Funding Perspective

Funding Perspective Together, creating the right environment for life

Debbie Waldron – Care Sector Manager Willmott Dixon Adrian Prest – Director, Healthcare Property Expertise Facts extracted from Savills presentation 2012

Who is providing funding? ……….most people will say the funding market is dead and no-one is providing senior debt secured against residential projects

For Banks: caution, caution, caution • Development finance is available “to the right people” “in the right circumstances” and “on the right terms” • Lessons have been learned and banks have reacted. Today they are incredibly risk averse (over-reacted?) • Where banks are prepared to provide property finance they are preferring standing investment to development

Development Finance • Simple supply and demand. Lots of demand and lack of supply. Naturally, where dev fin is available it will be expensive • One provider (Close Bros) specifies: “1% on the way in, 5% over, subject to a minimum of 7%, plus 1% of GDV on the way out, LTV 50% to 55% of GDV” • Those lenders who are offering development finance are incredibly selective • In 2010, Barclays looked at 140 propositions to do 6 deals • Often up to £10M. Rarely above £50M • Rarely offered, grab it when you can

Mezzanine finance • A very large number have sprung up over the last two years (unlike the mid ‘90s) • And good returns (higher interest rate margins/coupons/profit shares etc.) • Funds have been raised • Mezzanine providers are very focused on the property fundamentals. Often they employ Chartered Surveyors • Often mezz providers also provide the senior too. Reflects problems with raising the senior/attitude of senior debt providers. Also issue of returns; senior can be ‘expensive’

Banks have used the last three years, not only to review their loan books, but also to review their customer base Most banks have graded their customers A to E (or equivalent) E will be for Exit “A grade” customers will be sought after by all the banks. And banks can offer highly competitive terms to attract those customers By contract, mezz providers will follow smaller and medium sized developers with good track record Ideal developer?

Who is providing? Categories, see slides that follow: • UK clearers • The specialists • Sharia compliant • Private bankers • Other senior debt providers • Mezzanine providers • Private and 3rd sector partnerships • Construction sector

Senior debt providers: UK Clearers Barclays HSBC plc Lloyds Banking Group RBS • Are they or aren’t they? • Yes, they are, but .... • Very selectively • Usually to existing customers only • Barclays are more prominent as resi dev lenders than the others • HSBC have always been conservative as lenders

Senior debt providers: The “specialists” Alpha Real Capital Close Brothers Investec Jordon International OCBC • OCBC only inside Zones 1 and 2 • Alpha happier outside London • Close mostly London, but also good regional cities • Close been doing it for years • Investec very selective at present • Jordan are the ex Dunbar guys • Lot sizes (order): Jordan, Alpha, Close, Investec, OCBC

Senior debt providers: Sharia compliant banks Arab Banking Corporation Bank of London and the Middle East (BLME) • Both very active providers of Retirement Housing • Both tend to be in the £5M - £10M range • Both prefer London or affluent areas • Both seek developers with track record

Private banks/private banking arms of major banks Coutts & Co. Credit Suisse PB EFG HSBC PB • All follow their HNWI customers wherever they go • Seek to provide the whole banking relationship/service • If the customer is good enough, then ‘anything’ is possible • Full range of opportunities • Expensive too.

Other providers of senior debt to residential development projects Banif Bank Leumi Deutsche Bank Deutsche Postbank Mizrahi Tefahot National Bank of Kuwait Royal Bank of Canada Santander United Overseas Bank United Trust Bank • 10 here; another 10 possible

Mezzanine providers Contour Group Devon/Strata Fund Dragonfly/Maslow Capital Ekistics LaSalle Junior Loan Prog Longbow/Rockpoint Och Ziff Omni Capital Pluto Capital/Mountgrange Safanad Urban Exposure Wolsey Capital • Just 12 here; another 20+ • Each has its own business model/niche • Target returns 10% to 30% • Most seek front end fees and profit shares • Some are mainly focused on commercial property, but will do resi as well • Some will provide senior as well • In all cases, if the deal is right, ‘anything’ is possible • Follow developers, big and small, with good track record

Few offering outright funding Like to keep investment off their balance sheet Few larger companies offering to take on the sales risk element with payback at or 12months after PC Few offer pension fund options (high net worth individuals investing) Seed corn financing, golden brick etc Construction Sector Finance

Public, Private and 3rd sector relationships • Key to driving forward Extra care developments • Some providers will already have their finance in place • Benefit of existing banking relationships • Sales risk jointly taken • Opportunity to develop further services • Access to land in the required areas • Already strong experience in the private for sale market • Experience of differing funding models

For most people it still remains extremely difficult to raise capital funding. The focus should be more on raising equity and/or forming joint ventures It will continue to be tight for some years to come But it is possible All providers are very selective Make best use of your existing banking relationships It will be costly (to reflect the perceived risks) But if you receive an offer of dev fin, don’t grumble it’s too expensive, grab it Summary

Adrian PrestDirectorHealthcare Property ExpertiseChess barn, Park Farm,HenfieldWest SussexBN5 9BATelephone: 01273 493361Mobile: 07726 934289adrianprest@hcpe.co.uk Debbie WaldronCare Sector ManagerWillmott Dixon Housing LtdHitchin RoadSheffordBedfordshireSG17 5JSTelephone: 01462 814455Mobile: 07854 882441debbie.waldron@willmottdixon.co.uk www.willmottdixon.co.uk

Funding Perspective