Joint Venture case study – Dunmore Business Centre, Spring Street Rugby

By: Emma Gettings

How we funded a £1,568,000 conversion of a closed down business centre to 22 studios / 1 bed apartments.

JVP had experience with residential conversion albeit on a small scale but a good design and professional team in place.


Cost summary

Purchase Price £650,000
Purchase Costs £28,000
Refurbishment £750,000
Sales & Marketing £40,000
Interest @ 8% pa £100,000
Total Exc. Interest £1,568,000


JV deal

Joint Venture Partner (JVP) had circa £200,000 to put into the transaction so needed a facility of £1.35 million. This represented 88% of the total expected costs.

Aitchison Rafferty provided a Valuation Report that supported the purchase price and costs and a gross development value of £2.2 million indicating a profit after interest of £632,000. The report excluded the value of the Freehold interest which at the time was estimated at £150,000 giving a total expected profit of £782,000.

BiG agreed a deal and facility to provide the full facility required in return of interest of 8% per annum and a Priority Profit Share of £285,000 over 18 months (£10,000 per month decrease offered for repayment before 18 months). This represented 36% of the appraisal profit and an internal Rate of Return (IRR) to BiG of 30%. The deal was put into place within 10 days.


JV Structure

The property was purchased in an SPV company with 100% of the shares owned by BiG.

JVP and BiG simultaneously entered into a Development Agreement and Facility to outline responsibilities and protect JVP’s interests.

JVP has the right to acquire the shares in the SPV for £1 on repayment of the debt, interest and profit share.


Management

JVP is responsible for the refurbishment project and sales generated.

Aitchison Rafferty are appointed Monitoring Surveyor on behalf of SPV to provide independent assessment on the cost, quality of the works and the build programme.

During the works JVP has amended some of the units adding floor space, accommodation and therefore value. The units are now all 1 and 2 beds with no studios. There had been issues with the design of the roof that caused a 4 month delay.

The project costs have increase by circa £40,000 and the facility needed has risen to £1.45 million and 24 months but the GDV has also increased by £70,000 according to Aitchison Rafferty. JVP has taken 10 formal reservations and has a contract in place to sell the freehold for £250,000 and £100.000 more than budget.

BiG have worked with JVP closely throughout the venture and have formally agreed to extend the facility as needed and increased the JV period to 27 months in return for a further £17,500 per month after month 18.

1st phase of apartments for sale

2nd phase of apartments for sale

For more information contact Mark Bond on 0121 3487830 or alternatively email markbond@bigpropertyfinance.co.uk