David Rainford, property finance director, and Stuart Stead, partner and head of property and construction, Cowgill Holloway

1. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Overview of North West Funding Market
Place North West AGM
Thursday 22 May 2014
David Rainford Property Finance Director
Stuart Stead Head of Property & Construction

2. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Upbeat Market Indicators
• Increase in developer activity
• Distressed portfolios stabilised
• Greater valuation consensus
• Strong PRS demand
• Increase in transactions from Q4 2013

3. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Lenders – Key Trends
• Positive signs from high street lenders
• Growth aspirations from challenger banks
• Higher profile of specialist lenders
• Investors and funders seeing increased value in the region
• Bridging – new entrants, downward pressure on pricing

4. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Benefits of Bridging and Specialist Lenders – Securing the Opportunity
• Quick decisions & premium price v lost opportunity
• Improved chance of success against a cash buyer
• Loan to Value (LTV) driven (asset rich but cash poor businesses able to compete)
• Exit strategy as opposed to day one income (capitalise on added value/asset
management plays)
• Distressed portfolios/part built schemes
• Deliverable short term exit plan is essential
Example
£750k facility for NW land acquisition
Zoned for residential
50% loan to purchase
1.5% fee in/out, 1.5% pcm
Example
£1900k facility (inc. VAT bridge)
London land acquisition
Planning for hotel
Discussions with end user but not secure
50% LTV, 1% fee, 0.95% pcm.
Ratcheted exit fee starting at 1%.

5. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Medium term options
• Strong asset play but risk profile outside traditional lending parameters
• Fund appetite for target debt £5m on 3-5 years
• Stretched Senior Debt or Mezzanine
• Up to 85% Loan to Value
• Lender Target return 11-15% with element of
profit share
Works for:
High yielding portfolios and pre-let developments
Acquisitions, refinance or recapitalisation
Examples:
£3m mezzanine facility for student accommodation
portfolio at 75% LTV, interest 8.5% above libor, 5 year term
Equity release from high yielding industrial portfolio to assist with further acquisition

6. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Residential Development
• Improving market
• Downward pressure on bridging rates
• Greater recognition of planning gain/land value in lieu of cash equity
• Forward funding and pre-sale options
• Government support
• Specialist lenders – flexibility
Examples:
£1.8m facility, 12 houses in Cumbria 65%
land value and development cost
(85% + of hard cost),
3.25% / Base, 0.75% fee, 1.25% exit
Facility £3.84m, houses in South Cheshire
75% LTC / 60% GDV, interest rate 8.5%
fee 1.5% / 1% exit on GDV
BUT – demand for funding still outstripping availability

7. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Investment
Focus:
Management experience
Net income/interest cover
Portfolio spread/occupancy
Investment yield
Larger portfolios:
£10m+ debt, 65% LTV, interest only 5-10 year terms
swapped libor +2.5-4%
Benefits: longer term commitment
interest only releases cash for further investment
Example: Residential Investment
£6m facility for student and residential portfolio in Manchester
LTV at 70%, margin 3.25% 20 year term
Commercial Development – remains difficult without pre-let/pre-sale
Example: Commercial Investment
£7.7 million facility to South Manchester office portfolio – multi let, LTV at 60%, margin 3.5%,
Exit LTV 55% at end of year 5.
£1.7M Facility – Wigan mixed use – Multi Let/Local covenant, 60% LTV,
50% facility interest only / 50% amortising over 15 years.

8. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
On the horizon
Increased competition – both appetite for transaction and pricing.
New fund entrants for commercial investment
Greater choice for North West development as funders target outside London
Backing experience as opposed to lending by numbers
Challenges
Demand v Supply
High street appetite for speculative development
Interest rate increases

9. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Alternative Funding Sources
Individual Investors/High Net Worth Individuals
• Relationships take time to build
• Dependent on attitude to risk and reward
Pooled Investments – FCA/EU regulation
• Increasingly a burden
• Tarred with the same brush as fraudulent schemes
• But works well with business premises renovation allowance (BPRA) and traditional
capital allowances
• Investor expectations tend to be lower but higher fees to implement structure
Forward Funding Agreements
• Pre-lets to strong covenants
• Reputable contractor and robust development process required
The Taxman
• BPRA
• R&D Tax Relief

10. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
BPRA (Business Premises Renovation Allowance)
• Assisted areas to include many Manchester wards, including the city centre
• 100% tax relief on renovations to business premises
• Will help to bring back buildings into use for commercial development only
• Building must have been empty for at least 12 months
• Five year hold period
Coming this summer to
Manchester
*Subject to EU approval

11. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Pooled Investment (including BPRA) and forward funding
Structure
Bank
Pooled
Investment
Developer with
Site
Fund
HMRC
Example
Land Cost £3m
Construction £9m
Other £1m
Total £13m
Dev Profit £2m
Price to Fund £15m

12. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
Pooled Investment (including BPRA) and forward funding
Bank £7.5m 50%
HMRC (£9m & 45%) £4.05m 27%
Pooled Investment £3.45m 23%
Total £15m 100%
Possible Funding Structure if acquired by a Collective Investment Scheme

13. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
R&D Tax Relief
R&D Case Study
Urban Regen
We reviewed all
contracts
undertaken
Identified potential
qualifying projects
Reported to HMRC
Negotiations with
HMRC
Secured six figure
TAX REFUND for
client
The Basics
For every £ of qualifying expenditure receive 45p back from HMRC. It doesn’t have to be rocket science…

14. F U N D I N G • D E B T A D V I S O R Y • S T R U C T U R I N G / TA X • A C C O U N TA N C Y
For more information, please contact…
Stuart Stead
Head of Property & Construction
07890 181 116
stuart.stead@cowgills.co.uk
David Rainford
Property Finance Director
07794 490 682
david.rainford@cowgills.co.uk
Regency House
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Liverpool
L3 9AG
0151 255 2727
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