£4.8m Commercial Real Estate Restructure To Improve EPC Rating

At P10 Financial, our specialists are experienced in finding the right commercial lending solutions, even in some of the most complex cases. There is currently a huge ESG drive by the government and they have serious pressure to hit their net zero target by 2050. The commercial lending sector has a huge part to play in this.

Market Turmoil

In October 2022, the government announced a mini-budget that sent the lending and banking markets into turmoil. This caused lenders to increase their pricing at the rate of knots and withdraw completely from the market.

During this period, it was imperative for property owners to act with speed and make fast decisions to future-proof their property portfolios.

Challenges of refinancing in a complex market

The biggest challenge that we faced in this period of uncertainty was the lenders securing their debt costs and then passing this on to their clients. Banks were pulling out of the market left right and centre, but also had a year's worth of applications to deal with in the space of 6 weeks. This caused their workflow to tenfold and caused huge issues for advisers trying to access their lending products.

ESG Requirements

By 2030 all commercial buildings will have to hit a minimum EPC rating of a B. This is going to cost commercial landlords an absolute fortune. According to a RICS survey, the average cost of improving an office building’s EPC rating from an E to a C is around £320,000. The current average rating is an E. There is a huge amount of work to do to be able to hit the government targets. There needs to be much more discussion around this, from what we can see the conversations are very muted at the moment.

Our role in this transaction was to move to restructure the client's existing lending facility. Their existing facility was a loan that tracked LIBOR, meaning the clients all in interest rate increased to 8.5%. This lending was also on an amortising profile which meant the monthly payments more than doubled for our client with the recent base rate increases. A key component of this restructure was to release capital to allow the client to invest in the CAPEX required to improve the EPC ratings in line with government guidelines.

The result for the client:

Value of Assets – £6,950,000m
Interest rate – 5-year fixed rate at 6.19%
Total LTV – 70%
Debt Structure – Interest Only
£20,000 in monthly payment savings (£1,200,000 over the term of the commercial mortgage)
£555,000 in Savings on interest over 5 years
£1,200,000 released to improve energy efficiency across the portfolio

The P10 Financial Service

If you own commercial property and want to make sure you are receiving the best structured terms available then it is worth contacting the P10 Financial team to see how we can help you. We always aim to add value to our clients by finding a deal, often bespoke, with carefully negotiated terms to suit the client’s interests.

All of this with the friendly and professional service that we have become renowned for. We look forward to working with you.