£747k Barn Conversion with EPSM requirements at 65% LTGDV

Colenko provided a £747,000 heavy refurbishment facilty for the purchase and conversion of a barn into a single residential dwelling with a GDV of £1.15m.

The completed property would be a relatively high value individual unit, which naturally narrows the potential buyer pool. However, this was balanced by its setting in a desirable Gloucestershire location and the developer’s relevant experience of delivering similar schemes.

The borrower was an experienced property developer with his own construction capability and a track record that included multiple barn conversion schemes. That experience was particularly relevant here, as this was not a straightforward refurbishment, with a number of environmental isses to be addressed.

The requirement was to fund the acquisition of the barn and its subsequent conversion into a residential property. The structure needed to provide an element of funding for the purchase while providing sufficient liquidity to cover the full refurbishment costs once works were ready to proceed.

The numbers worked at 65% LTGDV, with the completed property valued at £1.15m. We felt that the developer’s experience could potentially have supported leverage as high as 70% LTGDV, but the applicant’s prioirity was to keep the pricingas keen as possible. The resulting facility was agreed at 0.97% per month.

The exit was to complete the conversion and sell the finished property. The loan terms required the property to be marketed with a reputable agent within nine months of completion, providing a clear route towards that exit.

The main complication was not the refurbishment itself but the environmental and planning timetable around it. A European Protected Species Mitigation Licence from Natural England was required, with the timing of completion needing to work around that process.

Waiting for every outstanding item to be satisfied before completing the loan would have created a problem for the acquisition timetable. At the same time, ignoring those requirements was not an acceptable underwriting position.

There were also further post-completion requirements around the Biodiversity Net Gain Plan and Building Regulations consent. The facility therefore needed to accommodate a period after acquisition during which the planning and environmental matters could be concluded before the refurbishment programme fully progressed.

At £1.15m GDV, this was a relatively high-value single residential unit, so we needed to be comfortable both with the finished asset and the borrower’s ability to deliver the scheme before relying on sale as the repayment strategy.

The developer’s relevant track record gave us comfort on execution, while the structure kept leverage to 65% LTGDV. The facility was £747,000, including retained interest, with a relatively small day one loan of £80,000 and a £584,000 drawdown facility to fund the works.

The environmental and planning matters were dealt with pragmatically rather than being allowed to prevent completion. The European Protected Species Mitigation Licence was made a condition subsequent, requiring a copy to be provided within six weeks of completion. The Biodiversity Net Gain Plan was also required after completion, alongside Building Regulations consent within two months.

This gave the borrower time to satisfy clearly identified requirements without losing the acquisition, while preserving specific controls around what needed to happen next.

The day one advance was fairly low as the developer had favoured pricing over leverage, with the larger part of the facility reserved for the refurbishment costs. The drawdown facility was structured to cover 100% of the works rather than leaving the developer to find additional construction funding during the project.

The facility was structured with an 18 month term to ensure there was enough time to deal with the environmental issues before works commenced. Interest was retained for the duration of the loan term.

Rather than treating the outstanding licence, biodiversity requirements and Building Regulations consent as reasons to delay the transaction, they were documented with specific post-completion deadlines. This provided a practical route to completion without removing the controls needed to manage the risk.

A £747,000 gross facility was agreed at 65% LTGDV and 0.97% per month, funding the purchase and providing a £584,000 drawdown facility for the conversion works.

The structure allowed the acquisition to proceed despite the timing constraints surrounding the environmental licence, while giving the developer access to the funding required to complete the refurbishment. The intended exit remained the sale of the completed £1.15m residential property.

More importantly, the deal reflected our approach when potential problems are identified before completion. Once we have agreed to fund on that basis, the objective is to structure around those issues where the underlying risk remains acceptable, rather than reopen the credit decision simply because an anticipated complication has materialised.

• Flexibility in structuring around environmental and planning requirements
• 65% LTGDV funding at a sub-1% monthly rate for a heavy refurbishment
• 100% funding of the works through a controlled drawdown facility
• Comfort with a £1m-plus single-unit exit where the borrower and location supported the risk
• Certainty of execution where potentially problematic issues had been identified upfront
• Relevant experience in barn conversion and refurbishment finance