Development Finance
- Facility Letter
- Legal Charges
- Personal Guarantees
- Secured Lending To Alternative Corporate Entities For Property
- Secured Lending To Companies For Property
- Secured Lending To Pension Trustees For Property
- Secured Lending To Private Individuals For Property
- Step-In Rights For Lenders
Alternative And More Complex Loan Structures
When it comes to real estate lending, traditional mortgages aren’t always the best fit for every borrower or lender. Whether you’re a lender seeking to diversify your loan offerings or an individual looking for flexible financing, alternative and more complex loan structures offer a range of options tailored to specific needs and circumstances. These bespoke loan products can address the unique challenges that arise in real estate investments, particularly when conventional financing routes are either unavailable or unsuitable.
At Blackstone Solicitors, we advise both lenders and borrowers on navigating these intricate structures, helping ensure that all parties fully understand their legal and financial implications.
Contact our secured lending and property finance solicitors today to find out more about how our specialists can help you and your company. Either call us on 0330 808 0839 or complete our online enquiry form and a member of the team will give you a call back.
“Excellent efficient commercial property sale.”
– Catherine Pearson
1. Mezzanine Finance
Mezzanine finance is a hybrid of debt and equity financing that can be a crucial tool in real estate transactions. For lenders, it provides higher returns, while for borrowers, it offers flexibility, particularly when conventional loans don’t cover the full amount required for a project.
How It Works for Borrowers:
Mezzanine finance typically sits between senior debt (such as a first mortgage) and equity in the capital structure. It allows borrowers to access more capital than they would through traditional lending by providing a secondary layer of financing. If you’re a property developer, mezzanine finance can help you bridge the gap between your equity contribution and the senior loan, allowing you to complete projects that might otherwise be beyond your financial reach.
How It Works for Lenders:
From a lender’s perspective, mezzanine finance offers higher interest rates due to the increased risk associated with its subordinated position. In the event of default, senior lenders are paid first, and mezzanine lenders are next in line, followed by equity holders. Lenders might also negotiate for equity participation in the form of warrants or ownership stakes, further enhancing the potential return on investment.
2. Bridging Finance
Bridging finance is a short-term funding solution that helps individuals or companies ‘bridge’ the gap until longer-term finance is secured or an asset is sold. It is particularly useful in property purchases where quick transactions are required, such as at auctions.
How It Works for Borrowers:
As a borrower, bridging loans offer fast access to capital, which can be essential when you’re dealing with a time-sensitive purchase or trying to secure a deal quickly. Bridging finance can be especially useful when waiting for traditional financing, such as a mortgage, to be approved or when selling an existing property to fund a new purchase. These loans are typically interest-only, with the principal repaid when the property is sold or refinanced.
How It Works for Lenders:
For lenders, bridging finance offers the potential for high returns within a short time frame, as interest rates tend to be higher due to the inherent risks and speed of the lending. However, careful assessment of the borrower’s exit strategy (how they plan to repay the loan) is crucial. Since bridging loans are often secured against the property, lenders need to ensure the property’s value is robust enough to cover the loan if the borrower defaults.
3. Development Finance
Development finance is used to fund real estate construction or major refurbishments. These loans are typically advanced in stages as the project progresses, which reduces the lender’s risk exposure.
How It Works for Borrowers:
If you’re a property developer, development finance is tailored to your specific project. Funds are released incrementally, allowing you to access capital as and when it’s needed. Development finance is often structured so that interest is rolled up and paid at the end of the project, giving you breathing room to focus on the development without worrying about regular payments.
How It Works for Lenders:
Development finance requires careful monitoring of the project’s progress to ensure that the loan remains secure. Lenders often conduct regular site visits and require updates to ensure that milestones are being met. The risk for lenders is that construction delays or budget overruns can jeopardise the project’s completion, potentially impacting loan recovery. However, successful projects can provide strong returns, particularly in a rising property market.
4. Second Charge Lending
A second charge loan is secured against a property that already has a mortgage or another loan secured on it. It can be a useful option for borrowers looking to release equity from their property without refinancing their existing mortgage.
How It Works for Borrowers:
Second charge lending allows you to unlock additional capital without disturbing your primary mortgage. This might be an ideal solution if you’re looking to raise funds for further property investments or refurbishments. However, second charge loans often come with higher interest rates than first charge loans, so it’s important to weigh up the cost against the benefits.
How It Works for Lenders:
Lenders of second charge loans take a subordinated position to the primary lender. In the event of default, they are paid only after the first charge lender has recovered their money. Because of this increased risk, interest rates tend to be higher, and the lender will usually require a detailed assessment of the borrower’s overall financial position and the value of the property.
5. Loan-to-Value (LTV) Structures and Stressed LTV Ratios
Loan-to-Value (LTV) ratios determine the maximum amount a lender will advance in relation to the property’s value. For real estate lending, alternative LTV structures and stressed LTV ratios can provide more complex loan configurations, especially when dealing with volatile markets.
How It Works for Borrowers:
As a borrower, understanding your lender’s LTV limits is crucial. In some cases, a lender might be willing to stretch beyond the traditional 70-80% LTV, particularly if the project has substantial upside potential or if additional security can be provided. However, stressed LTV ratios are calculated based on potential worst-case scenarios, meaning that if the property’s value drops, you may be required to provide additional security or even face a default scenario.
How It Works for Lenders:
Lenders use LTV ratios as a risk management tool. Alternative LTV structures, such as blended or tiered LTVs, allow for more creative loan packages but also come with added risk. Monitoring market conditions and property valuations are crucial to ensuring the loan remains within acceptable risk parameters, especially when dealing with higher-risk loans or volatile property sectors.
6. Joint Venture (JV) Financing
In more complex real estate deals, joint venture financing can be used where a lender and borrower collaborate to share risks and rewards. This structure is common in large property developments or investment portfolios where both parties benefit from the successful outcome of the project.
How It Works for Borrowers:
As a borrower, a joint venture can reduce the financial burden of a large project. Rather than relying solely on debt, you share the risk and reward with the lender. This structure can also provide access to additional expertise, as some lenders have extensive experience in property development and investment.
How It Works for Lenders:
For lenders, a joint venture offers an opportunity to take an equity stake in a project, allowing for potentially higher returns than traditional lending. However, this also means sharing in the project’s risks. It is essential for lenders to conduct due diligence and ensure that the partnership aligns with their strategic objectives and risk tolerance.
Our Approach
We are 100% committed to ensuring each and every one of our clients receives the highest quality service and we will go the extra mile to ensure that you are happy with the results gained. We understand it can sometimes seem rather complicated to deal with matters relating to property finance this is why our friendly and approachable team always take a sympathetic and understanding approach, ensuring that you receive the support you need.
We believe communication is of the utmost importance. We will therefore keep you updated as things develop, and our solicitors will provide practical, straightforward legal advice so that you can be confident everything is progressing as you would like.
Whether you’re a lender or a borrower, alternative and complex loan structures in real estate lending offer innovative ways to finance property transactions. These structures, from mezzanine finance and bridging loans to joint ventures, provide flexibility and tailored solutions that go beyond conventional mortgages. However, they also come with their own set of risks and legal considerations.
For lenders, understanding the specific risks and rewards of these loan structures is essential to making informed decisions and protecting their investment. For borrowers, alternative finance can unlock opportunities that may not be possible with traditional loans, but careful planning and professional advice are crucial to ensure success.
At Blackstone Solicitors, we are experienced in handling the legal complexities of real estate lending, advising both lenders and borrowers on a wide range of financing options. If you need assistance in navigating the legal aspects of alternative loan structures, please get in touch with us today. We can help ensure that your property finance arrangements are secure, legally sound, and aligned with your financial goals.
Why Legal Help is Important
Secured lending and property finance involve complex legal and financial arrangements that require expert advice. At Blackstone Solicitors, we work closely with businesses and individuals across England and Wales to ensure that every aspect of the transaction is handled with precision. We can assist in negotiating terms, ensuring regulatory compliance, and mitigating risks, all while keeping your business’s best interests at heart.
With our in-depth knowledge and experience, we ensure that you are fully protected throughout the lending process, from initial negotiations to final completion. If you’re looking to secure finance for a real estate project or are a lender, get in touch with our team today to discuss how we can assist you in achieving your business goals.
Our Services
The specialist solicitors at Blackstone provide a range of services to help businesses with their finances. These include, but are not limited to, the following:
- Advice On The Recoveries And Enforcement Process Against Defaulting Borrowers
- Alternative And More Complex Loan Structures
- Bridging Finance Contracts For Borrowers
- Bridging Finance For Corporate Borrowers
- Bridging Finance Security Documentation For Lenders
- Debentures
- Deeds Of Priority
- Development Finance
- Facility Letter
- Legal Charges
- Personal Guarantees
- Secured Lending To Alternative Corporate Entities For Property
- Secured Lending To Companies For Property
- Secured Lending To Pension Trustees For Property
- Secured Lending To Private Individuals For Property
- Step-In Rights For Lenders
Get in Touch
For more information about our services and how our secured lending and property finance solicitors can help you with any aspect of your financial dealings, do not hesitate to get in touch. You can call us on 0330 808 0839 or allow us to call you back by completing our online enquiry form.