Lockdown commenced in Jersey on 30 March 2020. It signalled the start of a very uncertain time for almost all individuals and businesses, with the whole population being affected in one way or another. Enness’ success is hitched to the property market and it being allowed to transact without restriction, so the feeling of uncertainty was undoubtedly heightened for us and others operating in our industry.
As we emerge from lockdown, I am pleased to report that we have seen an uptick in enquiries, so much so that it’s fair to say this may be the busiest we have been at Enness – a reflection both of the demand there is for specialist property finance support and for the sort of private client expertise Jersey offers as a jurisdiction more widely. To provide a flavour of what we are doing, and what is achievable, I have listed below two recent deals that are relevant for fiduciary services businesses in Jersey:
1. Borrower: Offshore SPV.
UBO: Resident of Kyrgyzstan.
Property: Residential. London. Valued at £12,000,000.
Solution: 100% LTV. 5 year interest only. 40% retained as AUM.
Interest: Margin of 1.99%.
2. Borrower: Offshore SPV.
UBO: Middle Eastern family.
Property: Buy-to-let portfolio. London. Valued at £6,150,000.
Solution: 65% LTV (on property value). 5 year interest only. Lender to take custody of client’s investment portfolio enabling them to lend against the AUM at a reduced rate on interest.
Interest: Blended rate against the properties and the investment portfolio at a margin of circa 1.75%.
The economic climate is becoming increasingly complex. There is no longer a criterion that can be looked up and relied on when it comes to structuring finance for HNWIs. The two deals mentioned above are evidence of what can be achieved when, on the face of it, a borrower’s circumstances appear challenging.
Whilst the market may have slowed in terms of the acquisition of new assets, much of the activity we are seeing is HNWIs taking advantage of the historically low cost of capital in order to release equity they have stored in real estate assets. Foreign investors have been swallowing up London property in recent years, often buying these assets outright. With the Bank of England base rate down at 0.10%, individuals can leverage their already owned assets very in-expensively and put those funds to work elsewhere.
Outside of residential assets, we have seen an increase in the number of enquiries coming from businesses in the hospitality sector. These businesses, particularly hotel operators, have been hit hard by the effects of COVID-19. The enquiries are centred around sourcing financial aid to enable these businesses to continue to operate in the short term. Existing lenders appear unwilling to open themselves up to further risk by deploying additional funds on an industry in distress, whilst the Government aid schemes, which were touted to be available for everyone, have a strict criteria that hospitality businesses rarely meet. What this does is create openings for challenger banks and alternative providers of finance to step in and pick up these lending opportunities.
Directors and trustees need to be aware of their duties when it comes to entering into finance arrangements. A client may have sourced mezzanine finance to enable the short term continuance of its operation, but the professional service provider needs to be satisfied that entering into that arrangement is in the best interest of the borrower entity. Securing unfavourable terms and entering into agreements that are onerous will, in the long-term, adversely effect the performance of the business and potentially open it up to failure.
Jersey, and the other Crown Dependencies, are moving out of lockdown at a faster pace than most other jurisdictions. Many offshore structures own real estate assets for the generation on income, and in many cases rental holidays will have been given to tenants. Dependant on the sector and location, some real estate assets will be operational again, whilst others will remain closed for a while longer. We must remain mindful of the fact that many of our clients and contacts are still the subject of restrictions on movement, and be understanding in our dealings with those in difficult circumstances.
In conclusion, the market is definitely moving in the right direction. Credit is readily available and there are opportunities outside of the mainstream that are attractive. Jersey, and indeed Enness, remains open for business and the indications are that clients are increasingly calling upon the sound, stable platform and depth of specialist expertise it offers to help them fulfil their property investment ambitions.