Real Estate in New Jersey

Real Estate in New Jersey is a very valuable commodity.  Whether you are referring to North NJ, Central NJ or South NJ; real estate in New Jersey has a tremendous amount of value.  This is if you are interested in selling or buying.

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This is from a recent article from Legal Week

 

Real Estate: Flexible financing

Securitisation offers a tax-efficient method of unlocking value from property portfolios while ensuring ownership is retained

Since its introduction into the UK in the late 1980s, securitisation has transformed the UK real estate market . New structures and instruments have become available for lenders and investors who wish to participate in the attractively high returns which can be made from real estate debt.

Owners of property portfolios, on the other hand, have been able to exploit this demand by converting what was once generally regarded as little more than an intractable item on the balance sheet into an asset of major strategic value.

Perhaps the most notable recent example of this approach was the £2.07bn refinancing by Sainsbury’s Supermarkets Limited (SSL) of 127 freehold and leasehold supermarket sites. With the proceeds, SSL was able to purchase all its outstanding unsecured bonds (totalling £1.7bn) as well as making a one-off £350m contribution into the company’s pension scheme.

Other notable securitisations have been British Land’s £2.08bn refinancing of Broadgate, which completed in March 2005, and (in earlier times) Abbey National’s £45m outsourcing of its property interests to Mapeley.

With the right structure, a securitisation can raise close to 90% of the value of the portfolio whereas, if the borrower used the portfolio as security for a conventional loan or debenture, lenders would insist on a significantly lower loan-to-value ratio. This is because the amount the lender is prepared to advance, and the interest rate it will charge, is based on the credit rating of the tenants rather than that of the borrower.

Securitisation is tax-efficient and allows liabilities to be moved off balance sheet, thus improving capital adequacy and insolvency ratios.

The proceeds of the refinancing can be used to pursue major investment in key elements of the property owner’s core business, in reducing the interest burden arising from more traditional borrowings (the Broadgate securitisation reduced British Land’s weighted cost of debt from 8.9% to a figure substantially nearer 7%, saving it some £13m in annual interest charges), or in one-off lump sum payments, such as the pension fund contribution made by SSL.

Darren Shapland, SSL’s chief financial officer, appeared to cover all the bases when he said: "The refinancing provides us with cost-effective long-term finance by unlocking value from our property portfolio and at the same time retains ownership of these valuable assets. This improves the long-term funding profile of the business and provides a flexible financing platform for the future as well as underpinning the ‘Making Sainsbury’s Great Again’ plan as we continue to improve our offer to customers."

There are a number of ways in which a securitisation can be structured. In the case of SSL, the 127 stores were refinanced by way of two commercial mort-gage-backed securities (CMBS) issues. Two special purpose vehicle (SPV) property subsidiaries of SSL were created, to which the stores were sold. These stores were leased back to SSL by the SPVs on fully repairing and insuring (FRI) leases with upwards only (index-linked) rent reviews. Term notes were then issued to the capital markets which, via a secured loan structure, had the benefit of security over the stores transferred to the SPVs. Repayments on the loans are financed out of the rental income received by the SPVs.

An alternative to structured lending is sale and leaseback. Last year, Tesco secured two substantial sale and lease-backs of parts of its portfolio. The first, a £366m property sale and leaseback of 12 stores and two distribution centres to Consensus Business Group, completed in March 2005. The second, completed in November 2005, involved the transfer of two retail warehouse parks, each anchored by a Tesco Extra store, into Jersey property unit trusts (JPUTs). Tesco then sold half of the units in the trusts to Morley Fund Management based on an aggregate value on completion of about £270m.

Another approach was Abbey Nation-al’s £457m sale of its property interests to Mapeley. Abbey’s entire freehold and leasehold estate of 1,300 properties was transferred, with the properties then being leased back to Abbey for terms varying between one and 20 years. Market-based, annually indexed rents were agreed for each property on terms far more flexible than the institutional norm. Under this structure, Abbey effectively outsourced its real estate function to a third party. Not long after, BT followed suit with the massive outsourcing scheme involving its entire UK portfolio.

Rising real estate values and investor interest in secured debt means companies will continue to use debt securitisation and asset-backed securitisation to release value from their property portfolios.

The Sainsbury’s transaction has been described as "cutting edge". The use of CMBS to reduce pension scheme deficit is a course of action that is likely to be copied. Tesco and Marks & Spencer have both tapped into the CMBS market before and other retailers with substantial freehold property portfolios are likely to follow suit. 

Tip #23

Home Buying Tip, Big Ticket Items:
Before you buy a home you should avoid buying any big ticket items.  When this is found out during the credit process or reporting it can make mortgage banks nervous.

Even if you will be able to get a loan, you might not be able to get the best available interest rate.

 

Tip #24

Home Selling Tip, Listing Right:
A common mistake when people list their house (especially in a buyers’ market) is list the house at a high price that they don’t anticipate to sell it at.  They figure that if they get it then GREAT but if not they can always lower the price.

This is not a good practice because what mostly happens is it will stay on the market for a while and make potential home buyers nervous because it’s been on the market so long.