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What process should be followed to by an SPV?

I am looking to purchase an existing Property SPV containing 33 properties

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Hello, 

I have been offered the opportunity to buy a limited company that has been set up as an SPV and owns 33 properties. Whilst I appreciate there is a huge amount of due diligence to be conducted on the company, properties and people involved, I wondered what process people would advise;

1. Is it as 'simple' as buying any other limited company in that I could just buy the existing shares at an agreed price? At which point I take responsibility of all assets and debts held by the company?

2. Or would I have to remortgage the whole portfolio to cover the outstanding debts? This seems odd as the properties are owned by the company, not an individual but I've been getting conflicting advice from mortgage brokers.

Thank you

Replies (10)

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RLI
By lionofludesch
14th Apr 2020 16:26

Whoa !!

A company which owns 33 properties ??

An internet forum is not the place to be asking for advice.

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Replying to lionofludesch:
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By stumac3
14th Apr 2020 17:18

I've already tried a few accountants, 2 lawyers and several mortgage brokers so the internet seems like a fair step.

Whilst there is a lot of information available on setting up an SPV and buying property through it, there seems to be nothing available on buying an SPV from someone else.

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paddle steamer
By DJKL
14th Apr 2020 16:39

Who does the company owe money to?

What are the terms re said borrowing?

Are there any extant personal guarantees for company borrowings?

What have the vendors agreed with the company lenders re the impending sale, if anything?

Are there lending covenants in place re share sale/change of control?

What if any staff come with company? (TUPE)

What sorts of properties, if commercial do you have experience running commercial property ,are there tenant service charges etc to bill, how is continuity of service envisioned to happen?

With 33 properties how many tenancies involved?

What is happening regarding warranties for corporation tax, if commercial is there also vat warranties and if staff PAYE/NI compliance issues?

Given the amount you are going to be spending in fees alone will be in the 10s of thousands you want to get an outline of everything involved from the vendors, possibly after executing a non disclosure agreement, which will include:

Full data pack passed to your solicitors covering titles, leases, safety, maint records, insurance, services, utility contracts , bank securities , one set for each property, then warranties re taxes , review accounting systems/records etc.

These days not for the faint hearted.

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Replying to DJKL:
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By stumac3
14th Apr 2020 17:16

That's great, thank you. I understand the relevant due diligence involved on all the parties but I can't seem to get a straight answer from the several mortgage brokers I've spoken to on whether you can simply buy the shares in the company, which would amount to a much smaller financial investment, or whether you would need to remortgage the entire portfolio over in to your name.

Any ideas?

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Replying to stumac3:
By ireallyshouldknowthisbut
14th Apr 2020 18:11

Yyou could buy the shares [which may or may not mean remortgaging, depends on the lenders, some wont allow a transfer of the majority shareholding, some may]
OR you could buy the properties yourself as a job lot, which might be better for you depending on the deal price.
The third option is to buy the properties in your own SPV from their SPV. Which might be a plan in some circumstances, but transactional costs may be high.

You need to speak to a property tax specialist*, a lawyer who just deals mainly in property and a specialist broker. Don't muck about with generalists this is "big boy" stuff and whislt they might be more per hour will do the work in half the speed and to a better level.

* There are a few independants about or probably a specialist part of a larger firm.

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Replying to ireallyshouldknowthisbut:
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By stumac3
14th Apr 2020 21:21

That's great, thank you. I think that's been the challenge this far, I can't seem to find specialists in this particular space. But I am coming across more & more people selling their existing SPVs.

I've requested more information on the existing mortgages so that should shed some light on the options available.

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Replying to stumac3:
paddle steamer
By DJKL
14th Apr 2020 20:25

You need sight of the company's facility letters/agreements with its lenders as a starting point. From this you may want to agree with the vendors that they introduce you to their banker(s) to discuss, but this is likely further down the line.

For instance we these days have one lender (portfolio of commercial property), within our facility letters are restrictions on changes of ownership, if other than spouses/children/family members then bank consent is needed, you certainly need to see facility letters to ascertain what will be needed/is possible.

The key is, where are you currently re the purchase process, are you preferred bidder, do you have an exclusivity position for a period etc? This will determine what the vendor will make available to you and how much you are probably currently prepared to spend re fees.

Step one, buy yourself some form of period of time to start your enquiries, these will not be cheap even if you do know the business and if you do not understand property and its finance then they will likely cost quite a lot. We tend to initially do our own appraisal work in house but we have a surveyor with nearly 50 years experience, two owners who started in property in the mid 1970s and myself with 22 years in property and 35 years in accountancy/ finance, so we tend to only need outside solicitors and sometimes red book valuations from surveyors when buying assets and taking on fresh borrowing.

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Replying to DJKL:
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By stumac3
14th Apr 2020 21:25

That's brilliant, thank you. I had asked for more details of the mortgages in place so I'll follow up specifically with regards to facility letters.

I currently have a period of exclusivity as the connection is through a long term business associate so time is the one thing I do have.

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Replying to stumac3:
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By Justin Bryant
16th Apr 2020 09:34

In my view the bigger financial/economic issue here is not so much the mortgages (that's really just detail as to whether they need to be refinanced with a different lender at completion - perhaps you should find another broker who understands and can advise you on that simple point - I can recommend one if you like) but tax: namely the tension between saving SDLT on the shares (compared to buying the property assets) and inheriting the deferred tax liability of the company on any pregnant property gains (which you would have to factor into the headline consideration). Many share deals crater due to the parties disagreeing on how to value these (usually big) tax benefits/disadvantages. I am experienced in all this if you want to contact me. http://www.ated.co.uk/contactus.html

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Replying to Justin Bryant:
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By stumac3
15th Apr 2020 20:49

Thank you Justin, I've been working through their accounts I have access to so far to work out the potential hidden costs & taxes. When I get stuck, which is highly likely, I'll be in touch.

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