Descripton

Offering Description

Loan Overview

This facility is being provided to acquire a site in the commuter town of Celbridge in North Kildare which has full planning permission for 6 houses.  The houses consist of 4 of 3-bed semi-detached properties and 2 of 2-bed semi-detached units.

The borrowers have been in negotiation with Co-operative Housing Ireland and they have now agreed terms for Co-operative Housing Ireland to purchase the entire development of 6 houses.  We have engaged with independent valuers and in their report, they have assessed the gross development value at €2,390,000 inclusive of VAT.

We have received a copy of the Letter of Intent signed by Co-operative Housing Ireland confirming their intention to purchase and the amounts involved. We can confirm the amount is in-line with the valuation and there is a reasonable profit margin on the project for the developer which is within normal parameters for this type of project.

The loan consists of 2 separate elements.  Loan A will be used to acquire the site and that has 2 elements, the main loan raised through the Property Bridges platform of €420,000 which covers 70% of the site acquisition and an additional Loan B of  €841,000 to be drawn as building works proceed.  

A further €120,000 is being supplied by a private investor. The debt of the private investor will rank behind both facilities A and B provided by Property Bridges.

We expect this to be drawn in 3 tranches each drawdown happening only once we have received confirmation from our Quantity Surveyor that the expenditure has occurred on the site.  The exact quantum of the building works drawdowns are not yet known but they will be subject to two key controls, firstly we will only lend 90% of verified building costs and secondly, we will always maintain an LTV ratio for Loans A and B of less than 70% of the Net Development Value as determined by the Co-operative Housing Ireland agreed purchase terms.  Our Quantity Surveyor is preparing a cost analysis report and we do not expect the final cost calculation to vary substantially from the initial estimate.

Risk Warning

Property Bridges has compiled this report on behalf of our lenders and have taken reasonable care to ensure the information provided is authentic and accurate. Please be aware that returns are not guaranteed, and your capital is at risk. Please also note that the term is not certain and may be extended under certain circumstances. Investors should seek their own advice before investing.

The Borrower

Eagle Dawn Limited is a group company of Derrin Homes Limited.  Derrin Homes’ other group companies are currently building on 3 sites in Co. Kildare (Kildare Town, Allenwood and Derrinturn).  On 2 of those sites the bulk of the units have been pre-sold for social housing.  The company has a strong knowledge of the social housing market and strong relationships both with the various Approved Housing Bodies (“AHBs”) and local authorities across the country.

Derrin Homes is managed on a day to day basis by Alan Byrne who is highly experienced in managing the construction of developments of residential properties.  We have visited other Derrin Homes sites where construction is well advanced and have been impressed by the quality of finish.

Derrin as a large multi-site builder is also able to gain economies of scale in both labour and materials and this allows them to keep their costs low.  Alan Byrne is particularly strong in this key aspect of building control and costs are constantly reviewed and remedial action immediately taken should any issues arise.  We are confident that Derrin Homes can complete this project on time and within budget.

Security and Security Value

The loan will be secured by a first legal charge over the site to be acquired and the 6 houses that will be constructed.

The site has been valued by our professional valuation firm.  They have analysed the site value in the context of what planning obtains, the local market for properties of this type, the demand and demographics of the location,  what the agreed buyout of the output is and their estimate of building costs.  From this analysis, they have concluded the site has a value equivalent to the purchase price being paid (€600,000).

The valuation of these houses is slightly higher than would be typical in outlying areas of Celbridge which stretches a good distance from the town centre - they reflect the exceptional location of the site, effectively in the town centre.  The valuers have conducted a detailed comparison of numerous similar properties in arriving at the valuation.

Our valuer’s research indicates that Celbridge is under-served in the provision of new housing stock and as such demand for centrally located new property is likely to be high.

The location of the subject site is a substantial benefit in this case.  The site is within the town of Celbridge and adjacent to all the services and amenities that town has to offer.  Public transport is available on the main road adjacent to the site and shops, post office and all other amenities are within walking distance.  This makes the site particularly valuable as a site for social housing a fact that is reflected in the agreement of an Approved Housing Body to purchase the output.

As Loan B is disbursed the security will be enhanced by more than the amount of each subsequent disbursement as we will only lend 90% of cost on a retrospective basis.

Ultimately the value of the security is underpinned by the agreement from an Approved Housing Body to buy all the units at the prices outlined above.  While this agreement is not in the form of a binding contract but rather a Letter of Intent we are familiar with the AHB purchasing process and this format is typical of all such deals.  We have not encountered any situation where the Letter of Intent was provided and was ultimately not acted upon.  To do so would severely undermine the entire social housing model as it currently exists, and we believe that the risk of this happening is low. In addition, we believe that the exceptional location of the site and the obvious suitability of the scheme for social housing would see another social housing purchaser emerge in the unlikely event of the current purchaser not completing. 

Property and Location

The 6 houses will consist of 4 of 3-bed properties and 2 of 2-bed properties.  All houses will be built to a high specification meeting all the stringent requirements set for social housing.  The properties will be completed to a finished standard and handed over to Co-operative Housing Ireland under a turnkey contract.  The houses are of generous proportions for their type and will be built to meet all current fire safety and energy efficiency requirements.

Loan and Cost Management

The initial Loan A will be drawndown in full on acquisition of the site.

Loan B will be disbursed against costs incurred on the site.  Costs will be independently verified by a QS firm (Walsh and Associates, Stillorgan) acting on behalf of the lenders. 

We anticipate that Loan B will be divided into 3 disbursements of between €250,000 and €300,000 each.  We have an estimated total loan amount of €841,000 for Loan B being 90% of the anticipated building costs however this is subject to change once the QS verifies costs and we will accommodate changes, including increases in cost, once our Loan to Net Development Value ratio does not exceed a relatively comfortable 70%. 

It is the objective of the borrower to have the properties fully built by the end of 2020 although we have built-in a contingency on the loan term to allow for timing slippage.  However, we know that Alan Byrne is experienced and successful at driving construction teams to build on-time and within budget.

While the facility has a maximum term of 24 months we would expect full repayment sooner than this.

Planning

The site has full valid planning permission (Reference 17/1481, An Bord Pleanala Reference Number ABP-302312-18) providing for the construction of the 6 houses as envisaged.

Conclusion

We believe this to be a strong loan opportunity for the following reasons;

1.  The site is excellently located in the thriving town of Celbridge.
2. The borrower is a highly experienced builder who can complete the development efficiently and in a cost effective manner.
3. The 6 houses have been pre-sold to an AHB in this case the AHB is Co-operative Housing Ireland.
4. We have seen the Letter of Intent from the AHB and the prices agreed which allow for a reasonable profit margin for the borrower within industry norms.
5. While there is always a risk that a Letter of intent does not become a binding contract this type of document is standard for this stage of a project.
6. In the unlikely event of the existing AHB not completing the agreed deal given the small scale of the development and the very attractive location for social housing we believe that one of the other AHBs would quickly offer to purchase the output.  The borrowers here have strong contacts right across the AHBs and also with the Local Authority.

At a return of 8.0%, we believe that this represents an excellent return for the risk involved.