What is an SPV? Why are They Used by Property Developers?
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with Rory O'Mara
Rory is the Owner of Closed Bridging Finance which provides bridging, development, HMO and Auction Finance from £26,000 to £1M for both commercial and residential property.
A Special Purpose Vehicle or SPV is generally a type of company that can be set up to hold a property. Where property developers want to obtain finance for their projects an SPV is normally used as it is a company that can be used on one project only and therefore represents fewer risks and liabilities for the lenders.
Amy: What is a Special Purpose Vehicle, an SPV? Could you just explain how they could be used or utilised by property developers?
Rory: We found a project... So, I had a development with a joint venture partner, recently. We set up an SPV, so, it was a brand new, non-trading company. It has no history, new directors, we've got our shares. We put in our seed capital, we've lent the company and we were obtaining some developer finance. It was very, very simple because it's got no baggage.
One of the challenges lenders have when they lend to a trading company, "What are the liabilities of that trading company?"
So, let's say they are selling widgets and then, maybe, there is a legal dispute with a customer, ranging back to five or six years ago. Could that have any impact on that business?
Are there some debentures in place or some other charges that, perhaps, were not clear?
So, essentially, you find a development, set up a new limited company, no baggage, no history. You crack on and you do the project, you complete it, you either sell it or you keep it and you then go through the formal process with your advisors to, possibly, close that SPV down and then you move to another one.