What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
The providers of real estate financing in Ireland can be broken down into two types:
- domestic (traditional) banks who have branches and relationships at a local level; and
- non-traditional lenders who have become more prevalent in recent years.
The difference between the two lies largely in the risk appetite and commercial terms on offer. The non-traditional lenders are subject to neither state ownership nor all of the regulatory restraints of domestic banks and lend at higher margins with various forms of prepayment, arrangement and exit fee mechanisms. They can also move quicker than domestic banks, who have more stringent reporting obligations and credit committee approvals and protocols to adhere to. The non-traditional lenders can provide finance to corporate entities on an unregulated basis, but cannot lend to consumers or individuals.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
The most common form of real estate finance structure is an all assets debenture from a corporate entity borrower, with share security over its shares (which are normally owned by another corporate entity). It is becoming increasingly rare to see the use of personal guarantees. A lender will look to put in place security at all levels of the group structure. It is also common to see subordination agreements where other third-party loans to the borrower are subordinated to the senior debt. If there is security for these other loans, an intercreditor agreement may be required.
What covenants are typically made in financing agreements?
Covenants are negotiated on a transaction-by-transaction basis. In a real estate finance transaction the following categories of covenant and undertaking are common:
- financial covenants;
- information undertakings;
- general undertakings; and
- property undertakings.
Some of the most common financial covenants are:
- loan to value;
- debt service cover; and
- interest cover.
It is common for a facility agreement to include a limited number of ‘covenant cures’ whereby breaches of the financial covenants ‒ which are normally tested quarterly ‒ can be cured by way of a cash injection.
Enforcement of security
How are security interests enforced in the event of default?
Under normal circumstances, a demand letter will be sent; if this is not satisfied, the secured lender can then proceed to appoint a receiver. The steps that need to be taken will be dictated by the security document entered into by the parties and in some instances the statutory powers available.
What is the typical timeframe for the enforcement of security?
This will be dictated by the terms of the security document, but ordinarily a receiver can be appointed within 14 days from the issuing of a letter of demand. The length of time from the appointment of the receiver to the sale of the secured asset will vary greatly depending on the nature of the asset.