Case Study –Restructuring a Mixed-Use Property Portfolio to Improve Monthly Cash Flow

The Situation

A client approached Henry Dannell to review the financing of a mixed-use property portfolio, which included the premises of their trading restaurant.

The existing borrowing carried a higher cost than the refinancing options subsequently identified, placing additional pressure on the client’s monthly cash flow.

The objective was to identify a refinancing structure that reflected the characteristics of the wider property and business interests while providing a more appropriate basis for the client’s ongoing borrowing.

The Challenge

Mixed-use and trading assets can require a more specialist approach to finance than conventional residential or buy-to-let property. In this case, the portfolio included the premises of the client's trading restaurant, meaning the financing needed to take account of both the underlying property and the commercial operation. The client also wanted an interest-only structure to support ongoing cash flow. This further narrowed the number of lenders able to accommodate the transaction on the required terms. Valuation was another important consideration. We needed to identify a lender able to assess the properties on an appropriate market-value basis while also recognising value attributable to the going concern. The lender's approach to valuation could materially influence both the borrowing available and the overall viability of the refinance.

The Solution

We reviewed the client's existing borrowing and assessed the specialist lending market to identify lenders able to consider the mixed-use portfolio in its entirety. We identified a lender whose approach allowed lending against market value while attributing value to the going concern. Importantly, the lender was also able to accommodate the required interest-only structure. By refinancing the portfolio onto the new facility, the client's monthly cash flow improved by approximately £15,000. The outcome was therefore more than a change of lender. The refinancing restructured the client's property borrowing around the characteristics of the portfolio, the underlying trading business and the importance of maintaining cash flow. For clients with mixed-use or trading assets, lender selection can extend beyond headline pricing. How a lender assesses the property, understands the commercial operation and approaches valuation can materially affect the structure and borrowing available. In this case, identifying a lender whose approach aligned with both the assets and the client's objectives enabled a refinancing structure that delivered a significant improvement in monthly cash flow. Please note: Commercial mortgages and other forms of property finance are subject to lender criteria, valuation and individual circumstances. Property offered as security may be at risk if repayments are not maintained. Interest-only borrowing requires an appropriate strategy for repayment of the capital.