Educational Session Development Finance Explained Moderator: Ruth Harris, Partner, Ashurst Panellists: Luke Hamill, Director Real Estate Group, Ares Management Ltd John Cole, European Real Estate, Guggenheim Partners Rupert De Barr, Partner Valuation & Advisory, Cushman & Wakefield Barry Fowler, Head of Origination, Lloyds Bank Julian Symons, Director, McBains Cooper Development Finance Explained
The Life Cycle 1 Choosing the opportunity 5 Practical Completion & Sale/Long let Lifecycle 2 Procurement 4 On Site 3 Financing Keys to success - your views Sponsor Location Pre-lets Quality 0 5 10 15 20
1 Choosing the opportunity 1 Choosing the opportunity
1 Choosing the opportunity 1 Choosing the opportunity Market demand and end value Cost Time Quality and Sustainability Risk factors (above and below ground)
Statutory Risks Statutory Risks Section 106 obligations Railways and highways Adjoining properties/ rights of light Sustainability Planning/ building regs Central London market overview - Development Development activity has been subdued by historical standards Low completion levels seen in 2011 and 2012 Construction activity beginning to increase across central London Just over 3.0 million sq ft completed in 2013-2.0 million sq ft was speculative in 2013 Total completions below 10 year average of 3.2 million sq ft Increasing volume of prelets is impacting on future speculative deliveries MILLION SQ FT 10 9 8 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (f) 2015 (f) 2016 (f) 2017 (f) 2018 (f) COMPLETIONS LET/UNDER OFFER UNDER CONSTRUCTION PLANNING PERMISSION SHORT TERM TREND Peak in speculative completions anticipated in 2014 but will tail off in following year
Central London development pipeline Over 100,000 sq ft 800000 700000 600000 500000 400000 300000 200000 100000 0 10 Finsbury Square, EC2 6 Bevis Marks, EC3 71 Queen Victoria Street, EC4 240 Blackfriars Road, SE1 Moorgate Exchange,72 Fore 20 Fenchurch Street, EC3 Alphabeta Building, EC2 Aldwych Quarter, WC2 The Leadenhall Building, EC3 70 Mark Lane, EC3 Aldgate Tower, E1 25 Churchill Place, E14 6 Pancras Square, Kings Cross, N1 1 New Ludgate, EC4 2 New Ludgate, EC4 I City Press Centre, E15 Southbank Tower (Kings Reach Building R7, Kings Cross Central, 207 Old Street, EC1 4 Pancras Square, Kings Cross 3 Pancras Square (B5), Kings River Plate House, Finsbury Building T2, Kings Cross Central, Building S2, Kings Cross Central, 2 London Wall Place, EC2 The Square, E15 33 King William Street, EC4 Building S1, Kings Cross Central, Fruit & Wool Exchange,39 1 New Street Square, EC4 1 Southbank Place, SE1 100 City Road, White Collar 2 Southbank Place, SE1 1 Angel Court, EC2 1 City Broadcast Centre, E15 1 First Avenue, E15 Principal Place, EC2 Bloomberg Place, EC4 Q1 Q4 Q1 Q2 Q4 2014 2015 2016 Prelet/Under Offer Under construcion Proposed Increasing development outside traditional CBD Over 50,000 sq ft KING S CROSS NORTH & EAST CITY FRINGE CENTRAL LONDON 6 completed in last 10 years 2004-2013 2014-2018 (f) 17 under construction/ planning permission Completion due 2014-2018 8 completed in last 10 years 19 under construction/ planning permission Completion due 2014-2018 21 28 Average number of schemes completed in each time period per annum (f) forecast
2 Procurement 2 Procurement Level of control required by the developer Costs exposure and appetite for risk Time Forward thinking to the financing structure
Contractual Package Who Project Monitor Building Contractor Sub- Contractors Design Team and other Consultants Contractual Package Disputes resolution What CW rights Defect rectification Caps on liability Ability to change specification Copyright LADs Extension of time Insurance Pricing
Procurement : Traditional Sponsor/Employer/Client/ Borrower Building Contract Appointments Appointments Main Contractor Design Consultants Non-Design Consultants Sub-Contracts Sub-Contractors Procurement : Design & Build Building Contract Sponsor/Employer/ Client/Borrower Appointments Main Contractor Non-design Consultants Appointments Sub-contracts Design Consultants Sub- Contractors
Procurement : Construction Management Sponsor/Employer/ Client/Borrower Trade Contracts Construction Management Agreement Appointments Trade Contractor Trade Contractor Construction Manager Consultants Trade Contractor 3 Financing
3 Financing - Lender considerations Experience and financial standing of sponsor Location, Sector Procurement Method Timing and quantum of the equity injection 3 Financing - Lender considerations Identity of the professional team Construction period Milestones (planning, construction, pre let, pre sale) Structure and other risks
3 Financing - Legal perspective Construction Package and Development Agreements etc Financing and Security Package Statutory risks Financing Facility Agreement Fit with procurement method Conditions Precedent Monitoring/ milestones Drawdown mechanics/use of contingencies Accounts
Security Package Security Package Guarantees Share charge Assignments/ charges Collateral Warranties /TPR 4 On Site
4 On Site Communication Timing Cost control Monitoring
5 Practical Completion and Sale/long let 5 Practical Completion and Sale/long let Hold and refinance Sales/long lets/short lets Warranty transfers Insurance
Why do Projects Fail Wrong Location Wrong Sponsor Wrong Timing Why do Projects Fail Delivery Risk Wrong Product Wrong Team/Unfit Product Wrong Target Market Conclusion