Refinancing property portfolio debt spread across 3 different jurisdictions

Refinancing multi-million euro properties can be challenging on a stand-alone basis. So, when we were approached by a client who had four chalets and one villa in France it was obvious this would not be straight forward. As savings rates have remained at historic lows over the last decade, more and more investors are looking towards real estate for long-term cash flow and capital appreciation. This real estate portfolio was worth €13 million therefore every percentage point on refinancing terms made a huge difference.

As this case study is revealed in more detail you will see the challenges regarding existing funding spread across three different lenders. Even at the outset we were confident we could improve on the existing rate and release further equity from the AUM arrangement although there was one additional challenge – the client’s nationality.

Client scenario

The client had built up a very impressive portfolio consisting of four chalets in Chamonix and a villa in Corsica. All in all these properties were worth around €13 million and existing debt was around €9.6 million – which equates to an LTV of 73%. Unfortunately, our experience shows that very few banks are willing to lend to an American national for an array of different reasons. Therefore, it was fairly obvious that we would need to fully utilise our contacts across the mortgage market to create a bespoke funding arrangement.

The basic client scenario was as follows:-

Client: American national
Income: High net worth individual
Property portfolio value: €13 million
Properties: 4 chalets in Chamonix and a villa in Corsica
Current mortgage: €9.6 million

France has been one of the more popular destinations when it comes to high net worth individuals looking to acquire luxury properties. In this situation, there were numerous different financial arrangements with banks in Switzerland, Luxembourg and Monaco. Each lender had a different schedule of payments not to mention different rates – it was obvious we would need to amalgamate these under one banking arrangement. There was also the issue of exit fees from the existing mortgages which would need to be negotiated.

So, where did we start and how were we able to negotiate an extremely competitive refinancing?

Issues to address

The client’s nationality was an issue with many banks unwilling to accommodate American nationals, the spread of mortgage funding across three different lenders on different terms was an issue as were the exit fees from these arrangements. Even though it would be challenging to find enough lenders to create competition and extract the best rates, we knew with interest rates at their current levels there was certainly scope to improve on the current cumulative funding arrangement.

In summary the issues to address were as follows:-

Client’s nationality: American
LTV ratio: 73%
Current debt: Spread across three different banks in three different jurisdictions
Individual mortgage terms: Different rates and different payment schedules
Mortgage exit fees: To be negotiated

The size of the portfolio, around €13 million, was not a problem although the element of debt at an average LTV of 73% was challenging. There was also the opportunity to release additional capital from the portfolio and change the way in which the AUM element would be managed. The cumulative value of the portfolio was estimated at €13 million which meant that every fraction of a percentage point made a huge difference. So, who would we approach and how would we start the process?

The solution

We approached a number of mortgage lenders with whom we have a close and trusting relationship before deciding on one of our Swiss banking partners. The main reason was that we were able to refinance the existing debt, spread across three different jurisdictions, under one lead bank. This was completed through subrogation of the mortgage which certainly simplified the paperwork and reduced the processing time. Thankfully, we were also able to negotiate the lowest possible exit fees with the previous mortgage lenders. The fact that the property portfolio debt was now held by one banking body made the situation more manageable and more transparent going forward.

So, we eventually managed to negotiate a refinancing deal of €9.6 million on the €13 million property portfolio. The exact details are as follows:-

Funding partner: Swiss bank
Property portfolio value: €13 million
Equity release: €2.5 million from the portfolio
LTV ratio: 73%
Mortgage duration: 20 years
Mortgage type: 4 years interest only, 16 years capital repayment
Mortgage rate: 1.6%
AUM arrangement: €1.8 million

While renegotiating the debt structure for the client’s property portfolio we were also able to free up an additional €2.5 million. The deal also included a €1.8 million AUM pledge which would be actively managed by the Swiss bank. So while this money was effectively put to one side as a form of insurance for the lending bank, the plan was that it would be actively managed with long-term capital appreciation in mind. The bank in question is SEC regulated and allows American residents access to wealth management services – unlike other banks that are restricted to cash deposits as AUM.

There is no doubt that our independent status ensures that we have significant flexibility when it comes to international lenders and an ability to create competition amongst third parties. This ensures that we can secure the best possible terms for our clients, minimising their long-term liabilities and managing cash flow within their personal constraints. It was certainly no small matter to bring together debt spread across three existing lenders on different terms and different schedules.

What can Enness do for you?

We deal with many different nationalities as well as some huge property portfolios, often valued in the tens of millions of euros. Every percentage point can make a huge difference when it comes to multi-million pound mortgages especially where the LTV is 73% as in this case. We have extremely strong relationships with an array of different lenders. In this case we knew that the Swiss banking sector currently had a high level of liquidity for refinancing/mortgage funding. This particular case study was also challenging because the client was an American national, a nationality that very few banks will lend to.

If you find yourself in a similar situation to the client in this particular case study then we would welcome the opportunity to chat further with you. We know how to fully utilise income streams/assets and create a debt structure sculptured around your particular requirements and resources. We also have access to real-time market rates allowing us to put together a number of different solutions were clients can see cash flow and debt liabilities in the short, medium and longer-term. The key to challenging funding solutions is to create a bespoke arrangement which does not overstretch the client.