FRP Real Estate Advisory has arranged a £4.1m commercial term facility to refinance a newly built 38-bed purpose-built student accommodation (PBSA) block in York.
The fixed-rate loan was secured at 72% LTV for an established developer client based in Northern England.
The facility has a fixed interest rate of 6.25% a year for the first two years, moving to a margin of 2.50% a year thereafter. The funding is based on a market value of £5.77m and is supported by a 25-year lease to a local university.
The transaction was led by Philip Kay (pictured), director at FRP Real Estate Advisory, who worked on a completion structure designed to maximise drawdown efficiency before the formal lease activation in July.
During the pre-completion phase, the borrower secured planning consent to add two further student rooms after identifying an opportunity to optimise the building’s internal layout. The variation to the agreement for lease increased the rental yield of the property.
FRP said traditional commercial credit guidelines would typically require full lease completion as a condition precedent to funding. However, the firm worked with the lender to secure full drawdown before the July lease completion, using an interest reserve to bridge the period before rental payments start.
The firm said the transaction also reflected the role of private capital at a time when Basel 3.1 capital requirements are making it more difficult for banks to lend against PBSA assets.
FRP Real Estate Advisory said it demonstrated that market rent projections under an alternative direct-let PBSA model exceeded the agreed university lease rent.
Kay commented: “Securing a high-leverage 72% LTV facility at a highly competitive 6.25% fixed rate on the back of an Agreement for Lease requires an exceptional level of lender comfort.
“By optimising the building’s layout prior to lease activation, we were able to significantly drive up the asset’s yield, but it required a sophisticated funding structure to unlock that value early.
“By designing a tailored interest reserve and demonstrating the robust standalone market value of the asset, we achieved an outstanding result. This facility gives our client complete financial certainty and liquidity well ahead of the university lease activating this July.”
