Public & private

Careful preparation and patience seem to be the two most useful skills for a finance director who has to tackle development or project financing.

By the time the finance director gets a look in, the development team has probably been working on a project for some time. The team might even have found a perfect site at a great price and be in the process of clinching a deal with the building contractor.

Problems sometimes begin to arise when the project is fairly advanced. Although it is hoped that the finance director has been kept informed of the timing of project phases and the required cashflow, it seems finance directors are often asked to "find" the money on short notice for exchange of contracts or payment of contractors already on site.

On a large-scale project that needs external funding, this can have disastrous effects and give rise to strained relations between the finance and development arms of the registered social landlord.

Naturally, when a site comes up for sale, the development team wants to secure it quickly and everyone wants building work to start as soon as possible. However, if external funding is needed, it is essential that the project be properly structured from the start, with the RSL and its advisers wearing funders' hats during negotiations with the vendors of the site and the contractors.

If external funding is needed, the RSL must wear a funder’s hat during negotiations with vendors and contractors

Many projects are financed via a special purpose vehicle, usually a subsidiary of the RSL, set up to be the entity through which the money will be raised. The special purpose vehicle will be party to all the construction, project and financing agreements.

The funders and their advisers will want to go through all of these documents with a fine toothcomb. It is a good idea to have all the construction and acquisition documents in final form before presenting them to the funder, so the documents are basically agreed except for the funder's comments. This should, in theory at least, cut down on the number of comments that need to be circulated among the three parties, reducing time and costs.

Another problem can be the funder's perception of the RSL's involvement in the project. The RSL uses a special purpose vehicle to ring-fence liability for the project and the vehicle is usually non-charitable. The RSL, usually the parent and often charitable, may have a significant asset base and cash reserves and the funder, in attempting to bolster its security for funding the project, may look to the RSL to guarantee the special purpose vehicle and the project. RSLs must take advice on the scope of rules to be applied to its capacity to support the project.

Satisfying the conditions in the loan agreement is time-consuming. In addition to the usual constitutional conditions, there will be specific property and construction ones some of which, such as collateral warranties with contractors, will need to be acceptable to the funder and will have to be executed in time for drawdown. Getting a contractor to execute an agreement can be extremely difficult.