We’re currently arranging funding for an offshore firm which owns properties in central London. There were a few complications attached to the deal. Firstly, many lenders, including bridging lenders do not like to lend to foreign structures, in this particular locality.
To compound the issue, there is currently a long standing dispute with the managing agents, triggered by one particular person, who happens to be the neighbour of one of the flats in question, is retired, has a lot of time on his hands and sits on the management committee. In short, it’s a small technicality, which is in actual fact an internal improvement to the property, but a mountain has been made from a mole hill. And he took it upon himself to inform their current lender. Sometimes the perception is what has the effect, and not the reality.
As the case progressed I got to know the investors, one of the comments they made is how poor their investments had performed. The growth rate hasn’t been that strong from the time they have purchased the flats they own.
It an interesting point, many foreign buyers simply like to own a piece of central London, with any spare money generated from their business, without giving much thought to where the market is now and where it is likely to be in 5 and 10 years. Furthermore, often these properties rather than generating money, actually drain money. Sucking money from your pocket into the property. This is not in itself bad, if the value of the property is going upwards. However, this means you need deep pockets to merely hold stock in the location.
They came to the conclusion looking back this wasn’t such a hot investment.
If they want to make a strong return on their investment, then they need to follow the money, and be prepared to invest where there is future potential in the location; regardless of how seemingly unattractive the location may seem. London does have the demand from an international appeal, but it also has its waves. And if you catch it on its way down it’s no fun.
Besides arranging the funding for this client we have also pointed them in what we think is the right direction for the coming 5 year period.
The foreign structure is also a liability, it will reduce the number of lenders one can approach. There are no tax advantages to having this structure, simply one of anonymity. The internet has too much information available to all and sundry, it is understandable some may wish to protect their privacy against prying eyes. However, there are more cleaner ways to achieve this. And as part of our exercise, we took some advice from a barrister on how the properties could be transferred back on shore, without the stamp duty or capital gains being paid. This is work in progress. The reasons as to why this structure was set up a couple of decades ago is not valid currently.
In short, whilst doing the refinance, we have given another perspective on the investment strategy to the client, as well as looking at restructuring their current set up. This has been an interesting case, one where we can add much value gained from experience and connections.