FRP Real Estate Advisory has arranged a £4.1m commercial term facility to refinance a newly built 38-bed purpose-built student accommodation (PBSA) block in York, completing the deal ahead of the formal lease activation scheduled for this July.
The fixed-rate loan was secured at 72% LTV for an established Northern England-based developer. It carries a fixed interest rate of 6.25% p.a. for the first two years, transitioning to a margin of 2.50% p.a. thereafter. The funding aligns with a market value of £5.77m and is supported by a 25-year lease to a local university.
The transaction was led by Philip Kay, director at FRP Real Estate Advisory, who structured the deal around a complex completion timeline to maximise drawdown efficiency before the lease formally commenced.
During the pre-completion phase, the borrower identified an opportunity to reconfigure the building’s internal layout, securing planning consent to add two additional student rooms. That variation to the Agreement for Lease enhanced the property’s overall rental yield, though it also introduced additional structuring challenges ahead of funding.
Traditional commercial credit guidelines typically require full lease completion as a condition precedent to drawdown. To work around this, Philip coordinated closely with the lender to secure full drawdown in advance of the July lease completion date, using a tailored interest reserve to cover the period before rental payments began.
With Basel 3.1 capital requirements placing growing constraints on banks’ ability to lend against PBSA assets, the team sourced funding through a specialist debt fund rather than the traditional banking route, which allowed for terms more closely aligned with the asset’s commercial profile.
A key part of securing lender confidence was demonstrating that market rent projections under an alternative direct-let PBSA model comfortably exceeded the agreed university lease rent, establishing the robustness of the asset’s standalone value.
“Securing a high-leverage 72% LTV facility at a highly competitive 6.25% fixed rate on the back of an Agreement for Lease requires an exceptional level of lender comfort,” said Philip Kay.
“By optimising the building’s layout prior to lease activation, we were able to significantly drive up the asset’s yield, but it required a sophisticated funding structure to unlock that value early.
“By designing a tailored interest reserve and demonstrating the robust standalone market value of the asset, we achieved an outstanding result. This facility gives our client complete financial certainty and liquidity well ahead of the university lease activating this July.”
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