Stanbic Bank has taken a firm lead in real estate financing through a unique vehicle that is fast becoming the envy of the market.
The Special Purpose Vehicle (SPV) approach, ring-fences every asset within the development scope and ensures that the commercial property secures a critical mass of tenants before the project starts.
The model ensures a steady repayment of debt on schedule.
The Head of Investment Banking at Stanbic Bank, Mr Randolph Rodrigues, told the GRAPHIC BUSINESS that the model brought equity investors and debt financiers together either from the local environment or offshore, making adequate financing available before each project commences.
“We are very specific and selective about the transactions we do and we work with experts, which is a unique structure for this market,” Mr Rodrigues said.
Many real estate financiers in this market will give a loan and expect the recipient to pay back from whatever sources.
The land title is converted into equity and so are the first two years of interest on the debt component of the loan.
The approach is a marked departure from the practice in the market which leaves many commercial properties lie either, uncompleted, idle or both.
With a real estate loan book of about US$140 million since 2007, Stanbic Bank is looking forward to invest more in the sector, bringing investors, both equity, debt and property title holders together to create an opportunity where it finances the business, using sustainable project structuring models, drawing on expertise within the local office of the bank as well as from other relevant offshore offices.
“We create an SPV which holds all the assets of the development – the land title, the property owners – are all ring-fenced and the proceeds from rental are paid to the SPV. Before development, we get sufficient tenant uptake. This way, the building does not lie idle that can make repayment a challenge,” Mr Rodrigues explained.
Real estate boom
The bank, which has grown organically from a lower to a first-tier bank within a decade, invests between US$15 million and US$30 million in a single project, financing the transactions from its local balance sheet and sometimes with support from its parent company, Standard Bank.
Interestingly, the structuring also allows the bank to transfer the debt to another party if it wants to re-allocate finance into other projects.
Stanbic currently sees more opportunities in the commercial properties space, especially when economic conditions, particularly the exchange rate, stabilises. It takes up to about five years for it to arrange and structure such projects, but the head of Investment Banking said about two of similar projects would take off by the close of the year.
Some of the commercial property the bank has financed include the Stanbic Heights (Icon House), Movenpick Ambassador Hotel, the Accra Mall and West Hills Mall. Some of the earlier ones are paid-up, with others, such as the Stanbic Heights, nearing completion.
The sustained economic performance since 2000, an increasing number of people in the middle class, investor attention on Ghana and the availability of finance and capital are some of the factors that have fuelled the real estate boom in the country, especially commercial property.
Mr Rodrigues said the boom would continue and even deepen if a regulatory framework was in place to support Real Estate Investment Trusts (REITS) which could be listed and traded.
This unique financing arrangement has won the bank some enviable awards.
The Standard Bank Group, the parent company of Stanbic, was voted the Best Overall Bank in Africa in the 2015 Euromoney Real Estate Survey Awards.
Standard Bank also received several additional awards in recognition of its ability to tailor solutions for clients in an increasingly complex marketplace.
Accolades for real estate across Africa included Best Overall Bank in Africa; Best Loan Finance Bank in Africa; Best Equity Finance Bank in Africa; Best M&A Advisory Bank in Africa and Best Debt Capital Markets Bank in Africa.
Stanbic Bank Ghana won five of the 10 country specific awards. They are Best Overall Bank in Ghana; Best Equity Finance Bank in Ghana; Best Debt Capital Markets Bank in Ghana; Best Loan Finance Bank in Ghana and Best M&A Advisory Bank in Ghana, for their unique project management model and financing vehicle.
The bank has also won similar awards with EMEA Finance Best Investment Finance in Ghana 2015 for its real estate financing activities.