Taking and perfecting security

Real estate finance is a type of secured lending. Security in real estate finance transactions is particularly important because the borrower is usually a special (or single) purpose vehicle (SPV) (also known as a 'special (or single) purpose company' or SPC) which is set up specifically for the proposed transaction (ie to purchase an existing investment property or to purchase and subsequently develop a prospective investment property). This means that the borrower will have no history of operations and its only assets will be those related to the property and, if applicable, its development.

As a result of the SPV structure, the credit risk associated with the borrower is usually of less importance to lenders in real estate finance transactions than in a straightforward corporate loan transaction. A comprehensive security package is one way for the borrower to enhance its credit and increase the lender's confidence about being repaid.

Types of security generally

A funder's primary concern is that it is repaid. The main advantages in taking security from a borrower are to give the funder:

•
rights against specific assets of the borrower

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