Category: Blog

Fiduciam is a well-established operator in the Spanish development loan market; at present it finances ongoing development projects in Spain for a combined gross development value of €444,350,000.

Fiduciam’s Spanish development loan solutions cater for both domestic and international developers, and typically finance affordable and high-end residential, holiday homes and commercial developments.

In this paper we highlight some of the development finance challenges and opportunities that are specific to Spain.

Background

A non-Spanish developer wished to proceed with the construction of a complex consisting of fifteen holiday homes in Mallorca. They had identified a plot of land in a prime location, agreed the purchase price and obtained the necessary permits and approvals from the local authorities. However, they lacked the capital required to commence construction.

Challenge

The developer approached several Spanish banks. The local banks were keen on providing financing provided that the developer pre-sold 70% of the units, and would only cover 50% of the construction costs.

Pre-selling such a large percentage of the holiday homes did not make sense for the developer, for four reasons: 

• Off-plan sale prices tend to be lower than the sale prices achieved during later stages of the development or following practical completion;
• Having obtained all the necessary building permits, the developer was eager to commence construction without the added delay of a marketing period;
• As the developer had agreed with the seller of the plot to acquire it as soon as planning came through, the finance costs of acquiring the plot and then holding on to it during the marketing period for the holiday homes would have added to the finance costs; and 
• At that moment in time the developer wished to focus on negotiating and closing the construction contracts; given the prevailing inflationary pressures, the developer’s priority was to secure construction packages, rather than marketing and pre-selling the holiday homes.

An alternative solution acceptable to the Spanish bank was for the developer to finance 50% of the construction costs through equity.  As the developer had assembled a syndicate of investors to provide the equity, the return on equity was an important consideration for them though.  Financing half of the construction costs through equity would have meant that the return on equity became too low to remain appealing to the developer’s investment partners.

The developer then started looking for alternative financing solutions and came across Fiduciam, a by then well-established private lender in the Spanish development loan market.

Solution

The developer contacted Fiduciam’s Spanish lending team and discussed their project and need for a Spanish development loan in detail. Fiduciam was impressed with the location, the design of the project, and the strong demand for holiday homes in that part of Mallorca. After conducting its due diligence, Fiduciam offered a Spanish development loan for a total amount of about €10 million.

Fiduciam’s Spanish development loan was structured in two phases, to suit the developer’s specific needs. The first phase provided the developer with about €2 million to complete the purchase of the plot of land and start site preparation works. The second phase provided an additional €8 million to finance the construction of the holiday homes and cover the loan’s interest during the construction phase.

Fiduciam’s Spanish development loan carried an interest rate of 0.90% per calendar month, which is higher than what the Spanish banks typically charge, but did not come with any non-utilisation or commitment fees, which Spanish banks typically do charge.  It must be noted that finance costs on development loans in Spain are generally higher than in Northern Europe.  Yet, despite the finance costs associated with Fiduciam’s Spanish development loan being higher, the developer and his investment partners considered Fiduciam’s solution to be more attractive to those offered by the Spanish banks.  The reasons are simple: increased flexibility, quicker turnaround times and a higher return on equity.  The higher return on equity is made possible thanks to Fiduciam being satisfied with a much smaller equity investment into the project and not requiring off-plan sales, which typically necessitate the sale price to be discounted.  And from here, it could only get better, thanks to a peculiarity of the Spanish development loan market, the insured deposit.  In fact, the developer never paid 0.90% per calendar month on the overall amount of senior secured development finance outstanding, in reality they paid just over 0.70% per calendar month.  How they achieved this, we explain below.

Outcome

The developer accepted Fiduciam’s Spanish development loan offer and started construction straight away.  Whilst the site preparation works were progressing, the developer negotiated a fixed price construction contract, and then started preparing the marketing campaign. As potential buyers visited the construction site, and the development started to take shape, some buyers became eager to reserve a unit, and then to enter into a sale agreement.  The developer had prioritized the works on a unit to have a show home, to provide a better feel for the final product.  Thanks to this approach the developer could sell at full price, without having to grant a discount often associated with off-plan sales.

The developer was able to pre-sell six out of the fifteen holiday homes whilst works were ongoing. For each sale, the developer received deposits equal to 30% of the sale price.  Under Spanish law, deposits cannot be used towards the construction costs, unless they are insured (seguro de afianzamiento).  Through its years of lending in Spain Fiduciam has strong relationships with multiple specialist insurance companies that are willing to insure the deposits on development projects financed by Fiduciam. Therefore, Fiduciam assisted the developer in procuring deposit insurance, and opening the special account which is needed for the deposits.  As a result, the developer was able to use the deposits to finance the construction works; in the end they financed nearly a quarter of the construction budget. 

The holiday homes were completed within the expected timeframe and sold out within four months of achieving practical completion. The developer was able to repay the loan in full and make a healthy profit on the project; development profit margins often being higher in Spain than in other European countries.

Conclusion

The Fiduciam’s unique expertise in the Spanish development loan market allowed the developer to achieve their goals and complete the project successfully. When traditional Spanish banks require high pre-sale levels or a substantial equity injection to grant their development loans, Fiduciam does not. Fiduciam provides comprehensive financing solutions in Spain for developers that favour flexibility, quicker turnaround times and a maximization of their return on equity.

It has been nearly seven years since Fiduciam granted its first Irish bridging loan, and its Irish lending operation has grown strong since, now with a dedicated five-person team, offering bridging loans, development finance and commercial mortgages all across Ireland.  Over the last seven years Fiduciam’s bridge finance solutions have assisted a wide variety of businesses in Ireland: property investors, developers, hotels, pubs, farmers, manufacturers, care home operators, retailers, and even performing artists.       

Last week, Fiduciam successfully assisted a long-term client with a time-sensitive transaction, providing them with the necessary funding within a remarkable timeframe of just one week, thereby setting a new time record for an Irish bridging loan completion. 

The client was a repeat borrower fully familiar with Fiduciam’s Irish bridging loan solutions; in this instance they had urgent liquidity needs to complete the purchase of investment properties for future development schemes. The objective was to extract €1,150,000 of equity from a semi-commercial Georgian building located on Pembroke Road, a sought-after location in Dublin city centre, using a bridging finance solution. 

Fiduciam was able to facilitate the entire Irish bridging loan quantum requested by the client at a competitive monthly interest rate of 0.85% and a loan-to-value of 65%, for a 12-month term. 

Fiduciam’s experienced underwriting team and streamlined credit approval process allowed the facility to be completed within the short timeframe. This process ranges from obtaining initial risk approval and completing comprehensive know-your-customer due diligence, to finalising a legal and valuation review and gaining full credit approval. Fiduciam collaborated with McGahon & Associates to finalise the legal documents in record timing. Vincent Finnegan, who have previously worked with Fiduciam on multiple Irish bridging loans, provided an expert valuation of the property. 

Luca Ciliento, Development Finance Associate for Ireland, said: “We are thrilled to have provided a fast and efficient Irish bridging loan solution for a repeat client, enabling them to seize a profitable investment opportunity. At Fiduciam, we prioritise speed, reliability and client satisfaction above all else”. 

Yasmeen Dufils, Senior Underwriter for Ireland, commented: “We are delighted to have assisted our long-term client in this transaction, thereby completing an Irish bridging loan within a record time of one week, and we look forward to continuing to provide reliable and efficient lending solutions to businesses and individuals in Ireland”. 

Fiduciam’s Irish bridging loans are flexible and tailored to each client’s specific requirements, offering an attractive solution in situations where urgent working capital is required, to complete acquisitions or to make new investments. 

The year 2022 came with its challenges, even for Santa. Yet we end the year on a high, with a Santa loan to help him overcome the energy crisis and to make him ESG friendly. Kids all around the world can breathe relief! We wish all our clients and partners a Merry Christmas and Happy New Year; and we hope you enjoy this new episode of The Office.

At Fiduciam we are committed to providing our female employees with opportunities to break the glass ceiling and fulfil their professional ambitions. We invest heavily in training, development, and individual mentoring, while rewarding achievements and excellent performance. Fiduciam signed up for the Woman in Finance Charter in 2019 and set ambitious targets to strengthen our commitment to equality and gender diversity. We have now exceeded these objectives and were recognised as a finalist in the ‘Employer of the Year’ category at the Women in Credit Awards 2021.

In 2022, three women have already achieved promotions at Fiduciam; Celia Garcia Virosta has been promoted to Head of Digital Transformation while Louisa Willoughby and Sabrina Warmerdam have been promoted to Underwriter. Charlotte De Baere, Head of Operations, comments: “There is no glass ceiling here. I joined Fiduciam as a graduate. Four years later, I now manage the operations team – this is a place of pure meritocracy.” This highlights Fiduciam’s commitment to recognising individual talent and ambition and encouraging career development.

A priority at Fiduciam is maintaining a collaborative company culture that encourages women to support one another in their professional growth and reach their full potential. Valeria Quintana Barbella, Senior Underwriter, explains: “In an industry where being cut-throat and aggressive is usually associated with leadership, women leaders should have not only a high IQ but also a high degree of emotional intelligence. I admire women leaders when they show that they genuinely care about, appreciate, and respect the contributions of their team members and how committed they are to helping them maximize their potential.”

We are also committed to showcasing our employees’ outstanding achievements by nominating them for external recognition. Cristina Villén, Country Manager for Spain, won Rising Star of the Year at the Women in Credit Awards in 2021 and was featured in Bridging & Commercial’s 35 under 35 Power List. Marieke Eskens, Director and Head of Case Management, was a finalist in the category ‘Mentor of the Year’ in the Women in Credit Awards and was also featured in Bridging & Commercial’s Power List 2021 for her integral involvement Fiduciam’s participation in the Coronavirus Business Interruption Lending Scheme.

Ana Díaz, Marketing Manager, comments “Thanks to working at Fiduciam, surrounded by a team that supports and promotes equality in the financial sector, I am never afraid to lead marketing projects where the audience is – sadly – still often male-dominated. It is inspiring to see how ambitious female colleagues are shaking up the status quo!”

We at Fiduciam are excited to see how the female team members continue to push boundaries and change mindsets within the financial services industry and elsewhere. We are dedicated to do everything necessary to facilitate this and to improve representation, opportunities and experiences for all women.

Whilst we look forward to 2022 filled with the promise of the return to normalcy the year 2021 came with its challenges, even for Santa: elf-labour shortages due to COVID-19, then followed by the global supply chains crisis. Fortunately we were able to assist with a working capital loan. It required a visit to the North Pole in freezing temperatures, a pledge over reindeer and sleighs, and AML onboarding with a long out-of-date passport and no proof of source of funds. We wish all our clients a happy and prosperous 2022!