Mezzanine finance for $11m project on old Ellerslie Oaks site
Ian Laywood (right) of Belgrave Securities has issued his first prospectus through new project financier Belgrave Capital â€” $2.67 million of mezzanine finance for Castlerock’s 50-unit development on the site of the old Ellerslie Oaks Hotel.
Mr Laywood quit UPC Securities to set up Belgrave a year ago after putting together eight mezzanine bond issues â€” which have all either been repaid or are still on issue, he notes after some other mezzanine finance deals struck trouble this year. UPC Securities has since been renamed Marac Securities, and was sold a week ago to Pyne Gould Guinness of Christchurch for $41 million.
Same old thing, different company? Not so, Mr Laywood said this week after getting approval for the prospectus. The key change he’s made is to separate the issuer from the developer. For the borrower, he’s been able to reduce the size of the upfront charge, spreading it as a margin.
He was concerned under the old system of issuing bonds, that the organising broker had no power to step in if things went wrong.
The way he’s organised things, that can be done, giving investors greater security in the form of speedier action if trouble arises.
“Belgrave Capital supports what I do at Belgrave Securities. Belgrave Securities is my consulting company, a merchant banking operation that does exactly what UPC used to do â€” arrange finance for construction projects.”
Belgrave Capital has a master trust deed covering every deal the company does, but with a project-specific prospectus and investment statement for each transaction. Every one will be isolated.
Less control under previous bond system
It’s common in mezzanine finance issues for the developer also to be the issuer. “Under that system, you wouldn’t even know if the interest had been paid. In this system, Belgrave Capital is the issuer, so we can monitor more closely.
“From the developer’s point of view, we’ve made it more friendly. We’ve given them some relief on the upfront costs associated with raising a bond, in that Belgrave Capital has taken care of all compliance under the relevant acts. We charge a margin on the way through, which is more cashflow-friendly.
“So Belgrave Capital’s income is split between fee and margin. The income from old bonds is all fee.”
The issue is subject to the Companies and Financial Reporting Acts, not the contributory mortgage regulations, which is a bonus for investors as the contributory mortgage remains inadequately regulated, and for borrowers because Belgrave can take loans well above the two-thirds restriction on contributory mortgages.
Another bonus is that Belgrave has brought in an external director, Trevor Kamins, formerly an accountant at Price Waterhouse and a director of Excel Corp and Elders Rural Finance, now running his own private investment business.
“Essentially it gives a better comfort level,” Mr Laywood said of the external appointment.
This issue, at 12% with repayment likely in about nine months, no later than a year, is for a project by Rod and Greg Nielsen of the Castlerock Group.
They have designed a 50-unit residential development on the site of the Ellerslie Oaks on the Main Highway in the Ellerslie village, to be called The Oaks. The project has an $11 million budget, including $4.6 million for the site, which is due to settle on Friday.
The bulk of the project cost will be borne by National Mortgage Nominee Co Ltd, through a $7.45 million loan facility. The developers’ equity is only $700,000.
The Nielsens have done a mixture of units and terraced houses in Parnell (four), Onehunga, Ellerslie and Balmoral. The Mayfair Villas on Mays Rd, Onehunga, has 93 units and the Greenwich Park project currently under construction has 85 units, with about 70% presold.