Real estate long income FAQs
Funding is based on a margin over gilts, in a similar way to Public Works Loan Board (PWLB) funding. The gilt (long-term government bond) will be selected based on the length of the funding term, and the margin is made up of a number of factors. These include the credit rating of the counterparty, the type and location of the developed asset and the increased risks associated with adjustments to the structure of a standard lease.
Our support can be structured with no construction risk to the borrower. We can pay contractors on a milestone basis and usually maintain ‘step in’ rights to ensure a development is finished in a contractor default scenario. Borrowers also get to capitalise on Aviva Investors’ asset management, development and occupancy expertise.
Unlike conventional lenders, we can provide 100 per cent of development finance, including all reasonable ancillary costs.
Yes, leases can be assigned to a corporate entity of equivalent credit rating.
This depends on the initial structuring; an ‘income strip’ or amortising lease will have an option to purchase for £1, a traditional lease will allow the tenant to walk away, extend, or in some cases, purchase at market value.
In addition to the counterparty paying nothing until the asset is operational, we can structure a repayment profile that gives initial repayment-free periods, thereby de-risking projects that involve sub-leases.
We have experience in delivering assets in most sectors, including residential developments, schools, hospitals, industrial units, commercial units, offices, student accommodation, hotels, car parks, research and incubation centres, university buildings and waste management centres.
In addition to financing development, we provide funding in the form of long lease and income strip acquisitions for both investors and owner-occupiers. This provides a competitive and long term financing source for both. We also work with corporates seeking to realise some of the value in their owned and occupied estates. This is typically achieved via a sale and lease back transaction that is structured to accommodate the particular financial and occupational requirements of the business (so as to avoid consolidation of the lease liability on to the balance sheet for example, or to provide the tenant with the right to acquire the property at the end of the lease in order to retain ownership of core assets). We have successfully provided funding on this basis to a broad range of corporate occupiers.
Our leases are generally linked to RPI or CPI, but we can also provide fixed uplifts. We will look to structure a lease so that it matches the underlying revenues generated by assets. We generally have a preference towards RPI-linked profiles to more cleanly match our investors’ pension scheme liabilities.
We can provide management through one of our provider partners, or the borrower can provide their own management. It depends on the individual deal, whether the borrower has sufficient expertise and whether there are tax implications of not providing services (this is especially relevant in the NHS).