Fiduciam grants complex £5m development loan in Manchester

06 September 2021

Fiduciam has provided a £5m development loan for the construction of a £10m seven-storey residential apartment building in Manchester. The building will contain 38 apartments with ground floor retail.

High street banks and other lenders would not lend on the site due to the complicated property title, with freehold interests held by the local council and title restrictions imposed by Homes England. The title restrictions culminated in an overage agreement stipulating both overage payments and an overly-ambitious construction timescale the borrower was obliged to meet.

Fiduciam could grant the loan after investing time and effort to understand and manage the challenges and risks. Whilst most banks run away from overages, Fiduciam rolled up their sleeves and renegotiated the overage so that it became possible to finance the development. Few lenders are willing to provide development loans over land encumbered with an overage, as many are poorly drafted and contain complicated terms.

The £5m loan was structured to overcome the challenges imposed by the complex property title and overage, and to reduce the likelihood of cashflow squeezes in the course of the development project. Fiduciam also managed communications with all parties, reaching agreement for the long-stop date to be delayed to provide a more reasonable timeframe for the development works to be completed.

The buoyant demand for new-build residential apartments in the Manchester area minimised the exit risk for Fiduciam. Healthy sales expectations are also supported by strong pre-sale interest. With such strong fundamentals, it was simply a matter of making the effort to overcome the title complexity.

Henry Fisher of Fiduciam says: "This was a deal that other lenders were unwilling to lend on because of its complexity, however we work with small and medium-sized businesses and developers every day and as a result we get to truly understand their business models and the risks associated with different developments. This means that we can do more than just lend them the money, in fact we can also help to guide them through the process. As a result, we were able to put together a financing package to meet the needs of the developer and enable the development to progress successfully."

Rob Moore, Finance Director at the Northhold Group commented: “There were complicated elements to this site which had initially proved problematic for the development financing, also owing to the rigidity of the large banks. Then Covid came along, disrupting supply chains, forcing those less well-capitalised suppliers into liquidation and also threatening a severe reduction of financing options.

“Fiduciam worked closely with us to provide a facility that alleviates cashflow pressures exacerbated by the pandemic. Fiduciam could see this would be a profitable development, so they went out of their way to overcome the complications and to find solutions.”