Are you a housebuilder or developer looking to grow your business?

Housebuilders’ head office operational costs have invariably been funded by the business owners, project profits or third party investors.   Current market conditions favour housebuilders, but as ever it's about maximising the opportunity when it presents itself. 

Most development finance lenders allow a level of management team overhead to be run through the SPV cashflow, but it's usually not enough to fully fund a growing business. 

The availability of growth capital for this purpose has improved, and recently there have been individual investors and established private equity funds investing in this sector. 

Striking a balance between access to capital and maintaining control is key. 

These investments are being used by developers to open up new sites, amass land banks for a consistent pipeline, or to act as the equity needed to access cheap 60% LTC senior debt. 

It's also useful to be able to pre-fund a growth in full-time head count, to lead to more development activity. 

Investment amounts vary, from a few hundred thousand pounds, into the millions, with investment terms ranging from 1-5 years.  

Investor expectations consist of two components: 

1. An annual coupon or interest rate, which can be serviced monthly or rolled up.
2. Capital return, which can be an IRR or multiplier based model, depending on the profitability of the business. 

The investment partner doesn't have to be a friend for life, but just for a defined period. Ensuring that their role and input is clearly defined is crucial, as the primary role of the capital is to grow the business, not to run it. 

If this sounds like a means which could help you grow your business, then get in touch to discuss specific figures relative to your business, and your aspirations.

Jamie Davidson, Managing Director

07919 863 034
Jamie@ConduitFinance.com

Online Property Finance Brokerage Delivers

When you want to move fast you need options. By using online property finance brokerage www.PropertyFinanceFinder.co.uk our client secured a market beating facility at 0.85% per month, and it was done quickly. Time pressure was a factor with the change in tax laws due on the 1st of April.  

By controlling the process the borrower was able to personally select the most suitable lender for his needs based on pricing, loan to value and geography. He selected a flexible lender who was new to market, which helped him secure the loan without the need for lengthy application forms or multiple layers of lenders underwriting. 

The lender had been recently added on to the platform so the borrower benefited from a new to market lender, despite the funder having limited profile at the time. Providing borrowers with access to best in market pricing is something we do every day. Our research team are constantly speaking to new and established lenders to understand how they can offer our property developer and landlord clients the best possible deal every time they need to borrow. 

Having delivered the desired loan quantum with a lenders fee of 1.00% and at an interest rate of 0.85% per month with no exit fee, our client was extremely happy.  

By ensuring the process moved along swiftly on both sides of the transaction, the deal was completed in 4 weeks. 

We now look forward to assisting this borrower with long term finance, as we work to launch the new property investment component of Property Finance Finder. 

To view which lenders could offer the best rate, or the highest loan to value please visit www.PropertyFinanceFinder.co.uk.

Fund to Peer or Peer to Peer?

Tighter regulation on retail banks and looser regulation on new to market lenders, initially without any regulation, has resulted in a marked increase in the volume of property lending provided by peer to peer lenders.

Business models, mostly the ones seeking growth, are moving away from the retail investor as they are too slow to react and their cost of capital reduces the net return for the platform/peer to peer business.  They have adopted family office or fully institutional funding lines.

Most volume lenders rely in the first instance on a primary underwriter to take on loans quickly, then the constituent slices are sold down to the individual people classified as retail lenders.

The primary underwriter position is a very lucrative one as their pot of liquidity can be utilised many times during a year, so the annualised returns can be multiples of 1000%.

Most of the lenders we speak with rely on a pension fund or private equity investor to write the "larger" loans.  Most are actively seeking new funding lines for growth, before the big sell off comes and the peer to peer platforms are bought directly by private equity funds.

Smaller lenders can operate profitably without the need for deposits or the additional complexity of Financial Conduct Authority “FCA” approval.  That said, we are yet to see a full cycle; lend / repay / default / recover / re-lend, or even multiple full cycles to generate reliable data on risk, returns and defaults.

Counterparty risk is a hot topic and specifically relevant when considering new borrowing. Estimating how aggressive or consultative a lender will be if you default is almost impossible, but you can guarantee insolvency practitioners are currently courting peer to peer lenders for future work.

There are so many providers in the various sub-sector spaces within the market that tracking them, and their daily evolution, is challenging.

Jamie Davidson | Loans over £10m and restructuring | Jamie@ConduitFinance.com
Andy Lawson | Loans over £1m | Andy.Lawson@ConduitFinance.com
Edward Page | Loans under £1m | Ed@ConduitFinance.com
Sean Crombie | Business Development | Sean@ConduitFinance.com
Mark Reidy | Business Development | Mark@ConduitFinance.com

The Evolution of Highly Geared Private Debt

The Evolution of Highly Geared Private Debt

In both vanilla and also restructuring transactions private debt is playing a pivotal role in making transactions happen.  The use is broader than its name might suggest.  It spans both corporate and property borrowing, and can come from private individuals, family offices or from larger funds.

There is a global availability of private debt lending from a range of sources, all of whom are hungry for an upper single digit, or double digit return per annum.  There are a number of local, US, European and Asian funding lines currently active in the UK.  These lenders are active in London but the real margins they seek are accessible in the regions.

Their appetite and liquidity is driven by a number of macro reasons such as the contraction of
European and U.S retail bank’s balance sheets, and the lack of dividends and yield available from equities.

These lenders have several unique selling points, such as short reporting lines that enable quick decisions to be made, pan‐European appetite out of one main office, and their flexibility when structuring covenants.  

If their benefits were ranked then gearing would be number one, certainty and ability to quickly deliver as number two, and number three would be the repayment structures, which can be interest only, rolled up or back loaded.

Recent term sheets we have delivered include: 

• 75% loan to value (LTV) facility on a single tenant office investment acquisition, at a 6.00% rate with only 4 years remaining on the lease.
• 90% LTV for a well located commercial building refinance at an 8.00% rate, which was going through a Bank of Scotland Business Support Unit (BSU) restructuring.
• 75% LTV bridge finance facility at 1.00% per month, for a hotel and land site exit from Royal Bank of Scotland Global Restructuring (GRG).

Pricing can vary depending on the transaction, with the leanest rates from 4.00% per annum for well located property investment lending, up to 15.00% for infrastructure lending.  They invariably seek “make whole” provisions to ensure they get a fixed return.

Much like the rest of the UK property and corporate lending market, there is a brisk evolution happening.  Interest margins are being compressed and there is a gradual uptick in LTV’s, which leads to a direct correlation in increased risk.

The record high volumes of lending in 2015 look set to continue into 2016 and beyond. 

Jamie Davidson I Managing Director I 0131 564 0172

Search for private debt bridging options here: Property Finance Finder

www.ConduitFinance.com