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Specialist Healthcare - GP owned developments

Brochure

Frequently asked questions

Business Finance Plus have developed a specialist niche to GP led developments where we produce the financial modelling - assessing total project costs and repayment profiles, advise, arrange and place lending. Working closely with project managers the models are developed to ensure income and expenditure are projected for the long term and can support the estimated debt, providing reassurance to the clients, bank and PCT.

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What do we do

What will it cost

Who are we

Martin Shearwood (Business Finance Plus)- 20 years banking and finance experience, involved in managing businesses, credit underwriting management, lease and finance structuring operational management. Working on GP developments for the past 6 years.

Why deal with us

To assist clients assess and decide on their options to end own and whether it is viable or indeed feasible before too much expenditure or commitment is incurred. Provide the complete outline and awareness of what is required to get a scheme successfully built with the appropriate PCT, or appropriate body support, and the right level of lender support demonstrating value for money and debt serviceability from day 1.

We individually offer a fixed cost as a % of the project or estimated finance balance required. Should a scheme prove not viable for whatever reason then the costs will be minimised from our involvement (with our fees limited at the start until viability or PCT support is confirmed) before too much expenditure is incurred.

We facilitate the whole process of the GP build from initial assessment and viability, PCT body rent reimbursement, introduce a selection of suitably experienced professionals for tender, and facilitate the lending.

What we do

'A One Stop Shop Solution' to GP’s considering the end owner option available to them when premises development is required.

For the past 6 years have been involved in the process of assisting GP’s either finance the re-development of their existing premises or develop new premises.

We will also assist clients with their existing funding arrangements and those who find themselves part way through projects and require guidance and/or services.

Working with Building Project managers who understand the requirements of the sector what has evolved is a team of people who offer an alternative to LIFT and third party developed and owned primary healthcare properties.

In essence, the team, whilst all independent, offer a collective one stop shop solution to building, funding and end owning a medical health centre. The finance is based on up to 100% funding of the project requirements with no cash inputs from the participating GP’s for the GMS elements.

The process includes:

  1. Feasibility, viability and risk assessment of project
  2. Project planning/co-ordination
  3. Rent re-imbursement and other lease income
  4. Building (design & build)
  5. Pre and post completion funding /risk assessment

We have a successful record of completed developments and current clients at various stages within their development. The estimated borrowing on the schemes currently average around £5m, ranging from £2m to £11m to-date. All of the schemes are different as are the various PCT’s and District Valuers we have dealt with. Some practices have taken on their own developments and others have got together with local practices to jointly develop a new healthcare centre, thus sharing the added services and benefits this can generate. To date we have been involved with around 20 schemes in one form or another around the UK.

  1. Feasibility, viability and risk assessment of project
    • The initial meetings and work determine whether the opportunity to develop has the support of the Primary Care body responsible for estates, together with size dimension and/or a rent re-imbursement budget to work. Dependant on the size of the non GMS areas we will assess what levels of rent will be required from other tenants and/or any cash injection that may be required.
    • The team will discuss the elements and challenges to face when taking a development forward:
      1. Is this something that you want to do
      2. Who does and who does not wish to be involved within the proposed ownership model
      3. The issues and options surrounding deciding on the business entity into which your property will be held.
      4. Understanding how the funding process will work and choosing the right lender
      5. Identify other tenant opportunities as appropriate
  2. Project planning/co-ordination
      1. Introduce and facilitate legal teams, architect, building contractors for tender all with appropriate experience in the nature of these projects
      2. Producing initial cost plans and indicative cost appraisals
      3. Preparation of business case to be submitted to the PCT bodies at the Outline and/or Final Business Case stage
      4. Confirmation and commitment of PCT body and tenant Heads of terms
  3. Rent re-imbursement and other lease income
      1. Review indicative cost appraisals and model to determine sufficient rent re-imbursement from PCT body and/or other proposed tenants.
      2. Structure and profile with any known fixed uplift parameters to match the lending parameters to be worked to, with sensitivity to interest rate trends/current fixing opportunities. This will also determine the level of rent required from the non GMS areas and/or the level of any cash injection required
      3. Checking size dimensions and drawings match the rent per square metres proposed.
      4. Ensuring the correct net internal area has been applied
      5. Ensuring the District Valuer breakdown of rent matches the model and PCT body budget. Check on what is included or excluded (Vat, sinking fund, business rates etc) and negotiate any uplift mechanisms, as appropriate or possible
  4. Building (design & build)
      1. Introduce for tender at the correct stage the building contractors and professionals. These should include those who have experience and knowledge and prove experience of these types of projects.
  5. Pre and post completion funding /risk assessment

    The team have developed relationships with specific banking teams who are able to take our projects, wherever located within the UK, from inception through to completion before and/or if any local hand-over occurs. This enables us to provide consistency with the rates and terms we have achieved for our clients, and provide sound points of contacts for the legal and professional teams during the build process. Working with bank relationship teams and their underwriters who understand the process and policy that has been developed within their owns banks is imperative. The funding process:

      1. Provide packaged information and brief the selected banking teams for tender process. This comprises:
        1. Briefing summary of proposal
        2. Business case
        3. Indicative cost and proposed repayment model
        4. Last 2 years practice accounts
      2. The funding proposal comprises 3 stages:
        1. Pre-start on site overdraft facility set-up in the new business entity name – generally set-up at 5% of the estimated total required for funding. This carries the personal guarantee of the GP owning partners if limited company
        2. Development finance phase from the start on site date sees all of the pre-start on site overdraft transfer and the personal guarantee to fall away. This is replaced by a cost overrun guarantee at the same levels as previous (5 - 8% of estimated build). During the building phase the interest is accrued therefore no repayment liability falls due during and up to this phase. It is at the beginning of this stage that some type of long term interest rate fixing will be entered into to protect the clients from too much interest rate exposure.
        3. Practical Completion. Once the building is complete the receipt of rent and thus the repayment of debt will commence via a long term mortgaged arrangement, secured by the property and more importantly the lease arrangements entered into. If a limited company all personal guarantees fall away at this point.

    The financial models are constantly being reviewed and updated with an average of 40 being completed during the average scheme. Updating the lender and client at each stage maintains clarity and confirms and ensures continued affordability.

    When assessing the lending model only known rent income will be included. We also strip out any sinking funds or service charge elements from the income, applying this net figure as the base rent income We then apply 92-95% of this netted figure to repay the loan (please see a sample model), which has proven to our lending panel.

    When discussing the interest rate fixings that the banks will propose/recommend we can model the effect of proposed future income rises and illustrate how the debt reduction may or may not be accelerated and/or be effected by part fixings, shorter term fixings and resultant higher interest rate thresholds. All of this allows an informed choice to be made by the client and their advisors.

GP Practice Schemes

A sample of current and Completed projects

Summary

There are 3 key stages to take a project to the ‘start on site’ date which requires all of the business structure and finance to be in place - this is the time when the building work commences:

Not all schemes go through all of the earlier stages

Stages of the Process

Finance Related Terminology

Frequently asked questions: GP Property Developments

Q. How do we go about establishing whether it is feasible and affordable to develop a new premises or upgrade/extend our existing property ?

There are a number of steps that need to be taken to reliably fulfil this with certainty, each of which have significant importance to the other. Namely;

Q. How do we establish how large the development should be ?

The building should be an appropriate size to house a range of services to meet the registered population needs both now and in the future, by means of projected population growth. This should also recognise movement in population, proposed housing growth, the potential to merge or jointly occupy premises with other neighbouring practices (providing added value for money for the NHS), and patient demographics.

There are currently 3 sets of guidance in use by PCT’s that assist them determining the supportable size of the building by way of rent reimbursement. It is therefore imperative to understand which applies to your development.

Consideration should be given to other appropriate services that may wish to be housed within the building as a tenant. Notably; pharmacy, dentistry, optician, nursery, physiotherapy etc.

Q. How do we go about arranging funding for a scheme ?

Talk with a lender at the start of the scheme having established that it is viable and supported by the appropriate NHS body. However, the lender will only formally be able to provide a credit sign off to allow the build to commence when in receipt of the following:

It is important to understand the above and what is required and when. All lenders will demonstrate their willingness to support a project. However, it is key to ensure you have established a contact that really understands this specialist sector of the market.

Typically, these projects need to be funded with a high loan to value ratio (upwards of 90% of the gross developed valuation) and not all lenders will be able to support this. The key is to model and evaluate the strength of the projected lease income from the NHS and other tenants and demonstrate serviceability of the loan.

The specialist lenders recognise and understand the nature of the income and will be prepared to support and fund these schemes. It must be understood, however, that the NHS income alone on day 1 may not fully service the debt. The difference maybe picked up by the additional tenants or by the practice(s)/participants. This maybe by signing an additional lease to cover an income shortfall until future rent rises negate the need, or by initial capital investment at the outset to lower the overall level of borrowing.

Generally, if there are costs prior to the start on site a lender will provide a sufficient overdraft. Given this maybe unsecured the practice(s)/participants would be expected to personally guarantee. The required level for this pre-start stage can be approximately 5% of the overall project cost. It is important to assess this requirement early on so as not to place undue pressure on existing lending facilities.

Once the build has commenced and is within the development stage the practice(s)/ participants will also be expected to provide a cost overrun guarantee (again this could be around 5% of the project value). It is important that both from an individual and lenders perspective to point out this represents the ‘true risk’ period of the project. It is therefore key that only experienced architects, project managers and building contractors are requested to tender your build. In terms of your cost overrun guarantee the build contract terms should provide a fixed price to you, therefore, the price would generally only rise if the practice(s)/participants start to change the build design in any way part way through.

Q. How do you achieve the most competitive cost for your development without effecting the quality and reliability of the project ?

Q. Has the Practice(s) considered end-ownership of the development ?

It may not be right for everyone and as a group it is important early on to openly discuss the issues and benefits, compared to the alternatives of a 3rd party developer/owner.

Pro’s :

Cons :

Q. What business entity should the building be placed ?

There is no clear right or wrong answer to this question as it will be based on individual circumstances

The important factor is to discuss the above fully with both your accountants and legal advisors as appropriate to ensure everyone understands the issues and can therefore make an informed decision