APC - Anna Dujardin > 19. Case Study (Part 2) > Flashcards

19. Case Study (Part 2) Flashcards

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1
Q

What is M4(1), M4(2) and M4(3)?

A

Part M – Building Regulations (Accessibility Standards):
* M4(1): Visitable dwellings → basic access for most people (minimum standard).
* M4(2): Accessible & adaptable dwellings → step-free homes that can be adapted to future needs
* M4(3): Wheelchair user dwellings → fully accessible, designed for wheelchair users (highest standard).

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2
Q

Why are your measurements in IPMS 3?

A
  • Table headings say IPMS 3 by mistake — actual figures are Net Internal Area (NIA)
  • Subject and comparables are all measured using NIA
  • Consistency matters: like-for-like measurement
  • IPMS 3 includes walls and columns; NIA excludes walls, WCs, common areas
  • NIA is the UK standard for residential and valuations
  • RICS no longer requires valuers to use IPMS
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3
Q

How does the amount of shared amenity space compare to other schemes?

A
  • Shared space vs GLA minimum for Co-living: Outdoor +30%, Internal +27% above minimum.
  • Comparison to other London schemes: Above average → in the upper range for amenity space.
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4
Q

Is there any relevant guidance or legislation for co-living schemes?

A
  • Yes. The GLA’s Purpose-Built Shared Living London Plan Guidance (Feb 2024) sets out space, design and amenity standards for co-living in London.
  • At national level, co-living is treated as sui generis in planning, so local authorities apply their own policies alongside Building Regulations
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5
Q

What amenities will the development provide?

A
  • Workspace
  • Gym
  • Communal kitchens & dining areas
  • Lounges
  • Terraces
  • Games room
  • Laundry room
  • Cinema
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6
Q

What was the design and construction timeline for the development?

A

Original Planned Timeline:
* Sep 2024 – Planning approval
* Dec 2024 – Section 106 agreement signed
* Jan 2025 – Completion of Stage 3 design & contractor tender
* Mar 2025 – Contractor selection
* Apr 2025 – Completion of Stage 4 design, build contract negotiation
* May–Aug 2025 – Gateway 2 process (4 months) and engrossment of building contract
* Sep 2025 – Start on site

Current Status:
Since the loan was completed, BSA (Building Safety Act) approval delays have emerged, with approval timescales now between 6–9 months. The loan term is 16 months, giving the borrower until April 2026 to secure BSA approval (12-month timeframe from May 25 for this process).

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7
Q

Tell me about the construction method for the development?

A
  • Substructure/ Foundations: Piled foundations with reinforced concrete retaining walls.
  • Frame: Reinforced concrete frame with two column types
  • Upper floors: Reinforced concrete slabs
  • Flat roof with specialist falls arrest system
  • Bespoke staircase
  • Brick slip system external walls
  • Bathroom pods (prefab)
  • Fire rated doors, finishes
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8
Q

What is BCIS?

A

Building Cost Information Service (part of RICS) – provides benchmark data on construction and rebuild costs.

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9
Q

What is BCIS and its strengths and weaknesses?

A

Building Cost Information Service (part of RICS) – provides benchmark data on construction and rebuild costs.

BCIS Strengths
* RICS-approved, industry-recognised benchmark
* Based on actual project data
* Indexed updates for inflation and location
* UK-focused, reliable for local markets

BCIS Weaknesses
* Not development/project specific
* Data can lag behind market changes (must use professional judgement)
* Does not account for geographic variability in costs

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10
Q

What is the process of competitive tendering?

A
  • Multiple contractors are invited to bid.
  • Bids are assessed on cost, quality, capability, and programme.
  • The contract is awarded to the option that delivers best overall value, ensuring fairness and transparency.
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11
Q

What are the stages of competitive tendering?

A
  1. Pre-qualification (PQQ) – shortlist suitable contractors.
  2. Invitation to Tender (ITT) – issue tender documents.
  3. Bid submission – contractors prepare and submit bids.
  4. Evaluation – assess bids on cost, quality, capability, programme.
  5. Interviews – test delivery approach, team capability, resourcing, programme understanding.
  6. Contract award – best value option selected.
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12
Q

What are other processes of tendering other than competitive?

A
  • Negotiated tendering → contract agreed directly with a preferred contractor.
  • Framework agreements → contractors pre-selected; work awarded under agreed terms.
  • Two-stage tendering → contractor appointed early on preliminary price/programme, final price agreed later.
  • Direct award / single tender → one contractor appointed without competition (often for specialist work).
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13
Q

Build cost per m2?

A

£3,576 + 10% contingency

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14
Q

FFE per unit?

A

£5,045

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15
Q

What is an SPV and why is it used?

A
  • Special Purpose Vehicle: Separate legal entity created for a single project/asset → ring-fences risk
  • Why used: Simplifies financing and security (lenders take charge over the SPV), ring-fences liabilities, and can offer tax efficiency.
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16
Q

What are the Pros and Cons of a Borrower SPV – for the borrower?

A

Pros
* Ringfences risk
* Easier to raise funds for specific projects
* Don’t pay SDLT if sell land with planning and sell in company
Cons
* Additional setup and administrative costs
* Potentially more complex tax and accounting requirements
* May limit flexibility for future restructuring

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17
Q

What are the Pros and Cons of a Borrower SPV – for the lender?

A

Pros:
* Clear legal separation reduces risk from borrower’s other activities
* Easier to enforce security on specific assets
* Transparency on project finances

Cons:
* Limited recourse to parent company assets if SPV defaults
* May require stricter covenant and monitoring
* Can obscure UBO ownership – increasing risk of money laundering

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18
Q

How did you verify the borrower had injected £9.2M?

A

Reviewed the original purchase agreement and the loan exit agreement with the previous lender.

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19
Q

Tell me about the four schemes MOF II had invested in?

A

1.Project Noble (Smugglers Way, Wandsworth):
* 50/50 JV with SGN.
* 620-unit residential development.
* ~£27m equity from MCM.
* Planning determination due Feb 2025.
* Likely exit: sale with planning.

2.Project Yard (Loughborough Junction):
* 320-unit co-living scheme (Hardness Yard Ltd).
* Funded by Mizrahi-Tefahot Bank.
* Planning approved Dec 2024.
* Intention: move into MOF III for build-out.

3.Project Zodiac (London Road, Croydon):
* Redevelopment of office block into 73 affordable flats.
* Funded with £13.7m facility.
* HoTs signed with Sutton Council for £21m sale.
* Practical completion reached; sale due Jan 2025.

4.Project Stirling (this scheme)

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20
Q

Tell me about the borrowers Croydon scheme?

A
  • Location: London Road, Croydon.
  • Scheme: Redevelopment of an office block into 73 affordable flats.
  • Funding: Supported by a £13.7m facility.
  • Exit: HoTs signed with Sutton Council (viewed) for a sale at £21m, completion due Jan 2025.
  • Inflow: After repaying the £13.7m facility, borrower expects a ~£7.3m positive cash inflow, sufficient to meet equity requirements for the Wallis Road scheme.
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21
Q

Tell me about MOF I?

A
  • Raised £30.5m.
  • Investors: Oxford University Endowment Fund & HK family office.
  • Invested in:
    1. Pudding Mill Lane (Stratford) – JV with London Square; land, secured outline planning for 942 homes, sale → strong returns in 2019.
    2. Romford Retail Park – planning for 840 resi units (approved Dec 2023), £20m loan secured, £2m rent income, fully let, resi build from 2025, potential JV with Havering Council.
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22
Q

Tell me more about the Borrower’s governance structure?

A
  • 5 partners.
    • additional 5 operational senior team.
  • 3 Investment Committee members.
  • 2 non-execs on Advisory Board.
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23
Q

Tell me more about the Mitheridge’s management teams experience?

A

Partners
* William Yerburgh – Chair of Exec/IC, ECM background.
* David Hirst – Head of Strategy, Fund manager (24 yrs UBS).
* Tim Simpson – Head of Development, 20+ yrs resi (CPC Group)
* Steve Emsley – CFO, 15 yrs real estate finance (Savills IM)
* Daniel Rastegar – Investment Director, 13 yrs debt/investment (COC)

Investment Committee
* Stuart Grant – ex-Blackstone/Stanhope, £20bn APAC deals.
* David Green – Exec Director CBRE, 30 yrs JV structuring.
* John Robertson – ex-Ares, PE real estate.

Advisory Board
* Jamie Ritblat – CEO Delancey.
* Eric Daniels – ex-CEO Lloyds.

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24
Q

Tell me about Jamie Ritblat?

A
  • Founded Delancey in 1995: Established a leading UK real estate investment and development firm.
  • Over £20bn in Transactions, including the £1.1bn acquisition of the London 2012 Olympic Village. – knowledge on area.
  • Developed East Village (formerly the Olympic Village) into a major private rented sector scheme.
  • Led the creation of Get Living, a leading UK build-to-rent management company.
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25
Who were the main investors in MOF II
* 13 total investors. * Largest: Oxford University Endowment Fund – 58.8% (£30m). * Second: Liang Hong Kong family office – 19.6% (£10m). * Remaining 11 investors: smaller individual prop investors, Mitheridge team members, an ex-banker, retired hedge fund manager, Hong Kong investor.
26
What questions did you ask about investor pipeline for MOF III?
* Will MOF I & II investors roll forward? * Evidence of letters of intent * Stage of fundraising * Who is placement agents - CBRE
27
What is a B Corporation and what are the obligations?
* An ESG certification by B Lab for companies meeting high social & environmental standards. * Must publish annual impact reports covering governance, workers, community, environment, customers * Undergo re-certification every 3 years. Mither March 2023 score – 101.1 (threshold 80 – high).
28
If Halcyon are DM, what do Mitheridge bring to table?
* Mitheridge act as the investment and fund manager. * They raise equity investment and secure debt funding for the project. * Mitheridge also have their own development team that works alongside Halcyon. * Given the scale of the project, their combined expertise supports smooth delivery and financial management.
29
Who leading search for dev fin Mith or Halcyon?
* Mitheridge is leading the search for development finance. * As fund managers, they focus on raising equity and securing debt facilities. * Halcyon acts as development manager.
30
What is KYC and AML?
* KYC (Know Your Customer) is the process of verifying the identity and ownership structure of the borrower and its directors/UBOs. * AML (Anti-Money Laundering) checks identify and mitigate risks of financial crime, including fraud and money laundering.
31
What is money laundering?
Illegally concealing the origin of money sourced from illicit activities.
32
What are the three types of due diligence?
* Simplified Due Diligence – Where you determine the business relationship is low risk of money laundering/terrorism * Enhanced Due Diligence – for high risk customers and transactions with greater threat to financial sector * New Customer Due Diligence – doing the checks to ensure your client is who they say they are.
33
What is the key RICS regulation relating to money laundering?
JUST BEEN REPLACED WITH: RICS Professional Standard Countering Bribery, corruption, money laundering and terrorist financing (2025) RICS Professional Standard Countering Money Laundering and Terrorist Financing (2019). BUT the law comes first
34
What is key legislation relating to money laundering and what are the key provision of it?
1. Money Laundering Terrorist Financing and Transfer of Funds Regulations (2017). – The Home Office Must have: * Risk assessment policy, internal control systems * Staff training * CDDs (esp for PEPs) * Source of funds/ wealth checks * Record keeping and ongoing monitoring 2. Sanctions and Anti-Money Laundering Act 2018 - Framework for post-Brexit sanctions & AML powers. 3. Proceeds of Crime Act 2002
35
What are the three main areas of offence under the Proceeds of Crime Act 2002
1. Concealing criminal property - deliberately disguising the origin of illicit funds through layering or offshore transfers 2. Arrangements - facilitating a transaction or structuring a deal that enables another party to benefit from proceeds of crime. 3. Acquisition use and possession - knowingly buying or holding assets purchased with criminal funds.
36
How did you perform KYC and AML checks and on who?
* Normally Credit team’s job; I completed under supervision * Requested SPV structure chart (SPV, holding cos, directors, UBOs) * Checked 3 directors: Dominic Butler, Robert Yerburgh, Timothy Simpson. * Only one investor greater 20% shareholding – university endowment fund. Individual checks: * Experian (credit, defaults, CCJs) * Tracesmart e-ID (ID verification) * Google (adverse media, litigation) * World-Check (PEPs, sanctions, watchlists) * Creditsafe Director (directorships, insolvency) Company checks: * Creditsafe (incorporation, credit score) * Companies House (filings, ownership) * Jersey Registry, Google, World-Check * Logged & stored securely with GDPR compliance
37
How did you ensure borrower data and KYC info is stored securely?
In line with UK GDPR/ Data Protection Act 2018 * Stored in internal document system, access only to authorised staff * Password-protected files, no email sharing * Sensitive docs on secure SharePoint folders with restricted access * Avoided hard copies to prevent loss or breaches
38
What GDPR principles did you apply?
* Lawfulness, fairness, transparency: data collected only for compliance, handled fairly * Data minimisation: only essential docs (certified passports, proof of address) obtained * confidentiality: encrypted, access-restricted storage, no hard copies
39
What is the role of a development manager?
The Development Manager is responsible for coordinating and delivering real estate development projects, often from the design phase through to completion. Their role involves: * Managing feasibility and assessing viability * Appointing and leading the professional team * Overseeing design, planning, procurement, and delivery * Monitoring cost, programme, quality, and risk * Acting as the key point of contact for stakeholders, including investors, occupiers, and consultants
40
The Collective went into administration, did this effect your views on Halcyon?
The Collective went into administration primarily due to the impact of the COVID-19 pandemic, which caused widespread disruption to construction, reduced occupancy, and put financial pressure on a highly leveraged business. However, this does not undermine my view of Halcyon’s competence as development manager. Their administration was the result of exceptional market conditions, rather than any weakness in development management expertise.
41
Can you tell me more about Halcyon’s track record?
To date, Halcyon has acquired, secured planning, and forward funded over £300 million GDV of co-living schemes, including: * The Palm House in Harrow (222 studios) * Folk at Sunday Mills in Earlsfield (315 studios with NHS partnership) * Florence Dock in Battersea (270 studios plus commercial space). * The team’s strong track record is demonstrated by timely scheme completions and rapid lease-up periods * Aware they are working on Co-Living scheme in the Brent Cross development
42
Who was the development’s project team?
* Architect: Morris + Company * Planning Consultant: First Plan * Cost Consultant: Turner + Townsend * Legal: Joelson Law * Developer: Mitheridge Capital Management * Development Manager: Halcyon Development Partners * Services Engineer: Applied Energy * BREEAM & Sustainability: Carbon Climate Certified (CCC)
43
Can you explain the promote structure?
* Halcyon earns base fees plus a promote of 20% on profits above a 12% IRR to investors. * My appraisal forecast £20.7M profit (18.84% POC) * The borrower forecasts £29.7M profit (29.49% POC), above the hurdle. * So, Halcyon will likely earn carry on the profits.
44
Can you tell me more about Folk?
* Folk is DTZ Investors’ co-living brand * Managing a strong portfolio including The Palm House, Sunday Mills, and Florence Dock. * They have a proven track record with rapid lease-up and award-winning design.
45
What sort of accounts were provided for Wallis Road MH Limited (Borrower SPV)?
Management accounts to 30 September 2024 for the SPV borrower.
46
What sort of accounts were provided for Mitheridge Capital Management LLP?
Mitheridge Capital Management LLP: Historic, audited annual report and financial statements to 31 March 2024 — approx. 8 months out of date.
47
What sort of accounts were provided for MOF II?
Consolidated audited accounts for the years ending 31 March 2023 and 2024. Slightly historic (c. 8 months out of date). An informal cash update was also provided separately, but this was not audited.
48
What key financials appeared in MOF II’s accounts?
* Current ratio fell from 3.6x to 1.1x * Cash dropped from £1.6m to £920k * Rise in current liabilities from £3.8m to £17.8m * Today £768k However: * The current ratio remained above 1, indicating sufficient liquidity. * MOF II is a real estate development fund, actively deploying capital for projects, so reductions in cash and increases in liabilities are expected during development phases. * Equity investments often don’t appear directly on the balance sheet as cash but as “equity called” or queued capital, which will be drawn down as needed for development costs.
49
What is the current ratio and why is it important?
* Formula: Current Assets ÷ Current Liabilities * Purpose: Measures a company’s ability to meet short-term liabilities using short-term assets. * A ratio >1 suggests the company can cover its short-term obligations.
50
What sort of accounts were provided for Halcyon Development Partners Ltd?
* Unaudited management accounts to 31 Sep 2024 (founded in 2022, audit exemption applies). * Operates under a fee + promote structure — not an equity investor.
51
What financial tests did you use to conclude Halcyon had a low risk of default?
* Reviewed unaudited management accounts * No debt exposure — acts as DM (Development Manager) * Track record & current role pose low financial risk
52
How did you assess the UBO guarantor’s covenant strength?
* We asked the UBO to complete an assets & liabilities form * This showed ownership of property and shares in a historic family business (brewing sector) * The UBO is a publicly known high-net-worth individual * We did not independently verify all info * The UBO had skin in the game via investment in the scheme, aligning interests
53
What ratios are important in financial accounts?
* Current Ratio: Liquidity * Debt-to-Equity: Leverage * Interest Cover Ratio: Debt servicing ability * Net Asset Value (NAV): Solvency * Gross Profit Margin: Operating performance
54
Considering The Collective went into administration, were you concerned about Halcyon?
* Admittedly, Halcyon was founded by former directors of The Collective * However, The Collective’s failure was due to over-leverage and COVID-related income shock, not lack of development expertise * Our credit team reviewed the administration report to confirm this * Halcyon operates a very different model — no equity investment, just a fee + promote (carry) structure * They are acting as Development Manager (DM), not as a developer or principal * Since founding, Halcyon has delivered several COLIV schemes * Based on structure and track record, we saw no reason for concern.
55
What do you understand by ‘due diligence?
Due diligence is the process of investigating and assessing the condition, risks, liabilities, and potential of a property, asset, or business to inform decision-making, usually in connection with acquisition, lending, leasing, or development.
56
How did you instruct with Cost consultant, lawyers and valuer?
* Used Company’s approved panel; emailed firms for fee proposals. * Valuers: Quotes from C&W, Allsop, Savills → instructed Allsop (strong past co-living work, competitive fees, capacity for year-end delivery). * Lawyers: Quotes from Addleshaw Goddard, Weightmans, Memery Crystal → instructed Memery Crystal (sector expertise, favourable terms, deadline certainty). * Cost Consultants: Compared Arcadis & Mace → instructed Gleeds. Considered: * Competence – SKATE (Particular experience of co-living) * Timeline for delivery (year-end) * Value for money for client – market based/competitive fees * Liability cap * Reputation – level of client care * Ethical standards – RICS regulated
57
What DD on the asset did you do?
The asset * Vacant Possession Achievability (lease status) * Location Analysis * Demolition Risk * Flood Risk * Planning Status * Section 106 Agreement * Health and safety compliance * EPCs * Contamination
58
What DD on the borrower did you do?
The borrower * Company Track Record * Key Personnel Experience * Organisational Structure * Corporate Governance * Financial Strength * Reputation & Integrity * KYC / AML Compliance * Equity Commitment * Project Pipeline Exposure
59
What DD on the Loan purpose did you do?
Loan purpose * Business Plan Viability * Local Demographics * Local Rental Demand * The Development’s Sustainability Credentials * The Development’s design * Key Construction Risks * Building Safety Act Requirements * Project Team Credentials * Sources and Uses of Funds (to date and during loan term) * In-Term Milestones
60
What DD on the loan exit did you do?
Loan Exit * Refinance as Primary Exit * Loan Terms * Required Equity Injection * Dev Lender Requirements * Milestones for Refinance * Lender Appetite & Market Conditions * Feasibility of Contingency Exit Strategies
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