‘Alternative lenders’ will play a pivotal role in post-COVID development finance market: Hilltop Credit Partners

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.”


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BDC 315 : Apr 2024