Referencing a recent CBRE report, CEO Paul Oberschneider discusses how the already rising participation of non-bank lenders will be even more instrumental in the months ahead.
The
coronavirus pandemic has hit the housing market hard but this does not mean
that developers looking for financing are out of options, says Hilltop Credit
Partners, adding how a combination of factors will translate into specialist
finance providers coming to the forefront for filling in the funding gap. The
West-End fund is a specialist funding partner for small and mid-sized
residential property developers and house builders in the UK.
A recent CBRE report which references a Cass Business School report heavily,
clearly states that the development finance availability in the UK has
contracted since the COVID-19 outbreak with fewer lenders considering new
opportunities and most focusing on their existing loan books. The determining
factors involved are the natural risk associated with development finance where
the exit dates and values are uncertain, valuations becoming more ambiguous
with materiality clauses being included, banks being scrutinised for tighter
capital adequacy norms and other issues with the development like delays or
contractor insolvencies.
But in a vote of confidence for ‘other lenders’, the reports show that these
lenders, primarily the debt funds, have provided significant capital last year
and recorded a 4 percent increase in loan origination to £7.9 billion.
Talking about the report and the changing face of development finance in 2020,
Paul Oberschneider, Founder and CEO of Hilltop Credit Partners, said: “The UK
housing market is riddled with a supply-demand mismatch. As highlighted in the
CBRE report, importance of non-bank lenders will continue to rise in the post
Covid-19 world as high street banks with legacy portfolios will become more
risk averse and recede from the market to better manage their balance sheets.
Banks will also expect developers to provide more equity upfront as leverage
will be curtailed to more conservative levels.”
“Securing funding has been needlessly time-consuming and expensive for the SME
housing developers. Even in a pre Covid-19 world, developers were required to
navigate complex arrangements in the borrowing stack and raise funds from
different lenders because banks were not ready to stretch enough. These
challenge are set to become more prominent in the post Covid-19 world due to
the factors listed above. For the standpoint of a developer, this means reduced
access to capital, increased costs due to various professional advisors being
involved and delays which will be inevitable if you have to deal with multiple
parties.”
“At Hilltop, we are determined to support UK’s housing developers in what is
one of the most turbulent economic climates we have seen in our lifetime. We
were established with a mission to ease access to funding for SME developers
and our products reflect that. We go that extra mile compared to the market at
large, let alone high-street banks, and we also assist developers on the equity
side providing a comprehensive one-stop solution. This is because we understand
the uncertainty facing the housing market at present and are cautiously
committed to funding high-quality assets and developers. Our recent £8.6m funding
for residential development in Brondesbury, London and plans of disbursing £75m
in the coming months is a testament of our commitment to the UK housing market,
and especially the SME housing developers.”
Tiger Craft, Partner and CFO, adds: “There will always be a demand for homes
and no lockdown or financial challenge is going to change this reality. To
achieve this, we work closely with the developers and help them move quickly so
they can secure sites, build homes, and sell them in a fast, cost-efficient
manner. As stated in the CBRE report, the best sponsors with the strongest
schemes will find finance regardless and unlike traditional lenders, we operate
like a private equity house. We effectively back the management team therefore
our credit underwriting is more robust and our interests are always aligned
with the development team as the focus is on a successful exit.”