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6.2 STRUCTURED FINANCING FOR fl REAL ESTATE PORTFOLIO ACQUISITION

6.2.1 Description of the Portfolio Acquisition

The investor requesting the loan described below (the borrower) intends to purchase a leasehold portfolio with a view to selling the properties individually, with the expectation of capital gains resulting from the portfolio disposal asset by asset. Block sales of real estate portfolios occur at lower prices compared to the sum of the value of the individual properties since the former are assets for which there is a more limited market, which means that a discount has to be granted in view of the reduced liquidity (illiquidity premium). For this reason a positive margin can be created between the purchase price for the portfolio and the sale price of the individual properties.

Portfolio description

FIGURE 6.7 Portfolio description

The rental payments can be used to pay interests, whilst the loan will be repaid as the individual properties are sold as shown in Figure 6.7.

The portfolio is acquired with a deposit of 25% of the price upon signature of the preliminary sale and purchase agreement, with the balance due upon completion of the sale process, when the loan will be drawn down.

The appraisal value (OMV) represents the expectations as to the sale price of the individual properties following the portfolio split. A net increase in rents of 2.5% per annum in line with inflation is assumed.

Since it is not possible to determine the order of sale ex ante, a hypothetical sequence will be presented in Figure 6.8, including the relevant residual OMV of the portfolio. The selling sequence is only one of the many different scenarios that can occur according to which property is sold and in which time period. Figure 6.9 shows the expected operating cash flows of the transaction.

 
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