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ISSUE 9 MAY/JUN 2020
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Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Reporter Andreea Dulgheru andreea@medianett.co.uk Contributors Richard Reed Tim Wickham Sales and marketing Caron Schreuder caron@medianett.co.uk Special thanks Tom Reeder, Rostrum Saam Lowni, Hilltop Credit Partners Jeremy Stevens, Oblix Capital Shazad Ahmed, GPS Financial James Bloom, Alternative Bridging Corporation Niall Cluley, Dragonfish UK Tom Sleigh, Colliers International Michael Dubicki, Flexioffices Andy Golding, Hilltop Credit Partners Helen Dugdale, Scribble Jackie Tomes, Property Strategy and Tomes Homes Printing The Magazine Printing Company Design and image editing Russ Thirkettle, Carbide Finger Ltd Bridging & Commercial Magazine is published by Medianett Ltd Managing director Caron Schreuder caron@medianett.co.uk 3rd Floor, 71 Gloucester Place London W1U 8JW 0203 818 0160 Follow us:Twitter @BandCNews | Instagram @BridgingCommercialMagazine
F
irstly, I am so proud to announce that, while we have only been in print for 16 months, Bridging & Commercial has been shortlisted by the Property Press Awards 2020 for Property Trade Magazine of the Year! Congratulations to the team that works so hard on each issue—we are over the moon, and have our fingers crossed for the win. We have now been working in lockdown conditions for more than two months, and it’s been nothing short of inspiring to see a sector (and an entire country) adapt so well. It’s also been refreshing to see the professionals who make up our market—which is known to be fast-paced and stressful, to say the least—enjoy a better work-life balance. The time spent commuting has been shifted to family and friends and new-found hobbies. For example, the two hours (and sometimes more) I would normally spend on London buses and tubes each day, I now spend watching movies and cooking with my family, discovering new yoga postures, and gardening. Even my mum is shocked at that last one, considering the only plant I have ever managed to keep alive is a rarely-needs-watering succulent. After spending more time and money on greenhouses and compost than I have done on anything else in the past month, I now have six different types of chilli pepper, potted vegetables (mainly beginning with C, and all at varying stages of ‘success’), and a rare geranium I can’t pronounce the name of. I am appreciating the simpler things much more, and learning to fully switch off in my personal time—something I will continue to do after all of this is over. And, while the property sector was recently given the green light to reopen, and wider activity is starting to pick up again, I hope that you all do, too. Among all the changes to working and personal lives, it has been extremely heart-warming to see the specialist finance industry pull together in a charitable way. To recognise your endeavours, we have highlighted some of the amazing initiatives in this issue’s Limelight [p81]. While it is challenging to decide what to investigate and discuss in a bi-monthly magazine (due to things changing on a daily basis), we believe we have covered most questions that you will be asking now and into the future. On [p28], we reveal the lessons learned by business leaders during the Covid-19 pandemic, and what the landscape of the bridging market is predicted to look like later this year and beyond. Has our sector recalibrated for the better, or will we see the same unsustainable practices emerge in months to come? We have also interviewed those that have been able to continue lending and supporting brokers throughout all of this, identifying exactly what underpinned their malleability [p8, 16 and 23], and how a stronger focus on company culture [p40] and a new working world order [p54] is not on the horizon, but already here. If you are struggling to stack things up for your clients from a leverage perspective, we delved into the use of mezzanine finance as a tool during and after the outbreak [p77], how interest charging models may (or may not) change as a result of these unparalleled times [p73], and why you should be heading to virtual property auctions to build up your business pipelines [p48]. With valuers and construction workers now back to work, and non-essential shops set to open their doors again shortly after this magazine lands on your doorsteps, we are likely to see increased momentum. However, following social distancing guidelines and discussing, planning for, and respecting each other’s capabilities, ahead of time, will be vital throughout what is expected to be a series of phased stages during the rest of this year. To quote one broker in our cover story, “the market takes the elevator down, but the steps back up”—we should be looking to take the sustainable route.
Beth Fisher Editor-in-chief
3 May/Jun 2020
8 16 28 40 48 60 73 76 80 84 A lot of brokers work for themselves and are isolated like this a lot of the time p8 4 Bridging & Commercial
Exclusive Interview Cover story People Zeitgeist One day View Explained Limelight Backstory
The bridging market goes back to basics
Masthaven / Hilltop Credit Partners
“Not everyone should be a bridging lender�
The time to invest in a cultural revolution is now
From ballroom to bedroom / A new working world order
Brb, attending an online event
Something that has piqued our interest
Is mezzanine having a moment?
Charity special
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COVID-19 STATUS: During the unprecedented period of ‘lock down’ we have endeavoured to operate as normally as possible to serve our clients. The nature of our industry, coupled with modern technology and the ability to operate remotely has maintained if not strengthened relationships with both our lender partners and clients alike. See you on the other side! Best Bridging Newcomer
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A DIFFE MINDS
ERENT SET Words by
BETH FISHER
The bridging market’s hottest commodities have had to leave the motorway for their mobiles. With only a fraction of the sector’s lenders still in action, business development managers have had to switch gears to be able to keep pace with brokers’ demands
Exclusive
“Hopefully, there will be greater resource available through BDMs who are actually able to help a transaction, rather than just be a face or name for a business”
W
hile businesses that have prepared and managed to quickly adapt are more likely to be on a stronger footing than their peers, it understandably takes time for individuals within these organisations to get used to the changes. This has been felt even more so by our market’s most recognisable (and well-travelled) cohort—the BDMs. To find out how bridging’s driving force has taken on the challenge, I caught up with MT Finance’s entire sales team to chat about how they are adjusting, opportunities that their new working environment has opened up, and by what means they have been able to continue offering support to brokers, old and new, during a time when they need it most. On a delightfully sunny Monday afternoon, I fire up Zoom— something I wish I bought shares in earlier this year—to speak with
commercial director, Gareth Lewis (who was comfortably perched in his garden, before being forced into his garage-turned-office due to a microphone fault); senior BDM for London and the South East, Christian Gugolz; BDM for the South West and Wales, Richard Sherman, and fresh recruits Chris Parr and Rory Cleary, senior BDMs for the Midlands and the North, and London, respectively. To set the scene, the industry has watched the bridging market go from full throttle in January, following Boris Johnson’s majority election win—fuelling a positive bounce to 2019’s sombre property market and further igniting the abundance of lenders’ risk appetites—to a veritable standstill in just a matter of weeks. It was like accelerating from 30mph to 90, and then being told to do an emergency stop—quite literally. While the UK was aware of the coronavirus and its initial impact in China earlier this year, it wasn’t the serious concern for the lending market that it is today. However, having foreseen what might happen, MT Finance started test running its team’s ability to work remotely in early February, so that it was able to jump to a ‘from home’ policy quickly, if required. This meant that, when the prime minister sounded the lockdown alarm on 23rd March, the lender was ready the following day. In fact, while many lenders have pulled away from the market, MT Finance has expanded— both in terms of the volume of enquiries it has received and the size of its sales force. Gareth rationalises that continuing with its growth plans in bringing on Chris and Rory means that the lender now has a broader team to help brokers find crucial solutions for their clients. “I think the ability to be able to perform like we have done, without any seemingly drastic changes to our process flow, has been brilliant,” Gareth says. “You’ll probably find there were a lot of businesses that moved to working remotely with all their staff and had a huge amount of issues, because it’s a completely different environment. You’re suddenly turning around and telling people to work from their bedrooms, home offices and dining room tables,” he details. With brokers and their borrowers left “in limbo”—
Gareth Lewis
Exclusive
“A lot of brokers work for themselves and are isolated like this a lot of the time, so it can become a very lonely war for them, and they work very hard to get those deals in. Suddenly, they are having their livelihoods challenged and they want quick answers”
as Gareth puts it—the specialist lender changed its approach to valuations in order to be the go-to for more cases. While it is not currently allowing AVMs or desktop valuations, it has been able to look at existing valuations, whether they are on MT Finance’s panel or not, to see whether they can be retyped with an audit. In addition, April saw it launch with Method—a panel manager with a tech-savvy system—in order to scale up its lending and the pool of surveyors it can utilise. By inputting property details, the system fires them out to a number of valuers on its panel. Essentially, they can quote on whether they’re able to go out to the property, provide a desktop valuation, or only visit after lockdown is lifted, Gareth clarifies. In less than a week since the partnership, MT Finance had instructed circa 45 different quotes. I ask what makes a bridging lender more adaptable to unknown challenges like this one. Gareth is of the view that a robust lender has the infrastructure and capability to acclimatise to the environment that it finds itself in. He says that the good lenders that are still active in the marketplace have the support of their funding lines to be adaptable. “No, you’re not going to turn around and jump at 75% LTV and lend on AVMs at 75% and take stupid risks,” he says, “but what you’re always going to do is look at every transaction on its own singular merits, and say, ‘How do we support it? Is there a way to support it?’” “I think there’s a very key element there as well about being responsible as a lender,” Christian points out, and the importance of not doing something you wouldn’t have necessarily done before. While its Rory’s first day with MT Finance, he tells me he “woke up confident” joining a company which started out under similar circumstances. The businesses which have been built from zero to something in a downturn have some foresight. He indicates that those lenders are the ones who know how to behave sensibly and with a level head in uncertain circumstances. I probe them as to how, on a personal level, the life of a BDM has changed over the last few months. Christian admits that he has found being homebound a lot tougher than expected. “Obviously, we’re used to being out on the road, in the office once a week … and getting into the crux of deals with the guys in
the office as well, and not doing it over the phone.” Gareth echoes this pain point, explaining that the main difference has been going from talking through a deal or scenario in person, to having numerous phone calls to discuss the same thing. “Your head takes a bit of a battering come the end of a week with the volume of phone calls, questions and queries that come off the back of that.” Richard—whose life was either spent on the road or working from home pre Covid-19—says that, besides having to multi-task home schooling and answering his phone every 10 minutes, life is pretty normal. With lenders dropping out of the market, he explains that brokers who previously had many options to choose from and haven’t used MT Finance recently, are starting to look at the lender again. Christian believes it’s been one of the busiest periods since he joined. MT
Chris Parr
Exclusive
“We’re used to being out on the road, in the office once a week … and getting into the crux of deals with the guys in the office”
Finance’s volume of enquiries has increased by 30%. “…With everybody having to drop their LTVs, I think more of the lenders have fallen in line with where we are in the market, which has seen more brokers come back to us because they’ve maybe looked at our service levels, and how quickly we can work and get things done.” Chris emphasises that going from trying to work out how to get from one side of the country to the other throughout the week, to being parked permanently at home requires a “different mindset” to what he is used to getting up and attacking the day with. But, on the plus side, it has freed up more time to speak to brokers on a more regular basis, as they are not in and out of meetings. He makes the point that brokers are similar to BDMs, which he feels a great deal of people in lending forget. “A lot of brokers work for themselves and are isolated like this a lot of the time, so it can become a very lonely war for them, and they work very hard to get those deals in. Suddenly, they are having their
livelihoods challenged and they want quick answers,” he says. Offering alternatives, he believes, can give them hope. The team reiterates the importance of using this time to talk to brokers, which includes keeping them updated on what they are able to offer, as well as just asking how they are—deal or no deal. For example, every Tuesday at 6pm, Richard and Christian invite brokers to meet them on Zoom for ‘beer o’clock’, where they discuss anything but business. “We let them dictate what we talk about,” Richard says, noting that, with Rory and Chris joining, he hopes to see even more introducers join in. “There’s no reason why that sort of thing can’t continue,” Christian adds. While there have been multiple comments from industry figures on LinkedIn about more productive ways BDMs can work in the future as an outcome of the crisis, Christian is still passionate about physically getting in front of people and building relationships—but agrees that there will be changes for companies that have broker partners nationwide, in order to reach all of them more often. “I’ve had patches that were too big and you just can’t get around them quick
Richard Sherman
Christian Gugolz
enough and see people regularly enough,” Chris discloses, believing that technology will alter the way some meetings are done in the future. Gareth admits that, at the back end of 2019, people were questioning what BDMs were truly offering brokers. Just reciting to introducers what products they offer clearly isn’t enough, especially under the current circumstances when brokers need support with more complicated transactions. “One of the big things that I used to love being able to do ed: in his BDM days was actually have an influence on a transaction and be able to resolve some kind of issue,” he reminisces, adding that it’s about trying to get a win for the broker and the transaction as a whole. “Anybody can go in and say, ‘Here’s some donuts, we’re the best thing since sliced bread,’ but it’s working with those brokers to find a solution to a tough and tricky case, which is what we expect from our BDMs—and our guys are certainly stepping up to the mark to do that for them,” Gareth tells me. “I think that’s what you’ll see come out of this. Hopefully, there will be greater resource available through BDMs who are actually able to help a transaction, rather than just be a face or a name for a business.” Rory says that being able to influence a case a bit more was one of the main reasons for joining MT Finance. “Lenders are often saying to brokers, ‘Are you an adviser, or are you an order taker?’” In fact, the function of a broker is to tell their clients what can and cannot be done. “…If you’re just allowing your customer to shout down the phone at you all day, and you’re not pushing them back in the right ways, are
Exclusive
“Lenders are often saying to brokers, ‘Are you an adviser, or are you an order taker?’” In times like these, the same can be asked of BDMs
you really doing a good job?” In times like these, the same can be asked of BDMs. Gareth postulates that brokers were probably having an easy time in the marketplace before, due to the bulk of bridging lenders that were available. Compliance may have played a leading part in this, too. Gareth believes that this was pushing too many people down the route of the “easiest choice”—rate. But was that always the best option for the borrower? Some providers which were offering low rates had to temporarily clear their product shelves and shut the doors. Flexibility— which is what bridging is all about—may finally take centre stage again. Now, brokers have to work harder to find a home for their transaction, while still ensuring it’s the right one. “They have to not just rest on best price, or the person they spoke to last, they have to try and dig deep to make a deal work and find a true solution for it.” In this sense, there are some positives that can come out of the crisis, most notably extinguishing some of the competition. In Gareth’s opinion, the current situation has meant bridging has gone back to basics—and it isn’t necessarily a bad thing. “The LTV is fundamental to comfort and mitigating your risk, and we have seen a lot of lenders really pushing those boundaries over the last 18 months and going up to 80-85%, in some instances, which isn’t sustainable because you’re quickly under water if the refinance or sales market dries up. You’re then left holding the baby,” he explains. “We work in a very highpressured and stressful environment,” he adds, noting that sometimes it’s better just to take a step back and avoid rushing in without taking stock. “There’s nothing worse than not truly understanding what’s put in front of you.” Chris concurs that it’s now
Rory Cleary
all about oldfashioned bridging values: looking at the case, the current market conditions, and finding a “happy ground” between the best deal for the lender and the client. For most of last year, Bridging & Commercial vocally questioned whether lending—the way it was heading—was maintainable. “Bridging finance is about being able to react to the current
market situation quicker,” Chris divulges. “That’s what makes it so desirable for people, in a way, because they want to be able to talk through a deal and structure it.” Now, when there are limited funding options available, brokers will need to behave more like corporate advisers—there is no room to be rigid. “This is where the really good brokers will do very well in the next 12 months,” Chris prophesises, because they will be the ones negotiating achievable debt positions with their customers’ current and future lenders, and therefore fuelling the industry. As further restrictions are lifted and feet are slowly put back on the pedals, it will be the reliable brokers and lenders who will come out of this stronger.
Our USP’s...
75% LTV on desktop valuations
Completions within days
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Residential, Refurb & Commercial
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AWA R D S 2 0 1 8 SPECIALIST PRODUCT OF THE YEAR
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2 0 1 9 SPECIALIST PRODUCT OF THE YEAR
H I G H LY COMMENDED
Aspen Offering 2020 Our Products LTV Residential (no works)
75%
Resi Light & Medium Refurb
72.5%
HMO’s
67.5%
Prime Semi-Commercial
65%
Prime Commercial
65%
Flat Rate Product: All types & LTVs:
Rate 0.89%
Stepped Rate Product All types & LTVs:
Rate
Initial Rate
0.59%
Initial Term
6m
Total Term
12m
Secondary Rate
1.24%
Exit Fee
1 months interest
Key Info Accepted Comm & Semi Comm Prime - A1 / A2 / B1a / B8 Desktop Valuations
75% LTV Resi No Works
Loan Sizes
£200k - £3 net
Borrowers
UK & Foreign
Timescales
Sub 10 day completions
AWA R D S 2 0 1 8 SPECIALIST PRODUCT OF THE YEAR
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Interview
COVID-19 TESTS TECH TO THE EXTREME Words by
BETH FISHER
While it has increasingly been adopted and recognised as a necessary investment over the past few years, technology take-up, in general, has been slow in the bridging sector. Now that market conditions are severe due to Covid-19, it has forced its way to the core of how lenders work, and there is no doubt that it will continue to be an integral fixture
O
ne lender which showed an understanding of the importance of digitisation and automation before the outbreak closed the doors on normality, was Masthaven. Having launched its broker portal in early February—offering automated DIPs and the ability to apply online and track cases— the bank has been able to keep applications streamlined, and has even seen an increase in new business and broker partnerships. This has proved to be a monumental feat at a time when sweeping adjustments have had to be made across the bank. In the first couple of weeks after lockdown was announced, Masthaven managed the major logistical manoeuvre of transitioning 170 of its employees to work remotely, with two small satellite sites in Reading and London’s Long Acre continuing to operate with skeleton staff. Then, in April, it closed the Long Acre office, moving another 10 to the working-from-home club. Consequently, it has been able to continue completing and processing loans, accepting new applications, and handling savings. I met with the specialist bank’s CCO and deputy CEO, Jon Hall, and director of bridging, Alan Margolis, to hear how they had accomplished such drastic changes, and why Masthaven’s recognition of the urgent need for technology in the bridging market couldn’t have come at a more crucial time. “We’re learning a lot about ourselves,” is one of Jon’s opening lines on the video call. “Particularly what the insides of people’s houses look like…” he adds. While I am interested to know where they call home as we turn on our webcams, I am instead entertained by the virtual backgrounds the pair have decided to use. Jon is sat in front of an inaccurate weather forecast, while Alan is hovering over a go kart. All I have to offer is severe sunburn from the Easter weekend’s heatwave. Having shifted almost all of its workforce to operate remotely, Jon and Alan update me on the next hurdle for the bank: dealing 16
Bridging & Commercial
Jon Hall
Interview
with the influx of customers calling for mortgage payment holidays. By crosstraining staff throughout the business to support the colossal effort, it allowed Masthaven, when other lenders couldn’t keep up with the high level of requests and had to pause business to manage them, to keep going. “We put 16 new people on the phones, trained them up, and picked up every contact that came in,” Jon tells me. “We monitored where calls were being dropped and made sure that we responded, and it’s meant that we’ve been able to balance the requirements of our existing borrowers—who we absolutely need to make sure we are there for in these difficult times—with customers coming through the new application and enquiry stage.” As a result, it was able to apply some of the teams in new ways and areas where there was more need. For example, it trained its business development team to be the first point of contact for these calls, as they were already well experienced in mortgage lending and had good interpersonal skills. The customers are then handed to employees who are experts in loan servicing and management. He says that, on a daily basis, it was going through lists of people, checking where everybody was at. This included identifying what they could and couldn’t do, the processes that needed to be safeguarded and tested, and which ones could be done on a separate timeline. To further adjust to lockdown, Masthaven reappraised some of its product range to make it simpler and more focused, so that it could continue to operate in the bridging, first-charge BTL, residential and second-charge mortgage markets. One way I have seen this is through the short and informative videos which have been published by employees on social media, to communicate exact changes in criteria. “The one area that we’ve felt that we couldn’t serve appropriately during this time, where we’ve temporarily ceased lending, is development finance—simply because you just can’t get a valuer or a QS out to site at the moment,” Jon explains. It is, however, working with its existing development finance projects to find ways to support those borrowers during this period. To remain active in the bridging space, the bank broadened the range of valuation services that it was able to offer. Before the property market was reopened by the government, Masthaven introduced drive-by valuations supported by an AVM with a maximum LTV of 60% on 6th April (plus other changes), although flagged it to brokers as early as 2nd April. The bank announced that it would use AVMs if the LTV was less than 50% [ed: since upped to 60%]. It was also able to reuse valuations
with an overlay of what the current market looks like; and, in some instances, conduct a full valuation where a property is vacant, or if there is an agreement between the valuer and the occupier. Jon believes that this flexibility has helped Masthaven when other lenders of its size decided to step back, and it was able to support brokers who found themselves with less options. However, he does admit that the crisis has identified the threats within the value chain and, considering valuations are so critical to the bridging market—where a lot of focus is on the security—those lenders who have in-house valuation or property assessment services may benefit more from the additional expertise. “It will probably mean that firms will look at what their exposure is to other third parties. As a bank, we have to look at things like operational resilience,” he adds. One of those reliance’s is where lenders get their funding from—and whether it is in fact committed. Jon believes that now is a good time to show intermediaries the real advantage of being a bank. He explains that retail deposit funding is a “tried-and-tested model”—and this is in addition to the £60m of equity investment it has from Värde Partners. “Masthaven has been able to continue to lend throughout the crisis, unlike many of the non-bank lenders which rely on the wholesale market for funding,” he explains. In addition to updating its criteria and adapting the way in which it works with third parties, it has also been able to continue lending due to its ongoing investment in technology. While banks on the high street have notoriously dawdled in their approach to technological advancements, specialists like Masthaven have been able to move with the market quicker. Although, if you take a look at the bridging space, a snail’s pace would be seen as swift. The latest UK Bridging Market Study by EY, compiled in January and February this year, showed that some 38% of respondents selected the ‘ability to use AVMs’, alongside 27% who chose the ‘ability to automate the underwriting process’, as the least important capabilities to continue as a successful bridging lender. Both of these categories were considered the least important in 2019’s survey, too, highlighting that there remained a strong opinion in the industry that automation and the adoption of technology was not vital to strong performance. The impact of the Covid-19 crisis, however, is very likely to change this. ID verification and document signing, for example, can all be digitalised. “These are all things that I think have moved on in other industries and other sectors of financial 18
Bridging & Commercial
services,” Jon claims, stating that bringing more elements online would be beneficial to the short-term lending market. Saying that, he believes there has to be a valid reason for implementing such innovations. The bank also has portals for savings customers, intermediaries and its new one for short-term lending. Designed to give brokers access to quick quotes, this latest addition is currently being tested in the most acute scenario. As a result, the MI that comes through the portal during this time will be extremely helpful for further innovations. Having released it ahead of the pandemic, Jon feels that they are “front runners” in the use of portal technology in this part of the sector. Alan—who is only just recovering from the virus himself—tells me the efficiency of the portal has been a “revelation”. Since coronavirus hit, around 180 brokers have signed up to use it. “The vast majority of the enquiries we are receiving … are all through the portal,” he confirms. He explains that it has sped up the issuing of DIPs during a time when things are typically taking longer. “Covid-19 is a terrible thing, but it’s enabled us to really test the portal in the most extreme circumstances,” he admits. “Who would have thought that it would actually turn out to be the way to do business, not just an option or an alternative.” Out of the brokers who have registered with the portal, 98 of them had never worked with the bank before. When it was introduced, new business applications surged by around 50% when compared with the already positive post-election January. In addition, through March—despite the fact that the lockdown measures kicked in later in the month—that trajectory continued. “It shows that it allows you to have a continuity of service that wouldn’t have been there otherwise,” Jon tells me. “As Alan said, we run a process whereby we make sure that, where a decision is referred to us, it’s responded to within the timeframe that we set. It’s allowed us to be much more consistent in our service levels, and we are certainly getting anecdotal and positive Feefo results … so we can see that the brokers are recording that.” Alan notes that this is the beginning of the portal’s journey and not the end, by any stretch. “So, the first thing we’ve established is that it works . . . it’s efficient and captures information more accurately. When things are settled down a bit, we need to say, ‘Right, we’ve proven in these extraordinary times that it works—how can we now make it even better?’ And there are clearly going to be things that, when we look back at it, we are going to have to improve and maybe add additional features,” he explains. “At the moment, it is absolutely pivotal to the
Interview
“Bridging has always been about the story of the person and what someone is trying to do�
19 May/Jun 2020
Interview
“Covid-19 is a terrible thing, but it’s enabled us to really test the portal in the most extreme circumstances”
20 Bridging & Commercial
Interview
successful operation of the department.” He believes that this particular crisis has demonstrated that those who have invested in technology are among the best placed to deal with the scenario and will “reap the benefits”. Learning from the experience and looking to the future, the bank is aiming to host more webinars and use video technology to liaise better between underwriters and brokers, which Jon believes will add a personal touch to the process. “...With something like Zoom, there’s nowhere to hide,” Jon says. “I think that is a very positive thing, so I’ll be encouraging our teams to think about how we use technology like this to communicate with brokers, and also with customers,” he adds. “…Bridging has always been about the story of the person and what someone is trying to do, and what I think this actually adds is a really strong social move beyond simply processing a loan to building relationships with brokers as well.” Alan agrees. “I confess, four weeks ago I don’t think I’d ever heard of Zoom, and now it’s a critical part of my life, and, I suspect, the lives of millions of others”. He adds that, from vast experience, he knows that borrowers like to see the people who are processing their loans and helping these get over the line. “Traditionally, I’ve done it over the desk, but now, actually, just talking to you and seeing everybody else, I think it’s a fantastic opportunity to say, ‘Hey, when we do that call, let’s see each other.’” He jokes that he may need a more professional background and a glam squad ed: my words, but same difference, but feels many ideas will come out of this that are going to change the way the industry does things. “There are decades when nothing happens, and there are weeks where decades happen,” Alan quotes Vladimir Lenin. “I read that in the paper and was really struck by how true it was in respect of our business,” he continues. Considering how so many businesses and the people within them have had to transition, learn new skills, and adopt technology and processes they wouldn’t have done previously—and all during quite a short time period—when things do get back to ‘normal’, there really is no excuse to rest on our laurels and avoid more modern and digitised approaches to specialist lending. There is always room to think outside the box and do better—and our industry has proved that it can be done.
After the interview, Bridging & Commercial chatted with Masthaven’s credit manager, James Hine, and sales director, Richard Deacon, to find out how its broker portal has changed their (and their clients’) working lives. How has the broker portal made your job easier and the transaction process smoother for all parties, especially now? JH: With speed of response often an important factor in winning business, the portal has allowed us to centralise incoming DIPs far more efficiently; we’re able to provide brokers with a set of terms in a more timely and labour-efficient manner. The easy-touse queuing system has made it far simpler to monitor DIPs that require attention, which has become so important in the remote environment we currently find ourselves in.
In your opinion, what is the biggest change that has come about from its launch? RD: We have seen a big increase in the number of sets of terms issued since the launch of the portal. April was a record month—the best we have seen in 2020 so far. How can Masthaven differentiate its portal from others when they inevitably come to market? RD: Masthaven’s was one of the first, so we’ve had a bit of a headstart on other lenders. Hopefully, by the time other lenders launch the first iterations of similar products, we’ll be making improvements to ours based on broker feedback. That should help ensure ours remains the best available, offering ease of use, speed and surety of decisions made.
How has the portal helped brokers during such a crucial time? RD: Ease of use has been the elixir of the portal in these testing times. I have had so much feedback that it is by far and away the easiest and most userfriendly portal system out there. With the dearth of lenders operating in our space at the moment and the simplicity of submitting new enquiries to us, it is no surprise that we are seeing a boost in the brokers and intermediaries utilising Masthaven’s online system. In what ways would you like to see the portal adapt in the near future? RD: The ultimate aim would be to have it as a start-to-finish portal. At the moment, the user can submit applications on it. It would be wonderful to think we could have it so that it is used through to completion and redemption of the loan as well.
21 May/Jun 2020
THE LEGACYFREE LIFELINE WORDS BY CARON SCHREUDER
Competition, which has been hot for specialist lending over the past decade, has thinned out amid the Covid-19 pandemic
23 May/Jun 2020
Interview
hile they wait for clarity on when, how and if the property market and wider economy will settle, many lenders have drastically reduced or temporarily halted new lending, deciding instead to focus on managing their existing loan books and customers. It is this approach, according to Hilltop Credit Partners’ founder and CEO, that is creating the space for legacyfree providers to step up and offer a lifeline to those who need funding now. Paul Oberschneider’s experience is predominantly as a developer, a market he has been involved in for almost 30 years. He successfully grew a large real estate development company throughout central and eastern Europe in the nineties and early 2000s—which started off building single units and then progressed to the acquisition of public companies and building large commercial retail centres—before selling it pre-global financial crisis, and going “off the grid”. A move to the UK (Oxford, specifically) in 2011 marked Paul’s return to the property market, which seemed somewhat foreign. “It wasn’t real estate 2004-6 anymore,” he says. “I didn’t really want to be on the equity side, for a variety of reasons, but primarily because I didn’t have the local knowledge on the ground. It would have taken me a significant amount of time to get the same experience that I had years ago.” Cue the rekindling of a partnership with Michael Bickford, founder of Round Hill Capital, a global real estate and asset management firm with whom he had worked previously, when Paul required assistance in marketing a portion of his retail portfolio to a wider investor pool. Round Hill had that “umbrella credibility” that Paul believed would set Hilltop apart from its competitors. “…We created Hilltop together using a lot of the resources that Round Hill has on the asset and financial management side ... we have the equity ability and the development experience that may help developers in structuring deals, and help us to understand the underlying deal itself, as opposed to being some tick-box lender in the background that never leaves the office.” Hilltop funds residential development projects—“anything with a bed”—off Round Hill’s balance sheet, and it also has a credit facility with OakNorth 24 Bridging & Commercial
Bank, a source of capital which Paul says is “very complementary”. He explains the benefit of having access to both funders’ extensive data on deals and, when looking at a case, it has two places from which to immediately pull intel. Opportunities for JV partners and raising additional backing through a commingled fund are also “very seriously” being considered to satisfy demand. The lender spent its first two years preparing to enter the market by engaging with developers and researching the landscape. It also took this time to assemble a robust team, secure capital, and create documentation and underwriting procedures. Since officially coming “out of the box” in December 2019, Hilltop has committed nearly £50m into the market. It is this fortuitous timeline that Paul maintains has acted in its favour. “One of the things which has accelerated our lending, sadly, is this pandemic. If you had had this conversation with me eight to 10 months ago, it would have been very different. If I had been lending in that market, right now I would be managing portfolio and legacy issues,” he adds, explaining that because it is ‘new’, it doesn’t have those problems. “Everything we underwrite now doesn’t get delivered for two years anyway, so where some of our competitors have completely scaled back on new business, we’ve been out there quite vocally saying, ‘Our doors are open, we’re working 24/7.’” Paul points out that this unprecedented crisis has provided a window of sorts for Hilltop to get a look in among the many other providers out there. “Developers still need financing, and all this is doing is exacerbating the problem that we’re all trying to tackle which is a) the structural housing shortage and b) this very large addressable marketplace of funding.” Hilltop’s original agenda was a fairly noble one: to build and finance housing that people can afford. Its market focus has been on units priced from £150,000-250,000 that downsizers and first-time buyers can gain access to. Furthermore, Hilltop is not a London-centric development lender. “..We have always felt far more comfortable with the ‘regional renaissance’ which we believe is happening and will continue to happen. And, of course, those price levels are different,” Paul says. “I
Interview
think a lot of people will start considering getting out of their London flats and moving slightly outside of the commuter belt of the major cities, simply for all the reasons which have suddenly become more important—fresh air, freedom of movement and being able to go outside ... I think there is going to be a slow trend of people looking for the detached/semidetached homes in communities where they can have independence and belonging.” The lender also considers Northern Ireland to be a “very unique” opportunity at the moment, given what Paul calls its “undeserved stigma” assumed by many investors. What sort of attitude and strategy should developers be having right now? According to Paul, it’s all about patience. While less experienced developers who aren’t well funded will struggle, those with dry powder and access to capital would do well to take their time being selective and take advantage of dislocation in certain areas. Unfortunately, it is the SME developer who is hardest hit—again. Mindful of the gradual decline in SME housebuilders’ contribution to new builds, Paul shares his support for them. “…It’s not because they’ve done anything wrong and they can’t build those projects, it’s primarily because they don’t have the firepower to compete against some of these larger ones,” he says. Part of Hilltop’s social impact ethos is helping SME developers build housing and a sense of belonging in those communities that they know really well. This concept of community is something which echoes throughout our conversation. Paul tells me that he would like to see value uplifts on land benefitting the local area again, something which changed as a result of the Land Compensation Act 1961. Essentially, the result has been a speculative land boom and a lack of opportunity for local authorities to acquire it at a fair price. “…There needs to be a reassessment of that because, up ‘til now, a lot of the profitability in a project is on planning gain, not on the physical work, construction and putting out the right product,” he explains. Given the current extended sales period for schemes and relative inactivity of the construction sector, Hilltop has devised a product that can help “reset the clock” for developers whose interest and potential
We are all creatures of habit … people think things in the moment, [but] big shifts take time
penalty fees on existing facilities are beginning to eat into their profits. The 12to 18-month bridging loan to completion or sale will effectively allow the developer to “just keep going”. Loan amounts go up to £100m, are capped at 65% LTGDV, with eligible deals—typically near completion— on land with planning and residential units, with larger assets considered. Usually, the lender operates a 90% LTC and 75% LTGDV offering, with a sweet spot of £3m-25m, but a cautious “reduction in aggressiveness” from the lender means that many of the deals it is processing now are not reaching this band under the current market conditions. “We take comfort in the fact that the stuff we’re doing isn’t going to come on to market for, let’s call it, two years,” Paul states. “Looking at it historically, all the crises we’ve been through, we’ve managed to rise back to a certain level and exceed that … we’re looking more at sponsors’ balance sheets to see if they have the ability to stay with the project … or build in higher contingencies and cost overruns. But that’s just prudent lending—if we were doing anything but that, we’d be irresponsible.” I ask Paul about his predictions for changes to life post Covid-19 and he remembers the public sentiment after 9/11, how people swore off working in high-rise buildings or flying ever again. “We are all creatures of habit … people think things in the moment, but big shifts take time.” His view on the recovery of the market is measured, but optimistic. Despite the issue of managing a portfolio without knowing what GDVs are going to be in the next year or more, he does think the banks are far better placed this time around than they were during the GFC. When pressed for a prediction on the curve, Paul believes we are in for a bounce or two and then a possible flatline, with the likelihood of it taking up to 18 months for things to return to relative normality. The reopening of some development sites provides hope that the industry may be back on its feet quicker than expected. Paul notes how extraordinary it is having our global economy being run by doctors and scientists and ponders “the trade-off ” in the government’s attempt to save lives. “...We’ll be back sooner than we think,” he shares.
25 May/Jun 2020
Finding solutions for financial needs You’ll find Accredo refreshingly flexible when it comes to providing secured finance for your clients, often lending when others won’t. We’ll look at bridging, interest-only and fully amortising options while keeping all the facts of each case in mind. And we offer commercial loans and leases from £25,000 to £1,000,000, and terms from 3 months to 10 years. Seasonal and deferred payments can also be considered.
Financial flexibility – Accredo Send your proposals to props@accredoltd.co.uk or call us on 01444 255915 for more details.
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Resetting
The
Balan 28
Bridging & Commercial
Words by
BETH FISHER
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nce 29
May/Jun 2020
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On 23rd March,
the way that the bridging market operated changed overnight. Processes unimaginable at the start of this year have been carrying the sector over the past two months, and we have grown numb to the series of shock announcements—in and outside of our working lives—along the way. As the property market slowly reopens, will we see a return to the way things were? Or, in a twisted turn of events, has the Covid-19 pandemic recalibrated our bridging world for the better?
The outbreak has resulted in unique social, economic, and humanitarian challenges, flipping everything we know on its head. The impact has been tremendous for all and has created vast logistical hurdles in our space, with lenders forced to come up with new ways to do business. But, will these innovations be around for good, or are they just a stepping stone to a subdued form of normality? To judge how the market’s landscape will resettle in the future, I spoke to numerous experts. First, we must look at how the sector has altered during Covid-19 so far. We have seen lenders tighten lending criteria, in the form of lowering LTVs, restricting maximum loans sizes and asset types, or no longer offering land loans, with some ceasing new lending altogether in order to counter the higher-risk surroundings. Many products have been paused, scrapped or relaunched with restrictions over the course of a matter of weeks, leaving brokers and their clients scrambling for solutions. The crisis is driving every party in the transaction chain to re-evaluate its risk strategy, what it does and how it does it. “Necessity has always been the mother of invention and, if the current pandemic results in businesses finding a more efficient way to do things, they are unlikely to give [that] up once we are out the other side,” states Mark Posniak, managing director at Octane Capital.
The immediate changes and their place in the future Processes As soon as valuers joined the UK in lockdown, bridging lenders had to get creative to continue lending. The most common reaction was the introduction of AVMs and desktop valuations. Others have allowed drive-bys, completed by an external Red Book valuer; virtual walkthroughs for inspections; accepting retypes and new reports carried out by firms not on panel; and working off internal systems. Some have gone as far as to use drones, or even pre-Covid-19 property values. Those who weren’t able to adapt either ceased new business applications or processed cases up to the point of valuation—to resume as and when valuers were allowed/able to go out
to visit properties. Companies that successfully implemented some of these new solutions also experienced a range of benefits. Amadeus Wilson, director at SPF Short Term Finance, thinks that lenders may see some logic in continuing these ‘lighter’ valuations for finished residential properties, particularly when sale is the exit, as the property should be in its best condition. It is also anticipated that AVMs and desktop valuations could be used in cases where urgency is required, or LTVs are particularly low, to avoid higher risk. “Development appraisals will always be required for more complex deals, but continuing flexibility with valuations should be encouraged on straightforward properties to keep costs low for the client, and for speed,” explains Dale Jannels, managing director at Impact Specialist Finance. The biggest obstacle that comes with the proliferation of tech, however, is merging human interaction with it—something the industry is in the early stages of. “AVMs can provide very quick valuation points but, as we use them more, the challenge will be to [incorporate] human understanding to interpret, dissect and challenge the data,” notes Piragash Sivanesan, founder of Totum Finance. With many lenders having to rip up their valuation panel list, this could make a huge difference going forward when it comes to speeding up transaction times. But will the rising trend of using AVMs and desktop valuations set a precedent for once lockdown measures are lifted? Nick Parkhouse, partner at EY, doesn’t think so. He believes they will “almost certainly” revert back to physical valuations—seen as a core component of the lending process. Now that the property market has reopened for conveyancers following new guidance published by housing secretary Robert Jenrick, only time will tell if these new systems of working were just temporary. If some lenders favour to keep using these alternative methods of valuation, the survival of these tools in a post-lockdown world will be largely dependent on the willingness of indemnity insurers to provide meaningful cover. “It’s quite telling that a number of providers who are using desktops and AVMs are doing so on a reduced
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Criteria While processes have changed, so have criteria. So much so that, in May, Knowledge Bank posted that it had witnessed over 4,000 different criteria changes since the lockdown, across bridging, commercial, BTL, residential, equity release, self-build, second charges and overseas mortgage markets. Revised criteria for bridging were predominantly in terms of capped LTVs and reduced maximum loan amounts. Knowledge Bank’s monthly tracker revealed the extent to which Covid-19 is shaking up the market and dominating brokers’ minds, with ‘Covid-19 temporary maximum LTV restrictions’ being the most frequent search for bridging finance in April. Some expect restricted criteria to remain for many months after the crisis. For example, certain lenders may find they are forced to change their products as funding lines are withdrawn or altered. If lenders have suffered substantial bad debts, “their approach is going to be much more cautious going forward. LTVs will remain low,” believes Agam Jain, managing director at Vector Capital. “One could argue that if there is enough data in the sample size, then a reduction in house prices would do this organically,” says Amadeus. “But, just like the stock market, any drops tend to be precipitous while the way back to the top is often a longer journey; the market takes the elevator down but the steps back up.” Others think that lenders will revert back to their original stance, “as this is what they are most comfortable with and the structure/conditions which they initially agreed with their funding partners,” states Samuel Kalms, director at Kalms Property Finance. “Some lenders will return with LTVs of 70 or 80%-plus—that’s just the nature of things,” adds Tomer Aboody, director at MT Finance. “…Lessons will be learned by some, others will forget them.” Whatever happens, if LTVs stay lower than usual in the short to medium term, we might see the bridging market shrink, with many borrowers— who typically don’t have the equity needed to plug the LTV gap—pushed out of the market. “Less borrowers will pass the lenders’ due diligence requirements,” says Agam. “The present situation presents a major challenge to the financial health of the many people involved in [the] property sector,” adds Jack Coombs, director at Aspen Bridging. “We know from the early signs that the overall market position may lead to a bigger hit to GDP than in 2008.” Most can agree that it started off a bit rocky with regard to actually sharing these criteria revisions, with brokers receiving mixed messages from sales and credit teams on what they can now provide, and other lenders running for the hills. However, once the magnitude of the situation was better understood, in some parts, the industry has now over-communicated. The number of active lenders dramatically reduced, Bridging & Commercial has never been so inundated with news. This constant feed from the sector is something the market
leverage basis and require a ‘formal valuation’ as soon as is feasible,” claims Richard Whitehouse, sales director at Sancus UK. It implies that there is limited desire to make big changes to asset due diligence in the future. This also depends on the risk appetite of funding lines behind the lenders—“they’re not as in control of the money as we think,” points out Shazad Ahmed, property finance specialist at GPS Financial. More “lateral thinking”—as Danny Robinson, director of commercial at Grey Matters Specialist Lending, puts it—is expected from bridging lenders going forward, and we have seen this in processes elsewhere during lockdown, with the use of digital ID verification, online legal meetings, e-signing, and lending on the OMV, as opposed to purchase price. “There was a need to adopt these features even before Covid-19, given the increasing timescale of the bridging process,” he declares. “Documentation has always been a bone of contention within the broker community,” he adds, explaining how things like ID verification ended up being handled several times by all parties when, ultimately, it only needs to be dealt with by the solicitor, or centralised by lenders. Some believe that measures which involve efficiencies and flexibility with regard to certain legal aspects and resolving compliance issues will be retained—if supported by the legal side. “… We’ve [seen] the current crisis force solicitors into the land of technology and a level of flexibility in respect of ID, witnessing documents and attending solicitors’ offices in person, which would all be good to see expanded,” comments Dale. “In my opinion, many lenders have been considering [several] of these initiatives for quite some time,” says Gavin Diamond, commercial director of bridging at United Trust Bank. “The current crisis has undoubtedly meant that the assessment, approval and implementation of these alternatives has been fast-tracked in order to facilitate the continued ability to lend.” And, even when the market does start to normalise, the inevitable application backlog will mean that lenders will need to consider continuing these new workarounds to alleviate further delays. Kim McGinley, director at VIBE Finance, predicts that many will permanently adopt some of the new processes after Covid-19. “The bridging market has been at its most competitive over the last 18 months,” she says. “Each one will want to come out of this at the front and leading the way; if a lender wants to stay ahead of competition, continuing these new methods would be one way to do it.” It will always come down to lenders’ attitude to risk—which may have altered during the pandemic. Speed and rate—which have long been the bridging industry’s favourite USPs— are set to be replaced with certainty of funds and risk appetite. “As a broker, I would want to recommend a lender who can and will actually lend, regardless of rate as a selling point,” Shazad confirms.
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What lessons have you or your company learnt during these challenging times? Covid-19 has proven that just when you think you have all the angles covered, you don’t. OK, you can’t predict the unpredictable, but the lessons learnt are that diligence is key, and there’s no such thing as too much scrutiny—either of your business as a whole or of a single deal. Another important factor is adaptability or fast evolution. Whether it’s introducing improved technology to enable any part of the business to work remotely and operate efficiently at virtually the drop of a hat, or flexing deals or products, or extending terms to ensure customers have the right outcomes. Finally, resilience is essential. Those organisations which continue to operate in this space will be committed to it. — Marc Goldberg, commercial CEO at Together
We have learnt that development projects rely on a team of people being collaborative—the closer everyone works together, the more enjoyable it is likely to be, and it maximises the likelihood of the project being successful. — Roxana Mohammadian-Molina, CSO at Blend Network
We’re all in this together and supporting your peers is key. People will remember how others behaved long after the issues are over, and reputation is [critical]. — Edward Aldwinckle, joint managing director at Auxilium Real Estate
We are close to our clients and have always operated a long-term relationship between them, us and the lender. The facilities which seem to have been affected are those nearing redemption and many lenders worry little until the last few weeks, then run around like headless chickens trying to meet the redemption deadline. Exits should be planned on day one and monitored throughout the term, then no last-minute surprises will come up. Exits should be better qualified from the start and more than one exit should be available, ie sale or refinance. — Stephen Burns at Adapt Finance
We have certainly realised that the sky can fall down, so to speak. The gravy train has derailed in the sense that certain types of case enquiries have declined, and the current pipeline has stagnated due to issues with valuations, lenders revising criteria, or the suspending of applications, which all impacts company cashflow. We have come to realise and appreciate the good quality lenders within the market; we have also used lenders we have not dealt with in the past and developed positive new relationships. Marketing was always something we tried to push and we now have the time during the lockdown to concentrate on this. We have further embraced social media (LinkedIn) and found it to be a great asset for valued posts and articles, something I was certainly guilty of not making the most of prior to Covid. — Danny Robinson, director of commercial at Grey Matters Specialist Lending
In essence, be ready for anything—and at short notice! The ability to adapt (and quickly) is crucial for any business [now]. Using cloud-based systems, online meetings and, in general, more digital ways of working will benefit the bridging industry no end when we come out of this. We’ve learnt communication and clarity [is] absolutely key. — Kim McGinley, director at VIBE Finance
I always, and will continue to, question funding lines. Where the money is coming from is perhaps more important than who is lending it out. During this time, we’ve also learnt how transparent, adaptive and forward some lenders are versus others and, of course, this will affect business moving forward. We’ve all just had to have some very difficult conversations with clients, but this is part and parcel of what we do. — Shazad Ahmed, property finance specialist at GPS Financial
Our company has learned the importance of active yet flexible portfolio management, which has allowed us to restructure part of our portfolio in order to allow our clients to be able to carry on with business as uninterrupted as possible, while keeping our investors’ interests safe. Another important lesson to retain is the importance of the underlying asset and the understanding of the project being financed in the underwriting process, as those will have a significant impact on the success of the exit strategy and loan repayment. — Laetitia Francois, senior analyst at Brydg.com
Stress testing GDVs is essential and backing credible borrowers is vital. — Saam Lowni, head of origination at Hilltop Credit Partners
The pandemic has placed a massive emphasis on the need to be agile [and] be able to operate however challenging [the] market conditions. In many cases, the key to being agile is to have staff who are experienced and are able to work with little, if any, oversight, and also to have the right technology in place. If lenders weren’t using it before, cloud technology will become the norm moving forward. The more parts of a deal that can be done remotely and digitally, the better. — Mark Posniak, managing director at Octane Capital
One of the key takeaways is that it’s important not to have a knee-jerk reaction to these types of situations— there’s nothing to be gained from this, and it can have a detrimental effect on both your business and staff. We’re going to be looking at a more flexible mode of working within the business, as it’s clearly no longer necessary to have everyone work from the office day in, day out. — Sinead Moynihan, head of sales at Mint Bridging
Without doubt, the biggest lesson for me has been the value of cash. Before the Covid-19 crisis, it was normal to think that lenders should have minimal cash because if it wasn’t out on loans, it wasn’t working for them. Going forward, I think firms will build in a bigger level of contingency. — Scott Marshall, managing director at Roma Finance
Play by the rules of prudence and caution, [this is] long established in the finance industry, but not always followed. Don’t be tempted to target growth by increasing risk. — Agam Jain, managing director at Vector Capital
Bridgers need to have a closer and more interactive rapport with their funding lines and partners. That dialogue is imperative to keeping lender confidence on board. Where we see any uncertainty, there is nervousness. This, in turn, can breed uneasy and flaky borrower-lender trust. — John Michell, property and structured finance at Mutual Finance
We are a small company and have often relied on one another being nearby to answer questions/ help move the process ahead; this time has allowed us to examine our internal processes and has forced us to look into how we can make things more efficient from both an internal and customer experience perspective. We expect that many others have used the opportunity to do the same and this could result in an overall improvement in the service quality of the industry. — Amit Majithia, principal at Avamore Capital
From a broker perspective, it has been very interesting to see which types of lenders have been able to carry on almost as normal, those that have been able to carry on with certain restrictions, and those that have had the need to stop almost immediately. When the dust settles, it will be good for us to understand why certain decisions were made by lenders; in hindsight, were they correct and will their business model change as a result of the pandemic issues, for good? Hopefully, there will be lessons learned by everyone to help all of us be more robust in the future. — Chris Whitney, head of specialist lending at Enness
We learned how to work as best as we can remotely. We all know that some commutes can be difficult especially during train strikes, for example, so this will ensure we can work more productively during such an event—ie, ‘Don’t bother to come in and waste an extra couple of hours travelling, simply work remotely.’ This was happening to some extent before the pandemic but will be more prevalent going forward. On a lighter note, we learned how much we actually like each other, enjoy working together and miss each other, which may have been surprising to a few. — Amadeus Wilson, director at SPF Short Term Finance
The current situation has reinforced lessons that we have learned over 30 years of supporting brokers in this market, and that is the importance of long-lasting relationships, clarity, certainty and trust. In a booming market, these characteristics can seem less important, but [successful] bridging lending always ultimately comes down to delivering these to brokers. — James Bloom, director at Alternative Bridging Corporation
Transparency and the way advisers interact with lenders and clients during these times is absolutely critical. Straight talking and a quick ‘no’ has never been appreciated more. Taking the opportunity of a calmer world has enabled us to come up with innovative ways of creating more business, strengthen existing relationships with clients, and [organise data] to ensure we are set up to be more efficient in the future. — Chris Oatway, owner and director at LDNfinance
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has been “screaming out for”, according to Dan Murray, head of sales at Octopus Real Estate. As a result, we are entering a completely new level of transparency. “Consistent messaging across the industry will be the best collective change for borrowers. In uncertain times, it’s important not to give false hope in getting a deal over the line,” he adds. Increased communication will become even more important going forward as lenders manage everyone’s expectations. Otherwise, many people may be left “on the side-lines expecting everything to return to normal,” believes Amadeus. Technology We have also seen the global disruption force businesses to start, or accelerate, their digital agendas. “With some form of social distancing measures likely to continue for at least two to three more years, it will be vital for all businesses to put in place structures that will minimise the impact of the distance, both in terms of business volume and cost,” claims Daniel Bendavid, managing director at Brydg.com, who believes a ‘tech revolution’ is to be expected within the next couple of years—including in the lending sector, which has historically been slow to evolve due to the high associated cyber-security risk. A direct benefit of this is the potential for faster completion times and improved customer and broker journeys. “With pricing at an all-time low and introducer commission at an all-time high, lenders are constantly looking at improvements to their overall service and product offering to win and retain market share,” shares Gavin. “Our investment in technology enabled us to complete a bridging loan from DIP to completion in just six working days—in the midst of the lockdown.” Another outcome of an increased technological focus could be a rise in data transparency and consistency, which Lukasz Zawaitkowski, director of Brydg Labs at Brydg.com, believes will further simplify and streamline the lending process, when linked through integrated systems. This could help to assist lenders and investors with underwriting, credit rating, accuracy and speed of processing, improved communication, end-to-end management information, analysis and decision making, and enhanced customer journeys. “Most of the challenges centre around change; these systems take time to test and implement correctly, staff must be fully onboarded to a new way of working—plus, IT usually comes at a cost. [On] balance, I believe the benefits well outweigh the challenges,” says Chris Fairfax, CEO at Catalyst Property Finance. The lending and real estate industries have operated in traditional ways for years—it is largely a world of manual systems and underwriting procedures. However, the crisis has demanded that lenders and other service providers change and has also granted management the space to think and reflect on what their business does well, and in which areas they can improve, according to Amit Majithia, principal at Avamore Capital. Scott
Marshall, managing director at Roma Finance, thinks this will inevitably improve internal business efficiencies, which “will ultimately feed into the bottom line and create value.” For example, the electronic provision of KYC/ AML documents is likely to secure its place— with customers able to upload information at a time convenient for them, without having to visit their solicitor’s office and thus enhancing the experience. Danny hopes that lenders will continue to see the benefits of being flexible in these areas, possibly reducing the average completion timescale by several weeks, “in line with what bridging should be”. In addition, we are likely to see the successful use of video calls for internal and external meetings—from team catch ups to monitoring surveyors reporting on site progress—remain. “Obviously, the key challenge is to ensure that the MS is in control of the process and is seeing and evaluating all the things that they would have done on a physical site visit—including [those] that they weren’t particularly looking for,” explains Amit. At the least, video calling technology can give sufficient comfort on more vanilla bridging deals. Flexible working Covid-19 is anticipated to have a lasting impact on our ways of working, most importantly the move to ‘remote lending’. If managed correctly, to yield necessary productivity and guard against feelings of isolation or weakening of cohesion of the team or processes, WFH could continue. Yasin Patel, managing director at Arbuthnot Specialist Finance, believes that working from home has actually brought its team together— “communication has become a cornerstone of our daily working life”—and has increased output. “Having to hold people’s hands, even at relatively calm times, can be a real drag on productivity,” he says. “Having colleagues who are self-motivated and self-sufficient has massively helped us adjust to changes in working practices. It has reiterated to us the importance of having the right team.” Amadeus predicts that remote working may surge more in the broker market, due to lenders and solicitors having a more “paper-intense role”. For example, while Catalyst Property Finance has maintained its lending function from home, Chris Fairfax doubts that 100% remote working will be favoured once businesses are allowed to reconvene in a physical office. “My team tell me that they miss the camaraderie of our ‘hive’ head office, and I feel the same. I envisage a more flexible approach to our working lives, but not a future fully working from home.” It is predicted that lenders will continue to have offices, but everyone will be set up for lockdown scenarios, with cloud technology put to the fore, and continuity planning becoming far more robust. With the scaling back of expensive city centre offices to allow for flexible working, while limiting operating costs (which could become a benefit to borrowers in terms of pricing, if not outweighed by the cost of credit in a more
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bearish market), it will attract a wider pool of talent. The ‘central office’ may no longer be seen as a space where desks are based for working, but rather a venue for meetings and interaction. In return, this should boost employee wellbeing by redistributing time and money that was spent commuting, on family, fitness and health. An unintended and unfortunate consequence of such drastic changes to working life—and the fact that many companies have had to furlough staff during this challenging period—may be that some businesses will find a way to operate without those team members in the long term. Larger lenders could come back a fair bit leaner. “…Employment within the sector will likely decrease and, as lenders reduce product lines, we will probably lose some good people,” adds Stephen Burns at Adapt Finance. This new way of arms-length transacting will affect some jobs more than others—particularly the role of the BDM. “Is travelling around the country for every meeting a good use of time and really a necessity going forward?” questions Gavin. Platforms, such as Zoom, have demonstrated that they can work well for both training purposes and meetings. “I’d expect to see people being more mindful when arranging meetings, to not only reduce their carbon footprint, but also be more efficient with their time,” predicts Sinead Moynihan, head of sales at Mint Bridging. Much like how cities have used lockdown to pedestrianise streets to reduce pollution, rethinking the relationship management role— for business and philanthropic reasons—will become more important. While the changes have been vast during this period, it is worth noting that only a small proportion of lenders have actually introduced them, and therefore may not be carried forward once/if the entire sector goes ‘back to normal’.
What will the bridging landscape look like after the crisis? Before the outbreak, the bridging market was at its most competitive, with countless lenders and brokers, cheap funding, low rates, and decent commission. One hopes that, instead of returning to an overly heated market, the current situation will see a resurgence in the prominence of appropriate pricing for risk. We might not even have a choice. “There was a degree of lax credit analysis and mispricing of risk taking place, classic ‘top of the bull market’ lending we have seen in previous cycles,” points out Richard. “The pandemic appears to be the starting gun on a deep global recession—in that regard, the virus crisis is not really the main event. I suspect the number of lenders will reduce and, with that, pricing will inevitably increase.” Those which have over-stretched themselves face turbulent times as borrowers struggle to refinance. While this zealous approach may have made lenders money in the short-term, it could
cost people their jobs. “As a lender, you have a responsibility to your funding lines, your staff and your borrowers,” Tomer advocates. Poor loan book performance, operational cashflow difficulties and backers potentially shifting their attention to the direct real estate market could result in fewer bridging lenders. The market has been ripe for consolidation for a while, and M&A activity is foreseen in the medium term to protect and blend inherent risks of companies—whether it be full takeovers/ mergers, or acquiring teams and loan books from vulnerable businesses. “Not everyone should be a bridging lender,” argues Dale. A fair amount of highly leveraged, poorly run lenders, or “zombie companies”— which is how Roxana Mohammadian-Molina, CSO at Blend Network, describes them—are likely to disappear. While some will be preparing to address asset management issues or face problems with their existing investors, resilient providers—which aren’t in the market to make unsustainable returns—in addition to those with limited legacy issues, are likely to take more market share. Regrettably, a number may struggle, not particularly because of poor performance, but due to unfortunate timings. “I can see some lenders really taking a while to recover from this if they have had loans due for redemption from April to June,” says Chris Oatway, owner and director at LDNfinance. No one would have seen this coming and, if a broker or lender kickstarted a growth programme in early January or February (which is probable, considering the ‘Boris Bounce’), they may have found themselves in a difficult situation. “Some of these businesses will most likely fail and have to reincarnate,” sympathises Adrian Cormican, director at Hallcroft Finance. Those with varied and stable funding lines are best positioned to increase market share, “particularly if they can become comfortable with the new market slightly ahead of others,” highlights Amit. Considering the bridging market has matured in recent years, many are much more diverse when it comes to funding lines—especially after the EU referendum. Track record and balance sheet growth can be leveraged to gain further liquidity— if the appetite from funders is still there. One of the big revelations has been the segmentation of lenders into two main categories: those who are self-funded, and those who are not. “Lenders who are funded by third-party funders, including banks, private equity houses and certainly those funded by P2P platforms, have found it a lot more difficult to adapt in the current environment,” claims Anthony Bodenstein, managing director at Whitehall Capital. “…Once seen with an air of invincibility, we can expect institutional investors to be more cautious,” predicts Danny. This could affect the level of funding investors are willing to make over a period of time, or the additional control they
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may now insist on having. If this means that funding costs rise, the market could start to look like it did 10 years ago, with regard to the number of players (and how they’re backed), leverage, and pricing; with fewer lenders taking part in the race to the bottom on rates, margins may finally increase. “This pandemic has shown us what can happen when the unexpected occurs on a major scale and, as a result, I would expect that risk management will be the prime focus, particularly in the form of generally lower LTVs; exit strategies will be put under the microscope going forward and there may be a call for borrowers—and even lenders—to have an exit plan B,” states Marc Goldberg, commercial CEO at Together. Anthony tells me that, before the crisis, brokers regularly called Whitehall Capital asking if it could lend up to 80% LTV, which he doesn’t believe is sustainable or sensible. “We believe this realignment was needed—LTVs need to come back to reasonable levels,” he says. A more vigilant approach will mean less bad debts for lenders in future—but for the price of a reduction in loan volumes and profits. Ultimately, the strongest will survive. “The options left available to brokers and borrowers at the end of 2020 ought to be more reliable and resilient than at present,” adds Paresh Raja, CEO at Market Financial Solutions. Last year, Bridging & Commercial discussed at length some of the substandard practices within the market. Hopefully, this situation will see those weeded out. “If coronavirus doesn’t make lenders more sensible, then nothing will,” adds Tomer. With the concern for a possible second spike of the virus, it is also likely that there will be an ongoing conservative approach across the board, especially when agreeing the term for loans, which will have to take into account the potential for further delays. Some lenders may also factor in increased ‘scenario testing’ when structuring deals, and the consideration of the impact of holding assets longer term will also form a greater part of loan appraisal thinking. “You could see products being created with flexibility clauses that kick in in the event of further lockdowns,” mentions Mark. Borrowers will also be expected to take a greater share of the risk on loans, and a lack of negotiation in respect of security and asset classes is also anticipated, with a strong preference for residential over commercial. “It is impossible to look at the bridging market in the same way now in terms of risk,” says Chris Fairfax. What does all this mean for brokers and their clients? “There will be a greater scrutiny of affordability and of what is a plausible exit strategy,” Marc says. The borrower’s reputation, financial standing and ability to provide cross guarantees could become more important. “In hindsight, this was needed even before the pandemic. Many lenders had set out on aggressive growth targets with a more risk-taking approach. I doubt if any had ever envisaged such a total
lockdown on the property sector,” says Agam. The outbreak has pressed lenders to look at their exposure, and stress testing is expected to be performed on a routine basis. “The market over the last few years has allowed for lenders to become more comfortable with an increased level of exposure, meaning that exceptions have now become the rule,” states Ashley Ilsen, CEO at Magnet Capital. “I personally don’t think it’s good . . . to have such inconsistency, and we appear to have an environment where the specialist lending arena can only perform well when the property market is buoyant.” With the risk vs reward balance increasingly moving out of kilter in recent years, and some bridging loans on the brink of not being profitable, there won’t be room for this to continue post Covid-19. With greater attention apportioned to lenders’ back books and looking after existing borrowers, this could result in better service and realisation of customer value. We may also see this concentration extend to greater specialism evolving within the bridging space and even better specialist advice. “…Those firms which have been ‘dabbling’ will either specialise within or withdraw from the market,” Marc declares. “I see certain lenders reducing their product range and going back to concentrating on specific areas, be it auction finance, developer exits etc, as opposed to a full suite of products including term loans,” adds Stephen. Piragash also wonders whether we will see bigger portfolio/asset management teams created to manage lenders’ books. “This can take the burden [away] from underwriters and relationship managers who should be focused on new deals.” It is possible that there will be a renewed appreciation for building sustainable partnerships for the long term, rather than a focus on shortterm growth, which is believed to have crept into some areas of the market. In my opinion, the main concern, which could wreak havoc on the positive recalibration of the bridging industry, is if the bridging lenders which pulled out during the lockdown period come back hungry to lend—perhaps a bit too hungry—in a bid to win back clients who have made new relationships. Which leads me on to my next question…
Will we see a shift in the dynamic between brokers and lenders after the crisis subsides? Brokers are a vital origination channel for many bridging lenders and, during uncertain times, play a pivotal role in helping borrowers navigate who is open for business and on what terms, and providing advice on existing loan agreements. However, many of the funding options available to brokers two months ago are no longer viable. “Lenders are dictating the direction of the market at the moment,” confirms Amit. This means that brokers will need to scale back on their own
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offerings for the months ahead. With fewer products on the shelves, brokers’ bargaining powers are now limited. “Shopping around may not be possible in the next three to six months, which creates a big shift in the market balance.” However, the “give and take”—as Gavin puts it—still applies today. Lenders need relationships with introducers to secure business, and brokers need lenders to provide products to satisfy borrower demand. “If anything, I believe this crisis has solidified relationships even further,” admits Sinead. It is also forging new partnerships. For example, Catalyst Property Finance received 50 new broker registrations in one week during the early period of lockdown. Many smaller or newer lenders, which were able to continue lending, finally got a look in from established introducers. “I’ve seen some commercial arrangements where it’s clear the introducer makes more money than the lender in a loan, and I suspect those types of arrangements will come under pressure over the next 12 months,” believes Richard. I am told that lenders are now in control of the deals and can be “ultra-selective”. Jack imagines it will give the market a chance to “reset”, with some relationships fostered and others disappearing. “We have found that we have become closer . . . to those lenders who are still in the market and we are valuing them higher than ever as, without their resilience, we would all be in a far worse position,” admits Chris Oatway. Once/if all lenders resume, it will be interesting to see how these ties evolve and how long brokers’ memories really are. In recent years, the bridging market has attracted more introducers to the sector. While investor sentiment will determine the capital available in the bridging market, the scale of business (or lack thereof) will determine what happens to broker numbers. “Some brokers may be put off if the number of transactions falls, as their ability to generate deals will be diminished,” believes David Higson, investment director at Blackfinch Property. “This will root out those who are serious about their client relationships and their business as well as those brokers who have intentions of staying in the game (provided that circumstances shall allow them to do so),” argues Zed Lorgat, who heads up JM Financial. In turn, this should give lenders the confidence that they will be dealing with experienced professionals who can assist them as market conditions evolve. The need for specialist brokers has never been clearer. “It is expected that there will be an increase in borrowers seeking extensions and reappraising the feasibility of exit strategies, which will inevitably lead to variations and/ or restructuring of loan agreements. This will require increased resources from lenders to (re) underwrite loans and there will also likely be [more] demand from borrowers for advice on negotiating commercial terms,” says Nick. Satisfying lending criteria, especially evidencing
a clear exit, is going to become more challenging, and therefore now is the time to build stronger relationships with lenders. “There’s no two ways about it—deal structuring will become more complex,” confirms Marc. Now, broking deals—really searching to find them a home, not one of many homes—is actually considered a challenge again, making for a more rewarding career. “We have deals which are at lower LTVs where, previously, we would have had queues of lenders keen to secure the finance—and now we are limited to one or two,” comments Chris Oatway. “I have to admit that, [now], at times, I have found the funding market quite enjoyable and rewarding when we find a solution.” The continuous daily and weekly changes from lenders further shows the necessity for specialist intermediaries. “Lenders may also lean more on brokers to sanitise quality opportunities, given greater selectivity on transactions,” adds Edward Aldwinckle, joint managing director at Auxilium Real Estate. I am told that packagers—whose value I discussed in detail in the last issue—could be seen as even more beneficial, given that they are required to do all the work upfront. If some brokers fail to perform, as a result of their existing panel of lenders letting them down, borrowers may begin to engage directly. This could mean that the way bridging business is currently originated will fragment, with packager and direct channels growing further. Everyone seems to be waiting for the crisis to just end—it won’t. As we have seen, the lockdown is being lifted partially and very slowly—and this is set to continue in a phased manner. Therefore, changes in our space will reflect this and be incremental. “Lenders might have been jolted into action as a result of the crisis, but there are unlikely to be any kneejerk reactions going forward,” states Yasin. Being able to withstand such a devastating global pandemic can only make the market sturdier going forward—whatever shape it takes. “I think the flexibility and comradery we have dug deep to find will be with us for a very long time,” says Chris Whitney, head of specialist lending at Enness. While no one knows what the size and scale of the aftermath will look like, we are working through something incredibly challenging—personally, and professionally. “I believe the market, and by the market I mean the bridging people, will come out changed, probably a little bruised, but overall stronger,” adds Chris Fairfax. And that can only be a good thing.
37 May/Jun 2020
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People
he prevailing need to ‘make a case’ for the importance of investment in culture within organisations means that it is not yet taken as seriously as it should be. Holding the fabric of businesses together—especially at times like these—is the value that comes from a strong sense of purpose held by all members of a team. Considering many business leaders are understandably reassessing their strategies in the coming weeks and months, I spoke to several consultancies which specialise in transformation programmes to better understand why culture should feature higher up on the agenda.
What is company culture?
“Very simply, it’s how an organisation acts and behaves every day,” says Niall Cluley, managing director at Dragonfish UK. Making up that behaviour is the business’s intentions, ambitions and how these translate into employee and customer experience. Importantly, Niall is passionate about ridding company culture of its “fluffy, niceto-do” perception, and instead wants to see it viewed as a tangible, objective aspect of business that talks to performance. Weighing in, Derek Bishop, director at Culture Consultancy (whose work includes post-IPO culture change with OneSavings Bank), defines the concept as ‘the way things are done’ and “often sits as an unseen presence, influencing every action, process and attitude”. A less corporate-sounding definition, and my personal favourite, is that it is a blend of the values, beliefs, taboos, symbols, rituals and myths all companies develop over time. Successful cultural attributes will be wired into everything a business stands for and impacts all those who encounter it. Crucially, it binds the team with a set of common values that are deeply engrained.
Purpose, vision and values— what do people want, and what ‘links’ matter?
Words by
caron schreuder
Throughout my research, I find that a healthy organisational culture is underpinned by vision and purpose. Perhaps now more than ever, there is a need to understand why a business exists—and where it’s going. “People want to know that backstory—they also want to know you’ve got ambition,” claims Niall. Dragonfish, which conducts its own annual cross-sector study called ‘Cracking the Culture Code’ in partnership with Bournemouth University’s Market Research Group, found that, while a strong sense of vision was still considered a top attribute in high-performing cultures, purpose was rising in importance—across all generations. Employees also want trust, to be part of a
team, recognition, and room to grow—and the right tools and environment in which to do this. Niall believes we are in an era which is redefining leadership styles that are built around people, rather than the other way around. According to Derek, feeling aligned to what your organisation stands for is paramount. “Employees want strong, connected and forward-thinking leadership, and managers who treat them as humans. They want to be listened to and contribute to decision making, particularly that which directly impacts them. It’s also about how they are recognised and rewarded internally and how they feel the company cares for their general wellbeing,” he adds. Further findings from the study tell us that it is a distinct understanding of and alignment to the business’s goals that differentiates average and high performing organisations. But, the top attribute are cultures in which employees are connected to the customer. Niall reports that successful finance companies tend to display an even stronger link of this kind. “There was great congruence in what they said and what they did. Brand and customer are more important than ever in financial services. The rating on trust and integrity was also a standout for that sector.” As a result of that affiliation, it was found that those businesses were more resilient— and better placed to adapt to situations like the crisis we’re currently facing. John Drummond, chairman at Corporate Culture (which was involved in a three-year culture programme with the Co-operative Group), thinks that the finance sector has a way to go in terms of putting purpose first. “…The sector, in my view, has not been as effective as it could have been in defining why it exists. You would’ve thought, on the back of the financial crisis of 2008, that the companies would’ve realised they’re interdependent ... yet few financial services companies have changed,” he says. For example, improving the lives of customers, rather than focussing on financial growth quarter by quarter.
Why would you start a change programme?
An EY report published at the end of last year discussed the growing need for corporate reporting to include intangible value creation—and 79% of finance leaders said that investors wanted more of an insight into the culture of the business. Some 74% claimed that investors are increasingly looking at non-financial information to assess opportunities. Derek outlines that the reasons for engaging in cultural change can include positioning the business for M&A; enabling digital transformation and other innovation; Cont p44
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People
the business
of com pany cult ure Company, corporate or organisational culture—it all revolves around behaviour. Our very recent experience in the power of behavioural modification during the Covid-19 outbreak shifted the course of global events. It was what we did— not what we had—that created urgent, critical change and, arguably, brought us closer together than ever before
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Case study: Avamore Capital How, in practice, does a business in our sector foster a powerful corporate culture? I spoke to Avamore Capital’s principal, Michael Dean, and marketing manager, Sabinder Sandhu, to find out how they view culture within the organisation—and what the resulting experience is for the team Who is responsible for heading up company culture and what sort of work goes into that role, if it’s defined as such? There’s no one individual; it’s a collective effort. However, these sorts of things start and end at the top, in the sense that, for the real cultural changes to take place, the people at the helm of the organisation need buy into them and often drive it forward. Two years ago—when we started to look at a transformation programme—our headcount was around seven people. Now, we’re 19. Back then, we had a nice secret sauce of collective togetherness and began looking at what was good about our culture and what the weaknesses were. Everyone within the company can have a say in how the culture adapts and evolves, and is encouraged to participate in contributing to it as much as they can. How do you measure if it’s working? What sort of feedback do you get from employees to help you stay on the right track? It’s a lot harder in this Covid-19 era, but when we were all able to work closely together physically, you could just feel it—you got a sense of energy and mood in the room. We’ve created a culture in the firm where people can speak up and voice issues. For example, we hit a bit of a low point around June last year and Sabinder spearheaded a cultural revival of sorts. A lot of it was down to weaknesses in communication, so Sabinder took it upon herself to instigate a review. At the time, we had a lot of new joiners, but we had a few leavers as well… So, we put new layers of transparency in place, around what’s happening with the business. One of the outcomes was that, every fortnight, one of the principals would send a note to everyone at the company with a very open-book update as to where everything is going. We also created reflection sessions—open forums for people to give feedback. These allow everybody to put their thoughts forward and certain themes will jump out. What we’ve been doing in this period is ensuring that these sessions are fully two-way and reveal issues that need attention. When someone joins the business, how are they introduced to the concept of the culture? As part of our interview process, any new joiner will probably meet no less than half of the entire team before they even get offered the job, probably even more than that—with graduates, it can be the entire company. We have had people come in who we felt could do a really good job but we just didn’t see them fitting in culturally. New members get a very good sense of what we’re all about, largely due to the existing team being so attached to the culture. They take a lot of energy from it and it drives them, which means that they are likely to flag up problems with potential candidates for hire. The senior management do not force through hires in those situations.
In terms of this collaborative input on recruitment, are there instances where you’ve had to overrule feedback from a strategic point of view? You’re always going to have one or two people who might raise a bit of doubt about someone, and it’s certainly happened with people who are now very well-established members of the team. The seniority of the person that you’re bringing in and the impact of that hire matters, too. If it’s a little niggle regarding a relatively junior person, they don’t have a big body of work or a long CV that you can point to, so we might be more likely to overrule in that case. However, if it’s a salesperson or originator who has had more roles than hot dinners and they’ve performed really well in the industry, but one person’s picked up on a certain attitude problem, you have to take it really seriously. Many people who are far more successful than me have said, ‘Hire slow, fire fast.’ It would have to be an exceptional circumstance for senior management to overrule a strong objection from one or more of the team. Do you consider Avamore to be an outlier in the sector when it comes to the importance you give to company culture? It’s really difficult to comment on other companies when you haven’t worked at any of them, but you could say that a lot of companies in our industry display positive cultural attributes, especially those which have entered the market in the last five years—none of us are similar to the established players. It’s quite interesting that the types of businesses you’re referencing—the same ones that would come to my mind—are the ones which have a relatively modern approach to brand and are fairly new-age in financial services. Is a correlation between that and solid corporate culture perception or reality? One of the challenges there is that the old-school, dyed-inthe-wool lenders are quite big, and they’ve evolved. It comes down to the individuals at the top of the organisation as much as anything else, but certainly once you get to a certain size and scale, and you have to start doing things to tick boxes, it becomes more difficult. As part of our culture, we make a point of trying to put as many faces within the business out there for people to see. Zuhair [Mirza, principal] and I are actively trying to give Nick [Nikolay Petkov, principal] and Amit [Majithia, principal] space to come forward and take over the day-to-day operational running of the business—and be the ‘faces’ of the company, too. This creation of ‘space’ has enabled us to promote Phil Gould to head of underwriting and is an approach we will continue to advance individuals in the team in the months and years ahead. What sort of stumbling blocks come to mind when making changes to the culture or trying to get people to buy into aspects of it? It really depends on the change that you’re trying to implement. There are certain transformations that you can see the team is crying out for and, therefore, the adoption is very quick and easy. It is worth considering the level of friction involved in the change you’re looking to execute and whether there is a social component to it. Is it timely? Trying to bring about a change in technology in a firm can be a very difficult one, especially if you’ve got different departments. Take our CRM system, for example. Some departments, like sales and marketing,
got a lot of immediate benefit from it. Others, credit analysis and underwriting perhaps, maybe don’t realise how valuable and useful it is. You almost have to loop back with the team, revisit the issue and how it can be made better through this endeavour. And if we can’t, then is the change worth it? What sort of change was the team particularly keen on and therefore had a quick adoption rate? It was highlighted during one of our reflection sessions that some team members would like to vary their hours in the office. So, we said, ‘Fine, as long as people are in the office between the core hours of 9 and 5.30 (depending on the team they’re working in), they would have the freedom to come in at the time that suited them a bit better’. The adoption of that was pretty much overnight. What are the core principles of creating a healthy, positive company culture? We’d boil it down to two: having respect, care and concern for one another, and empowerment. Empowering individuals to do their jobs their best, but also, if there are particular areas they want to explore within the business that are aligned with the company’s goals and missions, giving them the tools and resources to pursue that. Respect and empowerment enable your team to feed back to you, confidently and in real time, about how they’re feeling about things and how they’re getting on. There is a big distinction to be drawn between culture which is grown around values like that and culture which is simply off the back of lots of niceties (which we do have as well). Somebody walking away at the end of the day who feels like the work that they’ve done is impactful is hugely important. What sort of management structure is operated at Avamore? While people do have titles, the structure is incredibly flat and you are not allowed to delegate on rank. You have the opportunity to manage people by way of consent, effectively. If someone doesn’t like or respect you, they’re not likely to jump when they’re told to. This culture of consent breeds respect. And it works both ways: as a manager, you have to earn the respect of the people who are working for you, and, at the same time, as a junior, there’s an upwards management aspect which means that you’re given the opportunity to take ownership and are empowered. By doing your job well, you earn the ear of people who are technically your superiors, to the extent that when you feed back suggested new ways of doing things, or amendments to practices and culture, you will be listened to. Andreas, in the origination team, has earned a huge amount of respect from the principal group through the way he handles and conducts himself. He sent us a document setting out a raft of changes that he felt would save our credit analysis team a lot of time, assist with our perception in the market, and make him and the business more efficient. Because he had warranted our respect, we set about making the changes he suggested—in full. As part of that process, we involved the credit analysis team and all the underwriters; it was a big collective franchise that came together to make that decision. It’s wasteful not to try and have an open forum where people can put forward ideas and suggestions. Do you have a way of measuring material benefits to the business against company culture milestones and targets? No, but we should. However, aside from revenue and the bottom line, there is the aspect of employee retention. 18 months ago, Avamore was a revolving door; as it stands, we haven’t had a voluntary leaver in seven months. In the whole of last year, we only had two people who left of
their own accord. In terms of staff retention, what we’ve done with the culture clearly appears to be working. How has lockdown impacted your company culture? Being physically close was so central to the culture we had created. We are a very tight-knit team; we celebrate everyone’s birthdays, routinely go to the pub and go out with 10 or more on a Friday for lunch. It’s the little things that people miss. There’s a real energy that comes with being together, so much so that our sales guys, who are actively encouraged to be out on the road, want to be in the office. There is something about the environment and the culture that people are attracted to, that sense of unity and mission you get from being in close proximity to each other. We have lost that. How does a business keep that sense of belonging alive during a time like this? We thought about how we could go about retaining or reclaiming it and then thought, why? Cultures aren’t static. If you try to maintain too much of a sense of status quo, you will become unable to grow, especially as you add people to the team. Traditionally, we’ve had an average age of mid to late twenties as a group, with a couple of outliers… But as the team grows, you’re going to have more people aging up the business. Cultures are ultimately dynamic; the key thing is to retain the core values that make you great. What sort of post Covid-19 benefits do you anticipate as a result of the drastic shake-up to work life we’ve almost all experienced in some way or another? The first one is that we don’t need to be in the office all the time. In fact, we probably won’t be allowed to be in the office for a while afterwards. That’s going to create a new normal where the office is somewhere you can congregate and go voluntarily, and there are obvious benefits which come with that. A reduction in commuting may result in extra time to work and/or engage in sport or recreational activities, not to mention the cost savings. As a business, we don’t need to have as much office space and can also reduce expenditure, possibly passing some of that on to the team in terms of pay. Management will have to be better at communicating what they want from the team, and staff will also have to be better at managing upwards. At senior level, we have to trust the team better because you cannot micromanage people in the current environment or if remote working becomes more permanent. So, you have to give them good instructions and direction to allow them to do the tasks you’ve set. At the same time, the team will need to become more self-sufficient because they will have less frequent, readily available opportunity to seek out advice and direction. In the absence of physical interaction, is this not the true test as to whether one’s company culture spans further than just the need to all be together? We would agree with that. At Avamore, people seem to be working hard—if not harder than they were before. They have a sense of pride in their work and know that we all perform different roles within the business, we’re different cogs of the machine, so if one person isn’t performing optimally, they will ultimately be letting the team down. There is a general expectation that everyone will do their best for each other because someone is relying on another person to do something for them because of the way they are set up. Even in lockdown, that has continued. It highlights that the culture and collective mission is very strong.
People From p40
entering new markets and product sets; and improving diversity, inclusion and wellbeing. He acknowledges that, as part of this transformation, “human beings are the most complex component of any organisation”. Culture Consultancy has a background in working with finance businesses and feels that the sector may be perceived as relatively more complicated and regulated than others. “…I often feel that’s used as an excuse or perceived barrier . . . rather than actually facing the challenge of making the change happen,” Derek confides. Legacy systems, frequent changes to regulation and public perception all amount to additional obstacles to change. “The financial services sector needs help to reframe what it does for the world sometimes, and culture work can help with that,” agrees Niall. It is his opinion that organisations are much healthier when they have a sense of vulnerability that pulls them closer together; competitive sectors rely on an even more pronounced alignment with brand and purpose to stand out. He is eager to point out that being a part of a well-established company, which risks being disrupted and is spurred on to cultural change, is just as incredible as the excitement of playing a role in an organic start-up, with its associated energy and pace, but potential to result in early burnout. John introduces me to the concept of cognitive diversity and the improvement that a focus on this aspect of a business can offer. Encouraging a diversity in ideas within a business, sometimes but not always linked to identity diversity, avoids it becoming an echo chamber. He mentions a global investment firm that recruits on the basis of different ways of thinking, rather than financial acumen—which is something they can teach. This sort of diversity can be combined with open innovation—something which Apple and Amazon have utilised—a model that draws on input from internal and external resources and which gets products and new offerings to market quicker.
Approaches and getting it done
What sort of methods are followed to initiate the process? After getting the CEO fully onboard, Michael Short, founder of Culture Works Consultancy, focusses on what he calls multi-functional teams, which concentrate on innovation and customers. “Pretending a CEO or exec team is close to customers is pretty much disastrous,” he declares. Central to getting this sort of programme right is change through behaviour, rather than direction. When you take the metaphorical stick away, is the culture still there? Instead, rewarding the right actions will further
embed the culture and reinforce the very behaviours you want to see. Michael’s formula for success relies heavily on teamwork, rather than a siloed approach, and the development of the cultural maxim of ‘we only succeed if we all succeed.’ Types of transformational change can be characterised as ‘waves’, one or more of which we might all recognise. The shallow wave represents too little change and barely anyone notices it.The (favourable) sustainable wave runs vertically through a business, with the CEO directing the executive team which, in turn, guides the rest of the company. Finally, the tsunami, as the name suggests, is top-heavy and unsupported, typified by senior management getting carried away, with very little explanation as to how it will affect others. It ultimately crashes down. Unsurprisingly, communication goes a long way to ensure that change is positively and effectively executed. Michael explains that he looks at where a big impact can be made—one that will attract the attention of people in the business. “Then you start to build the sustainable change wave because people come to you and ask— not get told.” Change programmes can take anything from two months to two or more years to complete, depending on the size and scope of your business and the shifts you’re trying to instil. The consultancy costs vary widely (but can run into six figures) depending on which services—cultural development, coaching, workshops, insight sessions, culture design and road mapping, to name a few—you require, and the scale of the operation.
What are the typical challenges?
The genesis of change must start with the ‘who’—and it is this that can trip companies up when embarking on the journey. It is commonly assumed that its execution is the domain of the HR department, which often lacks the requisite power to get things off the ground. “It has to be driven by the CEO,” says Michael. He also warns against having an illdefined purpose which could result in tactics taking the place of strategy—which won’t get you traction. When encouraging cultural change, organisations must focus on whether its KPIs—such as customer retention and employee turnover rates—fit with the change it wants to implement. “People really need to see people walking the walk ... it’s pointless introducing all these new ways of working to help your cultural change if the KPIs are being delivered under the old way of working,” explains Michael. He goes on to highlight that an honest assessment of the team structure, where skills are going to come from, the core 44
Bridging & Commercial
competencies needed and who will clearly back the changes can be a pain point, and met with resistance—“everyone loves change, but no one wants to be changed.” Culture Works has a number of tools to help clients with this part of the process and can assist with a deep analysis into the design of the operation and whether that delivers the purpose—another vital contributing factor for successful change.
The tangible benefits
The present situation notwithstanding, a move towards corporate sustainability has been progressing steadily. Experts believe that a solid culture drives results and relationships that pass this test. “Sustainable cultures are commercial,” Niall says, “they’re about good profit, longterm value creation and balanced returns.” Interestingly, he also considers sustainability to have grown past its traditional environmental context and now incorporates “the way that you interact with your suppliers, customers, employees and shareholders—you’re all in this together to create something of value so that the balance of ‘give and get’ is more sustainable.” Dragonfish’s research indicates that organisations that have had five years of sustainable growth tend to have had stronger cultural alignment, and boards which talk more about culture and are united on the links between vision, strategy, purpose and behaviours, drive healthier, more sustainable profits and longer-term value for all stakeholders. In that same EY report, Peter Wollmert, EY Global and EMEIA FAAS leader, commented that 83% of respondents said that a healthy corporate culture in which values or behaviours are consistently embraced is critical to building trust, and 81% said it helped reduce risk, as a result of culture no longer being seen as a ‘soft’ issue that has little to do with the value of their organisations. A paper published in the Journal of the British Academy concluded that business culture can account for 20-30% of the differential in relative business performance. That research posits that culture acts as the facilitator (or barrier) of strategy, particularly when it comes to the implementation of technological change. Therefore, culture is the most significant hindrance when it comes to digital effectiveness. It suggests that ‘an early adoption of and investment in cultural change in response to digitisation can make a significant difference and allow corporations to be more responsive to customer demands, less risk averse, and to ensure greater interaction across different business units.’ In a sector amid an ongoing technological revolution, this point cannot be understated.
People
Other benefits include reductions in operating costs and waste, customer service and satisfaction, products which are quicker to get to market, and a reduction in employee turnover. Derek expands on the impact on attracting and retaining talent: “…Having a positive culture, with a strong employee value proposition and experience, means you are more likely to attract people who are a cultural fit, [and] will then be able to select against culture fit—and those that join will align with the culture more easily.” In other words, the more people you have that slot into the environment seamlessly, the better the success rate you’ll have when expanding. If that’s not enough, Culture Consultancy’s work with clients has resulted in several award wins, as well as significant uplifts in leads and brand awareness.
Measuring success
Change of this kind has an admittedly long tail when it comes to measuring results and ROI—it would not be uncommon to have to chart it over several years. It is recommended that the KPIs are strongly established and culture-enhancing initiatives are geared specifically to increase these results. In addition, narrowing down the number of changes and behaviours to even just one or two can make these calculations easier and more impactful. “…Almost quicker than any other initiative, if you change a behaviour in an organisation, you can instantly see the impact that it has on the way people work, the experience customers have, the innovation that might exist and the delivery,” Niall tells me. “…If you do it as an intentional focus on one or [more] behaviours, you can shift performance very quickly.” While it may seem tempting to reference companies who have the ‘blueprint’ for stellar culture, recognising that each business will undergo a different transformation and consequent outcome is key.
Covid-19 challenges
Dragonfish has identified several shifts in business leaders’ approaches to culture work and, unsurprisingly, the concept of survival and sustainability is a big one at present. We’ve been told time and again during this period that businesses are using the opportunity—if they’re not simply trying to keep their heads above water—to determine whether their strategy is the right one in a post-Covid-19 world, or indeed if the situation is protracted. Continuity plans are being reviewed as a priority. Niall is keen to reiterate that leadership is being organised around people in a way that it hasn’t been before. He also sees a major move towards
increased trust and transparency as a result of the outbreak—something he sees continuing once we return to a semblance of normality. “People are getting used to it and they want it; we’ve got to be accountable.” Resilience is likely to shoot straight to the top of investors’ wish lists when looking at their next opportunity, and it will become critical to be able to assess this aspect of an organisation. Distributed working means that companies are going to have to sharpen their focus on culture, believes Michael. In the absence of informal collaboration in the office, which often shapes culture to some extent, businesses will have to ensure that all employees are communicated with effectively, aligned to the values of the firm and rewarded in ways that reinforce this behaviour—more so now than ever. Michael references the speed of adoption of the changes we’re currently undergoing globally and muses that “the way we got here is not the way we’re going to go forward”. If we are to absorb and retain some of the lessons of Covid-19 into our future working lives, it needs to be done in a way that is planned and deliberate. Derek brings up the effect of isolation on mental health and wellbeing, which relatively early data shows is already affecting over half of the UK public. While some organisations are not conducive to remote operations, new ways of working during this time will need to be assessed in a “human and corporate way” to enable sustainable, productive outcomes. Furloughed employees who have been completely disengaged from the business pose a risk to the existing culture when they return to active work. Re-engaging employees at scale will present a challenge, predicts John. “[It] won’t simply be a matter of returning [to] business as usual,” he says. “People will want to have time to reflect on their experience, be listened to about what they think the implications are for the business, and emotionally reconnect with each other and tell their stories. So, there’ll be a process that businesses need to go through to consider life after lockdown.”
Long-lasting impact
Over time, working from home will likely become more formal and time management will get better, while retaining the flexibility it offers. Michael hypothesises a future scenario where office space is re-distributed and a multi-location company, which embraces flexible working, could instead hold annual or bi-annual gatherings all over the world. “Life becomes a lot more fun,” he states. “You’re spending money on team events and culture rather than office space in an expensive district.”
He also anticipates a marked emphasis on responsibility versus accountability, likening it to the difference between being at the office and working. “That will change as a result of this crisis ... who is holding you to account, and to which measures? … I think organisations have suddenly woken up to realise they’re paying a lot of money [for people] to be accountable, not responsible.” The possible emergence of satellite office bases may result in a wider pool of talent to choose from, by reducing commuting times and moving away from big city centre headquarters. This—coupled with the fostering of schedules that accommodate those for whom office-based, nine-to-five models do not work—could contribute to a more diverse, inclusive company culture. Will the need for transformation programmes increase as a result of coronavirus? Derek thinks so. Redesigns in culture may be prompted by a realisation that many of the mindsets, behaviours and dynamics displayed of late could be “extremely helpful in achieving [organisations’] future performance aims and strategic ambitions.” Pivots in company offerings and propositions as a result of the pandemic will also need a culture that supports these new strategies. Businesses need to be consistent and thoughtful in their communication with teams right now, maintaining two-way systems of dialogue. “I don’t think we can expect leaders to solve all the challenges of this situation. More than ever, people want a stake in who they’re working for, so involve them and treat them as shareholders, and organisations will get through this better,” Niall urges. The now ubiquitous team Zoom meeting puts those one-on-one chats, where managers have the chance to appraise on an individual basis, at risk. People still crave that recognition and leaders who are maintaining that type of contact are rising to the top. In the unlikely event that the case hasn’t quite been made, it is worth considering to what extent you enjoy being at work. If you’re not having a good time but profits are high, look at the culture. If you are having a good time and performance is slacking, look at the culture. If you’d like to have a good time and a strong bottom line, with people who operate as a happy, productive team, you guessed it—culture. Although things may seem out of our control in 2020, we do have a steer in how we bolster and engender the ways in which we behave and the values we uphold in our businesses. If this time is used wisely, by those who are in a position to do so, we may just be in for mass cultural reform and a more productive workforce overall—something the country will be in desperate need of.
45 May/Jun 2020
Add to cart Online auctions attract new bidders Words by
RICHARD REED
H
ush descends as the audience waits expectantly while the auction gets under way, bids spiralling higher and higher before the gavel finally descends… Most of us will have seen TV’s Homes Under the Hammer, and there’s no doubting the tension and excitement of a big ‘ballroom’ auction. Of course, physical auctions have been outlawed during the lockdown and the situation may not return to normal for months to come. As Covid-19 wreaks havoc on the economy, one bright spot has been the emergence of online auctions as an outlet for pent-up property sales
Zeitgeist
“We’ve got a window of opportunity we wouldn’t ever get under normal circumstances to trial how this works and to finesse the process”
W
ith property viewings by the public limited, up until recently, and conventional sales grinding to a halt, could online auctions offer a way forward for the hard-pressed market? And is bridging finance for these deals still readily available? Some auctioneers, such as Birmingham’s Bond Wolfe and the West Country’s Greenslade Taylor Hunt (GTH), have closed their doors for the duration. Bond Wolfe CEO Gurpreet Bassi said in a statement that it would be “completely unreasonable for us to expect potential purchasers to buy property without the possibility of carrying out their full due diligence to include internal viewings and surveys”. Before the property sector reopened, he added that putting properties on the market “would encourage people to flout the lockdown/social distancing rules, even if only to go and inspect a property externally”.
NON-ESSENTIAL TRAVEL
Meanwhile, Justin Lowe, a partner at GTH, agrees that social distancing measures and restrictions on non-essential travel made auctions of any kind unviable. The firm made the decision despite having successfully launched online auctions last year using the Bamboo platform. “We do not consider video tours provided by the vendor or selling agents [to be] satisfactory to use for sale purposes and could lead to claims by purchasers at a later date when a property feature or issue is not highlighted,” he says.
However, the agents which are staging online auctions are reaping the rewards from vendors anxious to sell. Traditional auction house Strettons, with offices in London, Essex and Hertfordshire, was one that opted to hold ‘virtual’ auctions. Working closely with finance broker Life Bridging and Commercial Solutions, Strettons has been staging sales using Zoom, with just auctioneer Andrew Brown and a technician in the room, with bids being placed online or by phone. It’s a formula that has worked well. “From our perspective, the residential side is in just as much rude health as it ever was,” says Andrew. “If I’ve got the right stock, I will sell it.” The firm’s April auction was the first under the lockdown rules and was a huge success—at one point there were roughly 1,400 people watching it online compared with perhaps 500 at a large ballroom auction. The sale saw one of Strettons’ regular clients raise an additional £2m just before the auction to buy more property. With the market stalled, there are certainly some bargains to be had. Renovation projects often attract public interest and can lead to bidding wars.
MORE WOMEN ARE BUYING
As Andrew points out, auctions have become more mainstream over the past 10 years or so, thanks to those TV shows and the seemingly limitless appetite among the British public for buying, renovating and developing property. The April auction saw more new than established buyers and Andrew thinks the move online may be bringing out those uncomfortable
50 Bridging & Commercial
with a traditional ballroom auction setting—including, based on anecdotal evidence, more women. “Perhaps some people feel the auction room too intimidating for them,” he explains. “We’ve probably got a window of opportunity we wouldn’t ever get under normal circumstances to trial how this works and to finesse the process throughout lockdown and for as long as social distancing is in place.” In fact, Andrew thinks it may be a long time before the traditional live ballroom auction returns, and that online bidding is likely to play an increasingly bigger part in the process as buyers become more familiar with the format—and perhaps more willing to look at bridging as an option. “Even when lockdown is released and restrictions are lifted, how much are people going to want to congregate in an auction room with 500 [others]? There’s going to be that hesitancy,” he says. Richard Webb, national sales manager for Northumberland-based Pattinson Auction, which normally operates traditional auctions alongside an eBaystyle website, has also seen rising interest in the digital side since the lockdown. “We have witnessed much more engagement with the bidding on the online platform,” he says. “We have had numerous incidents this month where many properties have been going down to the wire, getting to the last [hour or two] and the bids are going absolutely bonkers, [due to] lots of different parties throwing their hats into the ring.” To avoid what is known on eBay as ‘sniping’—making a winning bid with literally seconds to go—a late bid made within the last 15 minutes of the sale
Zeitgeist automatically extends the auction for a further quarter of an hour.
REMOVING THE PANIC
“Our model tries to take the fear out of auctions,” Richard explains. “The issue with ballroom auctions is a lot of the Mr and Mrs Smiths of this world will not want to stand in a ballroom and bid on a property. They are out of their depth. Our goal is to try to make auction a viable alternative to private treaty . . . If everyone sold by [our] process it would be much easier, much swifter, much more transparent for everybody.” James Ashworth, director of web-only specialist Landwood Property Auctions, agrees. “The current situation has forced those traditional auction firms to go online because it’s the only safe way to hold a sale at the moment. It’s going to be very interesting to see how many of those auctioneers will go back to the way they used to do it—and I think that they probably won’t,” he predicts. “Lots of people are a bit nervous about an auction; they’ve seen it on TV [and] they perceive they are walking into the lions’ den—a big room full of hundreds of people bidding, full of sharks who know what they are doing—whereas online the average number of people definitely goes up.” Justin says that when lockdown ends, and the company has established social distancing best practice for viewing properties, he expects auctions will initially take place behind closed doors with a combination of proxy, telephone and internet bids. “Once we are allowed to resume our auction room sales, we will do so,” he adds. Like Andrew at Strettons, James has seen an uptick in the number of potential buyers. “The positives are that the cash buyers and people who’ve got finance lined up are still ready to buy. The only negative is there are clearly some lenders out there who have decided to put a hold on any work they are doing, so anyone who needs to get an element of finance or a mortgage might have an issue.”
SHOCK WAVES
Obtaining finance has certainly been tricky amid Covid-19, and a number of both conventional and bridging finance providers simply put up the shutters when the lockdown was announced. “Some bridging lenders have been quite poor, [saying] ‘It’s not for us, we can’t take these risks, we’re just going to shut shop and we are just not going to lend’,” says Daniel Sovitch, co-founder
of Life. “It sent shock waves through the market and a lot of people who are familiar with Together said, ‘If Together isn’t lending, who’s going to lend?’” However, Daniel says lenders are now returning to the table as they become more comfortable with the evolving situation around Covid-19. “You’ll see a lot of lenders coming out of this with a positive reputation and a lot of lenders coming out of this with their names tarnished,” he observes. “There are a lot of bridging lenders that I’ve been quite disappointed with who haven’t communicated as well as I would have hoped and some that have done very well.” But he adds: “It’s getting easier . . . because I think they now know where they stand and they’ve got all the right systems in place to try to carry on lending.”
GOOD FOR BUYERS
Daniel believes now is actually the perfect moment for buyers with an eye for a bargain. “I’m speaking to many people who have had that conversation with me and have said [that] now is an opportunity. “In a weird way, you may find that the more people that have that perception, [and] the more ‘bums on seats’ virtually, the better the bidding war that you have—you might see some of the lots going for more than they would in a normal market. And that’s good for us on the lending side, obviously.” Adam Brand, Life’s group sales and operations director, believes getting the right financial advice is more important now than ever. “While we will always try to offer clients bridging finance, and a regular mortgage where possible, timescales are always really tight on a mortgage,” he says. “Now, more than ever, you have to get the exact right solution from the exact right lender. You’ve got to be very precise with who is lending and who is not, and at what levels.” Bridging has always been a key part of the auction process, accounting for 80% of purchases at some sales, according to Andrew.
Bank or Precise or Together,” he says. “But that’s not the case any more; it’s so important to go to a broker. We need to be the ones making the right decision, first time—not just about the lender . . . but terms. I’ve had many scenarios where a client has said, ‘I just need a six-month bridge’—actually, no, you are going to [need] a 12- or 18-month bridge because you need plenty of time right now to ensure that, if Covid-19 lasts a lot longer, which it may well do, you [have] some breathing space to get out of this. “And the question is ‘Can we get you out?’, which was always an important [one] before this crisis but is more important than ever now.” Daniel believes some changes forced on brokers and lenders by Covid-19 could be here to stay. He says a prime example is that historically, on every single bridging completion, the solicitor would legally have to have the borrower in their office signing in front of them, yet now borrowers can sign using FaceTime.
ADAPTING TO CHANGE
“There will be a lot of lenders post Covid-19 who will say, ‘We did it then, we can do it now’ and that will create a lot more efficiency when we are doing loans in future. People are using more technology than manpower because they have to. It will make our industry stronger because people will adapt to a lot more risks.” Daniel notes that while bridging finance is currently less easy to obtain, lenders haven’t increased their margins in terms of interest rates. “They haven’t de-risked themselves by charging [more], they have de-risked in terms of property type and LTV, and I think that’s quite sensible because equity is key here,” he says. With online auctions likely to play a large part in the property-buying process for many months to come, there could be rich pickings until the market recovers some buoyancy. “For any investor, I seriously think it’s a good opportunity now to buy something—and bridging is the next best thing to being a cash buyer,” he says.
ADVICE IS CRITICAL
Daniel underlines the importance of getting the right advice and not just trying to go it alone. “There are a lot of buyers out there who have been fairly savvy and think, ‘I don’t need to go to a broker, I don’t need to pay potentially higher fees—I can have a look online, I can go to United Trust
51 May/Jun 2020
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Workspace revisited Words by
caron schreuder
Zeitgeist
For weeks, we have been told to prepare ourselves for a new working world order; an unfamiliar landscape, forever changed because of the Covid-19 outbreak. Social distancing measures have infiltrated every aspect of our lives, causing us to consider how, when and why we interact with others. During lockdown, when much has felt out of our control, we have at least had the benefit of autonomy over our immediate day-today environment (often, our homes). As offices begin to reopen, we are entering uncharted territory. I decided to explore the interesting dichotomy of flexible workspace and conventional offices, particularly in a post-pandemic era, with a view to uncover whether the former could be a better future fit, given everything we’ve learned
55 Jun/Jul 2020
Zeitgeist
t has probably not escaped many that the flexible workspace market is a rapidly expanding part of real estate. Demand and supply has grown, leading to an increased diversity of occupiers and quantum of take-up. “There isn’t really an organisation out there [that] hasn’t or wouldn’t consider taking flexible workspace,” says Tom Sleigh, director of flexible workspace consulting EMEA corporate solutions at Colliers. He asserts that the sector will remain strong after showing healthy demand pre-Covid-19. A 2019 UK coworking report by Cushman & Wakefield stated that flexible workspace would account for at least 5.5% of central London office stock by the end of that year—three years sooner than predicted in its previous report. However, a general lack of new supply was suggested as a possible barrier to this continued growth—something that could be altered as a result of Covid-19 and the rise of remote working. In its 2020 UK market predictions paper, published towards the end of last year, The Instant Group, a flexible workspace placement consultancy, outlined that 45% of FTSE 100 companies had procured office space via its website in the preceding five years, and that, in 2019, flexible workspace made up 35% of commercial property transactions in London. It also points out that the market is set for diversification, rather than consolidation—another indicator of sustained growth—with a prediction that 12.5% of UK commercial real estate will consist of flex space by 2023. Given the rise in demand from multinationals for this type of offering, which comes with its own layers of due diligence around the service provided by operators, we can expect increased scrutiny of the asset class and an inevitable uplift in standards. Despite a 205% growth in the number of flex workspace centres between 2014 and 2018, Colliers wrote that it did not expect the sector to be a huge threat to the overall real estate market, given the prospect of economic cooling in EMEA—but that was prior to Covid-19. WHAT CONSTITUTES FLEX WORKSPACE AND WHAT ARE THE COMMON MISCONCEPTIONS? In order to assess the viability of flexible workspace, or whether it is going to emerge an obvious choice in the coming 56 Bridging & Commercial
months, it is helpful to consider it as office outsourcing—because flexibility is such a subjective concept, depending on the size of your organisation. “When you think of it as outsourcing an all-inclusive office workspace experience, it becomes a lot easier to understand,” Tom tells me. “It’s all about the ease of consumption.” While contract options and its hallmark flexibility are important factors, what links all flexible workspace offerings is in fact the ability to have all associated aspects of an office provided within an all-inclusive wrapper. From fit-out to broadband, business rates to service charges—it’s all paid under one bill. Equally important is ridding oneself of the idea that coworking constitutes the majority of flex workspace. While it is sometimes seen as the posterchild for the sector, it actually makes up less than 10%. Private suites with shared facilities actually constitute the majority, says Tom. What has been on the rise is demand for space to cater for 30-plus people on entire floors, with no shared facilities, but, again, everything included in one wrapper. Landlords of conventional office space are increasingly blurring the lines by adapting to these needs and adding more components to their classic offering. Another misconception is that flexible workspace is the domain of the startup: “kids in jeans, writing code,” as Tom puts it. In truth, most of the occupiers can be classified as corporate enterprise and established SMEs. Michael Dubicki, business development director at search agency Flexioffices, confirms this. “Throughout the years, there has been no pattern to the type of company that uses flex space. The only difference is that, as the model becomes more accepted as a viable tool for businesses to utilise, usage will increase across all business categories. Most would assume that, up until recently, flex space was used only by freelancers, start-ups and project teams, but the reality is that it has always been a broad mixture of new and established businesses.” It has been said that large tech companies strategically take up coworking space to be near to innovators in the field, begging the question: does being in close proximity to these sorts of businesses breed modern thinking? What better place to learn from than a hive of organisations whose methodologies could breathe life into outdated corporations? Earlier this year, Landsec—which owns Myo, a flexible office brand in Westminster—published its thoughts on the apparent merging of conventional and flexible, explaining that occupiers of the
Zeitgeist
latter no longer have to compromise on “big business” benefits—such as leases that align with their business plans and space that reflects brand identity and culture. Another myth that Tom is keen to set the record straight on, is the nature of occupiers’ tenure in flex offices. The average term is in fact just shy of one year, with the average stay standing at around three. While it’s not paid “in one hit” Tom admits, the average stay is important because “it isn’t always a transient product.” COVID-19 IS NOT ITS FIRST STRESS TEST The coronavirus pandemic is forcing most businesses to reassess what is essential and how they can pivot their strategies to mitigate future disruptions of this magnitude. Increased flexibility is central to these considerations and office space—which represents a significant cost—is coming under scrutiny, especially as we have proven that remote working is, in many cases, completely viable. The flex sector is, in turn, having to cope with the impact of the outbreak, because reduced economic activity leads to reduced demand, in general. Its popularity with business travellers has seen it having to adjust to a sharp decrease in these users, too. Tom, who worked through the global financial crisis, tells me a bit about this partiular market’s history of resilience. “… It was hard for a number of operators, but [almost] none went into administration. I am not sure that will be the same this time.” He also says that, after the crash, the flex market was on its feet well in advance of the wider office sector, in terms of occupancy levels and revenue per sq ft. There were also a lot of companies forming at the time, which helped to a degree. “It is going to be undoubtedly hard, but if you look at the makeup and variety of demand, it is much more diversified than it was [10] years ago.” He also posits that the product may prove easier to take up than a conventional leased office in the short to medium term, given that flex spaces are already kitted out and ready for someone to move straight in. Somewhat surprisingly, a mix of Tom’s operator sources are currently reporting 80-90% revenue collection—a statistic that sits in opposition to what the assumption might be, considering the month-tomonth payment model offered by most. In terms of demand, it is broadly expected to increase post Covid-19. Pure Offices, a flexible office provider with several sites across the the UK, anticipates that occupiers will seek out flexibility now, more than ever, due to “the ability to
grow into a space as their business grows, and contract in the event of a downturn or situation like we are experiencing now.” Flexible workspace operator HubHub witnessed several enquiries in April, but relies heavily on face-to-face meetings and tours with prospective clients. “Nobody wants to rent office space without seeing it,” says Dominik Illek, group PR and marketing manager at HubHub Group. Something that the flex market has in common with bridging, is that uncertainty has always been its friend. Michael believes that there is very little doubt that we’ll see a marked shift in thinking about flexible alternatives. “When contract expiry events come up in the near term, post Covid-19, companies will think twice about committing to another five [yearsplus]. This will likely lead to increased levels of interest from businesses that would have hitherto leant more towards conventional leasing,” he explains. He does point out, however, that this expanding awareness is likely to be offset against those occupiers who don’t make it out the other side. He claims that a higher proportion of flex space occupiers are “much less financially secure” than those in conventional space, leading to a naturally higher fallout among flex tenants. “As long as the inbound interest from new tenants post Covid-19 outweighs the short-term impact of existing tenants disappearing, then the sector will regain upward momentum very quickly indeed.” THE PROS AND CONS In 2017, we moved the Medianett office from the ground floor of our existing building, on a serviced basis, to a leased option on the third floor—giving us much more space. It came as a ‘white box’ and I had to take care of everything. From furniture to telephones, cleaning to business rates—it all needed to be dealt with individually, and on an ongoing basis. What initially felt like taking charge of our future and spreading our wings, soon descended into a feeling of creaking under the weight of interminable admin. The concept of an all-inclusive package that takes care of all aspects of our office now sounds idyllic—and I am not alone in re-evaluating this part of our business. Do away with archaic quarterly rent payments and service charges, and enter a world of plug-and-play, enhanced facilities, and space for collaboration and interaction with burgeoning, like-minded businesses. This is all true but, looking through the coronavirus lens, the very elements that are so attractive about flex workspace are now proving to be its Achilles’ heel. Predicated on the idea of communal
spaces, shared facilities, and a dense desk layout, there is much to be concerned about when it comes to distancing and revised sanitary requirements. Will operators be able to bear the reduction in income that comes with the implementation of mandatorily less compact set-ups? What about the cost of reconfiguring shared spaces, and the requisite marketing and comms that will undoubtedly become necessary to alleviate consumer worries? In its favour, however, is the relative ease of consumption and inclusive, less restrictive contract options. “It can be taken shorter term, which is great for headcount fluctuations, uncertainty, and all of those things which are very prevalent at the moment,” states Tom. “But, in addition to that, sometimes it’s more important that organisations get access to better facilities . . . often it’s an improved workspace experience [with] these types of products.” Common membership options— described by The British Council for Offices (BCO)—include fixed, flexible, weekly, part time, by the day or by the hour, and full time. The council’s study on what is driving corporate occupiers’ interest in flex space highlighted that these options are “enablers of cost reduction and agility within the real estate portfolio.” Large upfront capital costs can often be avoided, as well as reinstatement and dilapidation charges. It states that such a product “supports companies to manage costs in a less predictable world.” A limitation of flexible workspace is the lack of opportunity to exert brand, identity and culture—given that there is a general lack of personalisation which comes with these spaces. BCO’s research indicates that this is increasingly becomimg a factor when corporates are choosing flexible office space, and mentions British Land’s brand Storey, which allows tenants to fully tailor their space prior to moving in. WHAT DOES OUR INDUSTRY THINK? An online Bridging & Commercial poll suggests that the majority of professionals in our space are considering flexible workspace options, with 67% saying that they would be looking at it as part of their post Covid-19 business strategy. Speaking to industry stakeholders, it does seem to be more on their radar. Stene Jacobs, operations director at Peritus Corporate Finance (which has shared space at Thirty Broadwick in Soho), believes that agile options will be favoured in the months and years to come. “The Covid-19 era will certainly add perspective [to]
57 May/Jun 2020
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what actually is essential, in real terms,” he thinks, anticipating that innovation from operators in the market will further drive appetite from occupiers. Will Lloyd, director of operations at the Brightstar Group, feels that the future of the sector is bright. “Flexible workplaces have a major part to play in how businesses operate in the UK,” he says, “and as pressures on firms continue over the coming months, and certainly [as] new start-up businesses look to keep costs low and have options to grow at their own pace, coworking and flexible workplaces will be part of the engine room of boosting the UK economy going forward.” Some changes are more introspective. Myles Williams, CEO at First 4 Bridging, admits that this “extraordinary period” has been cause for major reflection in terms of how the firm operates. “It has provided some valuable lessons from a business, engagement, and personal perspective.” THE SHAPE OF THINGS TO COME What should we expect in terms of practical changes to offices, following Covid-19? Although the government has published guidance, which is fairly open to interpretation (shocking), Tom thinks that this will only constitute part of operators’ and landlords’ responses. And then, at company level, alterations will be subject to how each organisation chooses to instil them. Expected physical modifications include contactless doors, toilets and reception areas, as well as the increased use of outside space for breakout areas, and even meetings. Perspex dividers or screens on desks may become the norm to shield workers from one another, especially in what were hot-desking environments. It appears to be understood that openplan layouts will gradually become a thing of the past, with compartmentalisation becoming favoured once again. An increase in remote working will free up space in the typical office layout, that can then be reconfigured to decrease desk density. Technology that was previously perceived as unnecessary, or a luxury, such as the use of facial recognition or smartphones to order and access amenities, may now be the way to a safer office life. It will be important for offices to be designed to mitigate future pandemics, according to the BCO, and the introduction of humidification systems to improve air flow will likely form part of that. Coworking spaces, where the emphasis has been on encouraging interaction between members, will have to make a concerted effort to modify wayfinding
and the circulation of people. Workplace design specialists Dthree issued guidance on impending adaptations to office design, which included: “Future offices may have more signs to indicate standing spots in communal areas such as receptions, lift lobbies and lifts themselves. We believe numerous things will change as a result of the pandemic—wayfinding and circulation [for example], with simple solutions such as increased circulation routes and direction suggestions to minimise crossover in heavily used areas, such as WCs, breakout areas and receptions.” Commentary by CBRE’s Lewis Beck, head of workplace EMEA, and Wouter Oosting, senior director of workplace strategies and innovation, highlighted that, in the long-term, “organisations will redefine what maximum occupancy should be. In some cases, organisations may need to de-densify office space … [and] increase their footprint to get to a more appropriate, socially acceptable balance. The goal is to find an optimal point between having people so separated that the office lacks energy versus the point at which people feel so exposed that they withdraw from interaction.” SATELLITE OFFICES AND THE IMPACT ON RECRUITMENT One possible offshoot resulting from the re-evaluation of office requirements is a shift away from centralised headquarters, and the surfacing of ‘satellite’ locations. A formal, local solution for those for whom working from home is unsuitable will almost always be flexible space, claims Michael. “It is likely that we will see a greater number of ‘HQ’ offices moving from traditional to flex, and also a higher number of regional satellite office needs in [locations] traditionally designated as the commuter belt,” he adds. As pointed out by Oliver Knight, office products director at Landsec, and head of Myo, employers are having to think about more than just what happens in the office, but how people are getting there. Reducing travel for employees may become more of a priority for organisations while social distancing remains in place. As commuting becomes less desirable, firms may seek out bases away from major cities and branch out into regional hubs. A report by O2 Business, in partnership with YouGov and ICM, found that, if flexible working becomes more widely adopted by their companies (as most assume it will), 63% of people in the UK would be happy to live up to an hour away from the office. This, in turn, would increase talent availability by widening the pool from which to recruit. 58
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Quoted in the study, Dr Heejung Chung, reader in sociology, and social policy director at the University of Kent, comments: “The UK has a huge challenge with the geographic distribution of wealth, and this exaggerates the problem of overpopulation in cities. If people could work from wherever they want to, without any fear of career penalty, this would create a huge opportunity for everyone.” Tom sees growth potential for the flex space in the regions, or ‘tier two cities’ and suburban locations—and Covid-19 is hopefully going to accelerate that. Although it won’t always be feasible for people to work from home, the office network will nonetheless become more dispersed. He hypothesises a reduction in the prevalence of the “big, shiny HQ” and a rise in regional hubs that have the added benefit of a lower cost of living. RECONSIDERING THE ROLE OF THE OFFICE In what has been described as the greatest workplace experiment ever conducted, a lot of emphasis has been placed on the role of the office post Covid-19. A common idea is that it will no longer be synonymous with an area where an individual gets work done on an independent basis, but rather as the home for collaboration and congregation. We have all missed some aspect or another of face-to-face interaction with colleagues, and this has led to a renewed appreciation for the office and its core value. It now seems logical that travelling an hour to work alone in a bank of desks, only to clock out and travel the hour back is a waste of the potential that an office space has to offer. This realisation, along with the assumed general reduction in office space requirements by companies and our new-found love affair with online meetings, all amounts to viewing the office in a different, though by no means redundant, light. “We strongly believe that the office will remain relevant and important far into the future,” observes Richard Kauntze, chief executive at the BCO. “People work best together and draw inspiration from each other. Offices are designed to aid productivity in the way that our homes—full of distractions and space restrictions—do not.” Other feedback from experts and providers all points to the importance of networking and in-person discussions— but, in a world where we can no longer rely as heavily on coming together in an office environment, this aspect takes on new meaning, perhaps forcing us to treat
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the time we do come together as more valuable and productive. Community is considered key to recovery, and employees will need accessible places to congregate for support and inspiration. CHANGING VALUES AND THE WELLBEING FACTOR During quarantine, I have experienced almost daily shifts in what I value, running the full gamut from what really constitutes ‘quality time’ with friends and family, to my desperate need for space and intervals outside. In that mix—and uncovered while writing this piece—is a clear winner, born out of all this chaos: a review of our work-life balance. Over a Zoom call one evening, my mother relayed her horror at how a colleague had brazenly done her ironing during a virtual team meeting, somehow considering it appropriate (and rather efficient) to merge her home and work responsibilities. It turns out, however, that this person has never been more productive, and that stepping outside of the traditional 9-5 office-based model was doing wonders for her overall output. Another conversation I had was with a father who, up until now, only saw his kids two to three times a week due to a demanding work schedule. He
confided that he would not be returning to that way of life once things ‘go back to normal’. This period has reset his appreciation for what really matters. Companies are finally having constructive conversations around remote and flexible working options, something that has traditionally been slow to develop. And, arguably for the first time, office space is being designed around health and wellbeing. Part of that could be a return to offices that look like offices, rather than the migration of the home into our working environments, which has been the pattern of the past decade. We are likely to see increased investment in employee wellness programmes and “a stronger call for scientific research that evidences the ‘human return’”. Workers’ personal resilience will be a priority for organisations, and this will be built by establishing the renewed balance between commitments. Tom is keen to stress the environmental impact of a revised approach to the workplace. Aside from the fact that running office buildings is a huge producer of carbon, as people realise that they do not need to commute every day, huge infrastructure projects that are designed to ferry people in and out of big cities should not be favoured
over technological investment. He believes that as flex space takes up more of corporates’ real estate portfolios, it will heighten sustainability requirements from operators. Tom thinks that those occupiers will be in a position to influence sustainability standards prior to moving in, leading to better performance of operators and landlords overall. Richard agrees that office design will need to keep pace with ‘green’ imperatives. “There is already renewed scrutiny of the office’s environmental impact, particularly the costs of commuting and construction. Cycling may well increase, and there will probably be fewer business flights. Office design will need to be more environmentally friendly through the adoption of newly emerging technologies and efficiencies.” As some of the world’s largest companies prepare to scale down their property footprints, could we see the budget rebalanced in favour of people and the quality of workspaces? Whether the traditional office still feels right, or you begin to explore other options—I am hopeful for a future that successfully entwines employees’ work-life needs with commercial gains, for the benefit of all.
59 May/Jun 2020
ONE DAY
Attending virtual events during lockdown In an industry built on relationships, events—both social and educational—take up a large chunk of our working diaries. As a result, some of us have been seeking ways to safely fill that void and, thankfully, the market has delivered. Three of us socialites at Bridging & Commercial, who were aching to get out of our loungewear and (e-)meet people, decided to each attend an event by the glow of our screens and from the comfort of our homes. We documented our feelings, findings, and fascinations in the hope that you too will join your peers in keeping up market motivation and momentum in our new cybernetic world
One Day
LONDON’S BTR MARKET I became used to working from my bedroom quite quickly, and I’m enjoying it much more than I thought I would. However, having to cancel weeks’ worth of meetings and socials with my industry contacts (which sometimes take weeks just to get in the diary in the first place) has left me wanting more. Words by
BETH FISHER
O
n the search for something that isn’t too time-absorbing (my workload has shot up recently), but which has educational value, I come across a one-hour webinar on London’s housing and BTR sector from Built Environment Networking. Aimed at helping to keep the industry moving and talking during this period of uncertainty, the £25 event (which I was kindly given a free press pass for) boasted property experts, developers, specialist BTR providers and real estate investment firms on their speaker list. I register straight away. In the run up to the event, I am kept informed with email reminders and guidance on how to join the webinar and test my audio. I am also sent a 132-strong delegate list the day before—information you don’t always get at physical events
but that is really useful for networking. It definitely makes me feel an inch more connected to everyone else and I am intrigued by the range and size of companies who have registered, from lawyers and lenders to major real estate investment and construction firms. The day of the event arrives (28th April) and, at 9:55am—five minutes before it is set to commence—I lock my bedroom door so no one can disturb me, grab my notepad and pen (a journalist will never be completely digital), and fire up the platform, GoToWebinar, using the link I was sent the previous day. An introductory slide pops up, and I can see each speaker live at the top patiently waiting for guests to ‘file in’, (which I am told around 80% did). Unlike being at a real panel discussion, these speakers had to sort their own mics out—which
…Those who might not want to travel, those who might find physical networking quite difficult but privately messaging in a chatroom to be easier—we feel these events could bring us a new audience
62 Bridging & Commercial
worked out better for some than others. Nursing a hot cup of black coffee, I enjoy the calming elevator-style music while I jot down some initial thoughts. After a couple of minutes, Olivia Harris, CEO at Dolphin Living—a charity that provides rental homes to low-income workers in London—fills my screen. The activist for affordable living starts speaking, but I can only hear the background music. I put down my coffee and fiddle around with the sound on my laptop. Nothing. I minimise the screen to find that, all this time, I have been listening to GoToWebinar’s ‘audio test’ music. Great start. Laughing at myself, I exit out of it, the melody stops, and Olivia’s voice abruptly cuts in. “And if we look at the figures since 2005, house prices have doubled, rents have gone up by 40% and median earnings have increased by [nearly] 24%” she says. I get myself up to speed by looking at the slide she has just transitioned to—the GLA London Living Rent Map—which she has overlaid with the median market rents from the Office for National Statistics. “… It won’t surprise you to see that, if you compare these, the median rent is not affordable to the median income in any of these locations,” she points out. “And, so, we would argue that intervention is required to make London affordable to all.” I’m instantly engaged and impressed by the level of detail provided. In a normal setting, I am often squinting— even behind my signature glasses—at presentation figures from my chair, while trying to balance my ipad, phone, the printed agenda and notepad on
One Day
Panel Q&A discussion
my lap. Today, however, I’m able to comfortably take in each slide and research anything that piques my interest on my other screen—all while being in listen-only mode. I note that it must be strange, yet possibly refreshing, for the speakers to deliver their talks without distraction from the audience. Olivia explains how alarming it was at the beginning of the crisis to see crowds of people on tubes and buses travelling to work before the full lockdown, and serves as a reminder that more needs to be done to attract and house key workers in central London, rather than expecting them to commute in from zone 6, or further out. As an emotional Thursday evening clapper, this really sticks with me. Before handing over to Peter Holden, managing director at Round Hill Capital—a global real estate firm with a focus on the London accommodation development sector—Olivia urges that businesses need to work together to deliver these homes for workers, who she says are not only essential during the outbreak, but will be critical to the capital’s future recovery. Once Peter unmutes himself and gets to grips with how to take control of the slides from his end, he starts his session by giving a background on Round Hill and its decision making ‘ecosystem’. The sound quality is quite distorted and waves in and out, so I focus more on the slideshow, which is showing the company’s response to the pandemic, covering four areas: consequences, communication, compassion, and control. When discussing the third ‘c’, he highlights
the struggles many are facing, such as sharing bandwidth with families and juggling home schooling and childcare with work, noting that having social cohesion at times like this is “absolutely critical” to ensure that colleagues aren’t suffering from loneliness and isolation. He then brings up a slide which maps the possible future of the BTR sector post Covid-19, following a poll Round Hill conducted with its colleagues. It indicates wider corridors, doorways and paths, additional stairways, the introduction of antibacterial surfaces, antimicrobial fabrics and anti-touch entry, as well as the reduction of employee density in offices. It’s a completely new way of thinking— and another spreadsheet of costs. Once Peter concludes, I start exploring the functionality of the webinar platform while we wait for Lia Silva—the former development director at Wates, who played a key role in the ongoing £1bn regeneration of Havering’s 12 council estates—who is up next. There are tools to take screenshots, use one or more screens to view speakers and their slides, and an option to submit questions and ‘raise your hand’. I post a question about the effects of tighter BTL stress testing on BTR in areas where there are typically smaller rental yields—something I’m eager to explore for a future article. It goes through, and I wait eagerly to see when and how it gets picked up. Lia’s microphone is really quiet, so I crank up the volume on my laptop. After discussing the developments she has previously been involved in, she
starts reassuring attendees that people still need a place to live and BTR serves this purpose. However, she anticipates a reallocation of household budgets, with more value to be placed on high-quality homes and, with many now utilising their homes as full-time workspaces, they will require flexible and multifunctional areas. This is something I believe developers could adapt to fairly quickly, and I make a note to talk to some experts about it at a later date. Our next speaker is Arthur Jennings, managing director at development financier Fortwell Capital, who has had to tether to his 3G network because his broadband has decided to stop working. As he talks about how the lender has transformed since launch, its current lending criteria, and target market, the video quality gets a bit fuzzy, but the message is clear: developers in the UK have readjusted their working practices around new rules and regulations with regard to onsite social distancing guidelines, and they are, ultimately, still trying to make progress on schemes—especially as we move into the summer months. With a prewarning that the next speaker has been enduring some technological challenges, Phil Laycock, director at Built Environment Networking—who is chairing the event—calls on Duncan Sutherland, regeneration director at PRS housing provider Sigma Capital, to take the virtual stage. A slide with his picture and title appears, but Duncan does not. Phil asks if he wants to do his
63 May/Jun 2020
One Day
Attendees wait while Duncan Sutherland faces technical difficulties
presentation just over audio. “Duncan?” Silence. Phil does his best to offer a couple of solutions but, after 20 seconds of suspense, he swiftly moves on to the Q&A portion of the webinar, inviting all the speakers back to the digital podium. After a couple of questions aimed at Olivia and Peter around the viability of affordable BTL, and comparing the progress and safety precautions installed at European development sites with the UK’s during the crisis, Duncan’s audio finally kicks in. The speakers courteously hide their video screens, and Duncan begins to talk us through Sigma’s delivery platform and its focus on “normal working families”. He briefly summarises the fund it launched in partnership with the Scottish government in 2019, before revealing that it is in the process of setting up something similar for London, targeting zone 4 and outwards. He confirms it has bought its first two sites and points out that the schemes are slightly different to its usual offering, being low- to mid-density apartment projects with strong connectivity across the city. “We feel there is a very strong case for us in London . . . because of the affordability of our product,” he explains. After Duncan’s closing slide, Phil brings everyone back to continue with the Q&A segment. I type a second question into the box about the other ways in which operators and developers can use their newly finished BTR schemes if they are unable to launch and rent them as planned. Phil asks the panellists what the industry has learnt over the past six with regard
to working in a more digital world, and how firms may change the way they invest and develop. Lia starts speaking with her mic still on mute. After a prompt from Phil and a couple of attempts, she chimes in, only to be interrupted by someone’s mobile phone. Everyone shifts a little awkwardly on camera, but it stops before anyone owns up. Peter stresses the significance of technology as a key factor in new developments. To back up his point, he describes a situation which happened at one of its student housing projects last year when the water supply was cut off for around 48 hours and they had just two complaints—in stark contrast to the 200 people at the desk panicking when the broadband went down for a mere two hours. Phil moves on to some audience questions, which start with Mark Stewart, new business development lead at StarRez—the event’s sponsor—whose mic turns on as he asks the panel what their current approach is to BTR operational models as a result of Covid-19. Phil then moves on to a question on behalf of an attendee regarding something they couldn’t hear during Lia’s quiet presentation. It hits 11am, and Phil requests that everyone joins him for a planned minute’s silence in honour of our fallen front-line workers. After a very reflective 60 seconds, Phil scrolls through the rest of the audience questions and selects one about how existing BTR developments can implement some of the changes as a result of Covid-19, and how operators 64
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can manage and ensure compliance from residents with regard to social distancing in communal areas. Arthur thinks it is “extremely challenging” to reorganise a physical space. He admits his initial thoughts turn to co-living and whether, post Covid-19, it has the same future as an investment asset class and concept as previously considered. Another question seeks to find out how the panellists are planning their next six months. Everyone says their bit and then Phil rounds off the event by thanking the speakers, partners, and the audience, followed up with a quick plug for its next Glasgowfocused webinar, and its significant virtual programme for the summer. The webinar comes to a close, and I’m invited—along with the panel—to join Phil on a short debriefing via Zoom, when I meet everyone ‘face-to-face’ for the first time—including Duncan who has now managed to get his camera working. The speakers find common ground on the audio troubles they experienced and discuss how they can resolve this in future. Phil introduces me, and I thank them all, before cheekily asking one of the questions I posted earlier that didn’t get aired. I then enquire as to whether attending virtual events means they get to do more of them, and what kinds of opportunities and challenges they have witnessed or experienced as a result of taking part in this type of thing. Duncan admits that he feels the tension at the end of the day after multiple Microsoft Teams and Zoom calls, and believes people need to find a work-life balance
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Beth Fisher catches up with speakers after the event
on this new-to-most medium. Phil tells me that Built Environment Network plans on hosting two or three online events per day between now and the end of August. “…That’s depending on how the lockdown transpires . . . we already have a programme of about 100-plus webinars, and are coming up with new ideas and reacting to market feedback,” he adds. Built Environment Network—which has a staggering database of over 100,000 construction and property professionals— has attracted between 75 and 300 attendees to each webinar, depending on the topic of conversation. It has also seen an increase in developers, investors and housebuilders who have not been to its events before. While this has proved to be a successful way to continue holding events, Phil agrees with Duncan that it doesn’t make it any less tiring. “It is quite stressful staring at a screen all day and, as a host, I don’t have the ability to read body language as I would do normally if I’m on stage interviewing people. So, I’m [usually] pretty shattered by the end of the day, I have to say.” I speak to one of the event organisers, Nathan Spencer, marketing director at Built Environment Networking, to learn more about what it has discovered during these past few weeks of going completely online. “We initially started looking at hosting online events in 2013, but it’s something which has never come to fruition until now,” he admits. And this is just the beginning. It has recently launched its first one-day virtual conference, which is said to offer everything you
would expect from a conventional event of this type. It will include a chatroom where you can private message delegates during breaks; presentations, discussions and debates on virtual stages, where questions can be asked and polls held; and an ‘exhibition floor’ where sponsors will have specially designed areas and people can pick up marketing literature, or video chat with them about the services they offer. He explains that, within a few days of launch, it secured a headline sponsor for the event and interest remains high for this new approach to networking. I ask Nathan if the business has any other ideas up its sleeve. “We’re always looking at ways to innovate and do more,” he tells me. “. . . We’ve been hosting a high level ‘leaders group’ discussion every two weeks, bringing together key figures from the public and private sectors . . . allowing key decision makers to get a gauge on the industry and understand what is happening in different sectors.” It is also looking to open an online shop on its website, giving access to its events after they have taken place—for those who couldn’t make it. Will the online events continue in the future? Nathan thinks so. “It’s shown us that there is a demand and it can be done, so we’re looking at running at least two one-day online conferences each month in the future. One of the difficulties with physical events is the physical resource needed to travel across the country,” he admits, explaining that with more events online, it can have a larger programme. “Some events also might suit online more—like our Smart
Cities Conference which gets quite a bit of international interest, or those focused on sustainability or the climate emergency might suit an online platform instead of having attendees travel from all areas of the country via transport.” It’s a really good point. Could the market see an increase in much-needed diversity as a result of a surge in accessibility to knowledge and interaction? Built Environment Networking has been focusing on creating a more diverse audience and speaker line-up and believes online events could appeal to a younger audience. It may also attract those who have childcare obligations, where the nature of online allows them to be flexible. “…Those who might not want to travel, those who might find physical networking quite difficult but privately messaging in a chatroom to be easier—we feel these events could bring us a new audience,” Nathan says. Honestly, would I have attended this event if it was offline? Probably not. And that furthers this point. Travelling in and around London takes valuable time out of your day, and, for just an hour, I would be wary as to whether it was worth the hassle. In my opinion, the expansion of digital events can only be a positive thing. While the attendees and the panel, I am sure, have learnt lots—if not more than usual where the distractions of those around us make it much more difficult to take in information—a key takeaway for me is how undervalued the AV crew is at events. We miss you.
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BUYING STRATEGIES It’s 9:30am and I’m checking my list to ensure I’ve got everything ready. Notebook? Check. Voice recorder? Check. Spare pens in case the first one stops working? Check. Words by
andreea dulgheru
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hat am I getting ready for, you might ask? Brendan Quinn’s webinar: Buying Strategies in the Current Market—part of his weekly Property Brunch series. With the Covid-19 crisis turning the specialist finance industry on its head, I’m eager to hear the ways in which experts believe developers and investors can mitigate any hurdles during and after the pandemic. While the lockdown period has obviously cancelled every single seminar, conference and meeting that involves face-to-face interaction, it hasn’t stopping the specialist finance industry in its tracks—instead, it has got it to think outside the box and onto the screen. So here I am, sipping my second cup of coffee, extremely excited—not only because this is the first time in weeks that I have put on make-up and got out of my cat PJs (as stylish as I get, lately, while working from home) to wear a dress, but also because of the intriguing line-up of speakers. Sam Norris, senior property finance broker at Bond Finance; Richard Thorpe, executive coach at Cognacity; Dorian Payne, co-founder and director of property development firm Castell Group; Jay Howard, business development manager at Auction House UK; John Howard, director and founder of Exquisite Home; and Patrick Conlon, the owner of Conlon Development Partners are on the list to present—this is bound to be good! At 9:55am, the ‘show’ is about to begin. Brendan starts off by explaining the format of the webinar: first up, Sam will give a finance update, followed by an hour dedicated to the panel, where they are set to discuss the state of the current property market. For the final 30 minutes, all attendees will split up into designated ‘Zoom rooms’, with allocated speakers, to get a chance to ask questions—like at an IRL event. This element stirs my curiosity even more, and I am keen to see how this works. What I also find surprising is how relaxed the atmosphere is. Of course, it isn’t like a get-together with friends, but it definitely feels more laid-back than other events I have attended before the crisis—the last one being a cocktail soiree. With not one suit in sight, everyone is casually dressed in the comfort of their own homes, 66
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sipping their drinks and occasionally being visited by their children. “One second, my four-year-old just walked in,” announces Richard, as his child attempts to offer him coffee while he introduces himself to the group, drawing understanding chuckles from the participants. Once all of the speakers have introduced themselves, it moves onto the main discussion. In terms of the amount of information being covered, it is definitely on par with traditional specialist finance seminars I have been to—the replacement of direct human interaction with a computer screen does not in any way affect the value provided. The speakers each take turns discussing different elements of the industry— from property portfolio management to preparing your business to survive the crisis, including which deals are risky now. “I would go for safety in the current climate,” says Patrick. “Make sure you partner with somebody who’s not going to run out of money.” He urges that safety should be put before maximising profit share, and to “go with partners who can stay in for the long haul.” Once the general panel is over, the somewhat chaotic part begins. Splitting circa 130 people into six Zoom rooms is no easy task and, while I give Brendan props for his heroic effort to do so, it is a bit messy. Despite the fact that everyone has selected their rooms in the chat throughout the event as requested, the process of assigning everyone takes up a good chunk of time and even then, a few people (myself included) are left out—which causes a delay. One cannot deny that an online webinar carries a lot of advantages. It saves time and money, as you don’t have to travel to a specific location, and allows you to interact with people from all over the world. “While I like personal meetings, especially for initial introductions, if you don’t live in central London, travelling to [and] fro can be a bit of a pain,” says Rob Wilkinson, co-founder of Crowd with Us, who is in attendance. Speaking with him over email a few days after the webinar, he shares the same view as me on the time and money savings benefit. “You can hold it in the [afternoon] and not have it wipe out the rest of the day for attendees, as they’re free to revert back to their usual schedule
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THE PROPERTY CONFERENCE Lockdown has changed many aspects of our daily and working lives, but the cessation of gatherings and events has had a catastrophic impact on that particular sector—cancelling or postponing thousands almost overnight.
once the meeting has finished. Lastly, you can do it in your … jogging pants and a shirt and no one will ever know.” “Over the last few weeks, I have seen attendees getting used to the platforms more,” Brendan shares. “When creating events, my attendees for shorter events would normally come from London and the South East. For the online events, though, attendees are willing to come from further afield as location isn’t a factor—its whether they [get] value from the event.” He adds that he is “old school” and prefers the traditional method, albeit going online means that you can take part in more in a single day. While it is definitely more comfortable listening to experts talk about the property market and offer up their advice and opinions from home, it’s very easy to get distracted by other things around you, whether that’s a random text message from someone, family members, or the noise of construction work going on outside your house (guilty as charged). In addition, it is harder to mingle with people in this format. Throughout the event, we were required to keep ourselves muted to make way for the speakers, which meant limited time to chat, as you would at a regular event. Moreover, most of the attendees kept their video function off, taking away the digital replacement for faceto-face interaction. “Within the property industry, networking is so important, and those 10-15 minutes between talks, or at the end of the event, can be much more worthwhile than the content of the event itself, in some instances,” states Alex Hurn, director at Sillence Hurn, who also attended Brendan’s webinar. However, he does point out that the chat feature was a big help in filling the communication gap, something I noticed as well. “I have been surprised by how well this element has translated to online events, with chat messaging being very useful to instantly reach out to anyone on the call.” Although some people did share their details at the end of the session, most of them immediately logged off, back to work or whatever they were doing beforehand. This is the moment I realise the power of speaking to someone in person, and how important direct communication, shaking hands, and handing over a business card really is.
Words by
caron schreuder
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t is said that the role of a property professional can be somewhat lonely, and connections are often achieved through getting together in some capacity, whether that is over a cup of coffee, or during larger-scale networking. When combining this with the negative impact that Covid-19 has had on countless businesses, the need for peer support has never been clearer. Alice Williams, head of property finance at brokerage Pilot Fish, and her partner, Joshua Tharby, managing director at property tax accountancy firm JSM Partners, recognise that, with so much uncertainty abounding, it is imperative for brokers, investors, and other stakeholders in the property industry to consider adjusting their strategies. And thus, The Property Conference was imagined and brought to life—in around 18 days! The 36-hour virtual showcase, hosted by Alice and Joshua, recruited the expertise of no less than 40 speakers, spanning a wide variety of topics. Available via YouTube and Facebook, the free-to-attend event hopes to raise £5,000 for NHS Charities Together. Initially planned to take place over the course of one day, the organisers were overwhelmed with support from members of their established professional network, resulting in it being expanded to cover Friday 24th through to Sunday 26th April, from roughly 9am to 9pm. Alice’s admission that getting people on board to speak was the easiest part of the whole thing shocked me (and made me think seriously about enlisting her help for our own future IRL conferences…) Encouraged by the growing list of participants, Alice and Joshua—who confess they were out of their comfort zone—began the process of setting up an event website, through which people could begin to donate, and the necessary social media channels and introductory video content, which became vital in getting the word out. As an organiser of events myself, I am no stranger to the physical challenges
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presented—the AV aspects, getting people there, co-ordinating panels, managing the timing of sessions and putting together topic agendas, among others. With the whole experience taken online— therefore helpfully eliminating many of the standard practical hurdles—I am still curious and a little sceptical to see how a virtual conference will pan out. At the outset, I will say that I have my doubts about it being held over a weekend. While there are wide reports of an emerging collective belief that days and weeks have become more of an enigmatic concept than a reality, I still value the time over those two days—which is usually dedicated to obsessive spring cleaning and baking banana bread. I am wrong, however. The status quo has changed as a result of remote working, and schedules have become so malleable that ‘working hours’ can and are being distributed throughout the week in a way that they haven’t been before. I am told later on that the conference was consistently well attended (200+) over all three days. I join in on the Friday and log on at 9am sharp to catch Joshua’s opening remarks. I am a stickler for getting the full experience (hence my punctuality), but later learn that a huge benefit that comes with online events is being able to dip in and out as you please. There is an initial glitch with the feed and it takes a little while for everyone to sync up, with the Facebook Live stream—accessible within the dedicated Property Conference group page—eventually favoured. It is at this very early stage of proceedings that it starts to become clear what the biggest advantage of going virtual is: the live chat function. Attendees feed back supportively as Joshua and Alice work on the tech side of things and build up excitement in the ‘room’. Once we can all see and hear Joshua, he introduces a motivational talk by Sunny
Alice Williams
Mahal—aka Mr Sunshine. While not my go-to type of address (I’m far too cynical), Sunny, a seemingly well-known personality in property development and qualified practitioner of neurolinguistics programming, proves to be an excellent first speaker, garnering lots of enthusiasm from attendees. Sunny focuses on fostering what he calls a ‘winning mindset’, based on personal experience and a model that works for him. Given the current environment, it is responded to well, and the boost of energy helps put people in the right frame of mind for the rest of the day. The last 10-15 minutes of his session is dedicated to questions, managed by Alice in the chat, and includes requests for advice on how one can maintain a good physiological state—one of Sunny’s tenets for being successful—when often out on the road, while another asks about effective time-blocking when you have kids and other commitments. According to Sunny, it’s all in the planning. I now have an even better idea of the importance of interaction during these online sessions and how it differentiates them from the usual in-person format. When you’re sitting in a conference hall, there is generally no outlet for
Jackie Tomes’ graph indicating market considerations for the next 18 months
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immediate sharing. For example, you can’t tell everyone around you whether you know the speaker and rate them highly, what brings you to the event, and what you’re hoping to gain. Crucially, an online experience allows you to raise questions and ideas during the session. Traditional conferences reserve time for audience comments and queries towards the end, by which time the urgency may have left, or they have moved too far away from a particular topic for it to feel it can be asked with confidence (this has happened to me many times). I find myself glued to the chat in the sidebar. The Virgin Money Giving link to donate is also shared and reshared here periodically, providing a constant reminder of what the main collective goal is. Jackie Tomes, who runs Property Strategy and Tomes Homes, is up next, streaming live from the French Alps. No, not a virtual background of the gorgeous range, the actual Alps, where she is ostensibly on a ski holiday—just minus the skiing, due to lockdown. Jackie’s business approach is all about detail, structure, analysis, focus and clarity—concepts that are likely to prove even more valuable during this uncertain time. Like Sunny, Jackie shares a series of slides during her talk, covering, among other topics, predictions for the ‘curve’; factors affecting the market in the next 12-18 months; and discounts on precoronavirus market value. Her presentation is very graph heavy but effective in showing the somewhat overwhelming multitude of factors one needs to consider in 2020 and into next year. According to Jackie, this sort of prediction mapping “gives you a narrative under which to make decisions” and avoids sending you into a “swirling vortex of chaos”. The group has several questions for her, which are conveyed via Joshua, who pops up to link the chat activity with the speaker, once the main talk is over. What should you do if you are currently in the process of investing in a property? Jackie’s initial reaction is to look at how you can still make it work, which will, in most cases, require it being purchased at a lower price. If that isn’t negotiable, conditions around the lease, for example, would need to be more creative, such as an option to buy for the next five years at the current price. She explains that, in their business, she will be looking for at least a 15% drop on their current agreed prices in order to proceed. Speaking to Jackie after the event, she says: “As a property investment business, we had been preparing for the next market downturn for the last five years. And while a pandemic was not the cause we were expecting, now that
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it’s here, it is time for us to step up, put plans into motion, and support our community and the wider industry.” Later on, Chris Hamilton—a trained doctor who has just completed a 12hour hospital shift—beams in sans slides via his phone, due to a faulty internet connection, to lead a session on commercial property post-lockdown. He has been involved in construction since 2004, worked on multi-billion-pound developments and holds qualifications in both project management and engineering. He notes the upward trend, since 2016, in office values, which made the economic case for converting them into residential quite weak. With the supposition that companies will increasingly be working from home, there could be a natural downsizing of office space required and, according to Chris, a “shedload of empty floors available”, which will eventually transform into empty buildings. This is something he sees, subject to tenancy agreements, happening this year. In addition, a further increase in the popularity of online shopping, brought about by the constraints of lockdown, means more retail stock will come to market. Against the backdrop of what was already a struggling high street, Chris envisages even more retailers relocating into warehouse distribution systems. Chris doesn’t foresee a stronger current strategy than commercial conversions, and encourages people to look around their immediate area for opportunities of this kind. When he mentions how planning will be a problem moving forward, given the caveats involved in PD, it prompts a deluge of comments vehemently in agreement that reform is desperately needed. It may be of some comfort that Chris is in the process of teaming up with other professionals, such as architects and planners, to form a pressure group to review the system, with the goal of making it easier to bring more affordable housing to the market. Addressing the attendees directly, Chris thinks that this is the perfect platform to get that off the ground. In answer to a question about buying without planning and the risks involved, Chris shares that almost all of his properties have been bought without planning, using PD. When asked about hotel conversions, Chris highlights that it is these buildings, as well as care homes and other essential community assets, which attract a more challenging planning process for converting into residential, and that he is looking to appeal to the government to change these requirements. Although a superb option for converting into flats, he
Joshua Tharby
believes the reason why local authorities are not keen on hotels being converted is the consequent loss in tourism. In the afternoon, we hear from a very engaging pair of solicitors: Keira Guiton Rawden and Sarah-Jane Newsam. They run a property firm based in Leeds called Complete Property Deal, with a client base of mainly investors. Keira—whose specialism is bridging—and Sarah-Jane admit that, although they present together quite a lot, it feels weird to do so remotely. Both want to give the audience some insight into the conversations they’ve been having during these difficult times, and are adamant in debunking the myth that exchanging and completing is an impossibility right now—asserting that they have a lot of investors still purchasing successfully. “Our view is that the market has paused, it’s not dropped—yet,” says Keira. She claims that lenders want and need to lend, but a lack of physical backoffice staff, having to deal with mortgage holidays, and the obstacle of valuations are the hurdles, not that the funds aren’t there. A Facebook comment from an attendee reads: “Wow, you seem super efficient, I wish all solicitors were like this!” Questions for Keira and Sarah-Jane include how to deal with squatting issues in vacant properties during this period, and lease options to buy. Their biggest tip is that lease options work best with unencumbered properties—and to work with a professional because, according to the pair, enforcement of these is yet untried in court. Other sessions throughout the day, most of which are 45 minutes to onehour long, tackle topics such as capital allowances, how to avoid development disasters, serviced accommodation, and leveraging social media for success. Alice shares with me that they were keen to put together a “holistic offering” of subject matters which play a significant role in succeeding in property. A unique aspect of the conference,
which I do not recall having experienced at a traditional event, is the number of incentives offered by the speakers to motivate donations. Chris, for example, extended the opportunity of a 30-minute, one-to-one consultancy call in exchange for a £30 donation to the charity. Rich Liddle (RAF pilot, creator of property network Blue Oak and an experienced developer) put all those who donated during his session into a draw for a full day’s training with him, and two other speakers granted access to their published educational material for attendees who gave generously. These initiatives raised over £4,000 alone. It was wonderful to see such overwhelming support for the cause, and Alice and Joshua’s endeavours. The donation link is still live and, by midMay, the team had raised over £18,000 (including gift aid contributions), smashing their original target by more than £13,000. Post-event, my notifications indicate that The Property Conference group page on Facebook remained active for a few days after the last session on Sunday and, a week later, all speaker presentations were helpfully available on YouTube. My impression is that it presented valuable content and appeared to provoke questions and conversation among attendees, many of whom were more engaged than I have typically seen at conventional events. The ability to rev people up in the comments section ensured that we always felt included in the discussion. Numerous delegates requested a copy of the material that the speakers spoke from, which indicated that they were eager to put it to use. Alice and Joshua were understandably thrilled with the outcome and are likely to make it an annual occasion. “We were astounded by the success of the conference. With an initial target of £5,000, and some apprehension as to whether or not this would be reached, to ultimately raise [more than] three times that—especially in the current climate— is staggering. . . see you next year!” Jackie reports that, since, they have been inundated with positive feedback. “It has clearly hit a real sweet spot between education and giving back [which is] exactly what people are looking for during these times,” she says. All in all, the experience exceeded my expectations and perhaps addressed some of my misconceptions around the value of these sorts of meetups under the current conditions. To quote a maxim I heard during one of the talks, “Hope is not a strategy”; as long as we have people willing to band together and share information for the betterment of the industry, it won’t need to be.
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PRIME PROPERTY FINANCE SPECIALISTS Acquisition | Development | Sales Period capitalrise.com/borrow | 020 3869 2619
CapitalRiseÂŽ is a registered trademark of CapitalRise Finance Ltd, a limited company registered in England and Wales (No. 09571824), with its registered office at Jubilee House, 2 Jubilee Place, London SW3 3TQ and FCA firm reference 739181.
COVID-19 AND THE BRIDGING INDUSTRY Future outlook by Arya Taware, Founder and MD of FutureBricks
Flexible lending in Covid-19 times Given the current situation, most lenders have lowered their usual loan to values from 70-75% to around 65%. In fact, a lot of lenders have stopped looking at development projects altogether as the economy has come to a standstill. I think some methods may continue, but some of the new processes may be abandoned as the market returns to normal in due course. It also depends on the extent of change. LTVs that have been adjusted will essentially return to normal once the market corrects itself.
It’s all in the numbers: Bridging Business Post Pandemic Until the market corrects itself, a lot of lenders will be more particular about the kind of projects they lend to. These will be projects in and around major cities like London and Birmingham, maybe fewer regional projects and even less of a focus on land sites. Lenders will continue to restrict their criteria and stop lending to development projects altogether which is something we’ve already seen prior to the pandemic. Instead, it’s likely that most lenders will want to look at completed assets and more bridging deals. We’re grateful to have institutional backing and glad that we can continue lending in Covid-19 times. Our lending starts from 6% per annum with only 2% arrangement fees and no exit fees. We’re receiving a healthy number of loan applications in this period. Some of the benefits and challenges of these changes The benefits include low risk, or lower risk, as well as protection for lenders. In terms of challenges, attaining valuation will be tricky and most are attaching Covid-19 clauses. If bridge lenders choose to restrict their lending criteria by making it narrower, this will ultimately result in a very specific type of borrower. Bridge funding and the post-crisis landscape We’re suddenly seeing the number of available lenders shrink and existing ones have tightened their lending criteria. I believe that, until the
market corrects itself, there will be increased hesitation after the crisis. I think over the course of the year, we’ll be seeing less players in the market. It all depends on how long lockdown lasts and how fast the market picks up. It could take 6 months or 12, only time will tell. A potential shift between brokers and lenders after the crisis subsides I think there will be a shift in the sense that brokers might have less to choose from. Relationships between brokers and lenders might also strengthen. Even in hard times, we at FutureBricks want to reiterate that we are open for business and we’re still lending. I sincerely believe that brokers will opt for lenders who are open at this time rather than the lenders who’ve suddenly paused. Even after the crisis, the preference will be for lenders who demonstrate comradery above anything else. Short and long-term impacts of the Covid-19 crisis Everything was put on pause in the short term and there was some panic with supplies in the beginning. For two weeks, site owners weren’t able to get hold of supplies though workers were still officially allowed to work on sites according to government guidance. Now we’re seeing some more movement on sites despite initial panic. Lenders and borrowers in the market also faced this initial panic, especially concerning expiry for bridging loans or being able to sell in a
provisionally frozen market. Speaking long term, there’s a high chance there will be fewer lenders in the market or lending criteria may continue to remain restricted over a 6 to 12-month period, though it’s still difficult to say for sure due to continued uncertainty with lockdown in place. Finding opportunity in adversity To improve, you can tweak your underwriting process and lending criteria, which a lot of industry lenders have done. Above all, you need to manage your stakeholders, adjust certain parts of your criteria and methods but also ensure that there’s liquidity in the market and that rates won’t fall to avoid any initial panic. I appreciate that this isn’t entirely possible for some institutions who have a lot of bureaucratic loopholes to get through. But it’s our mantra at FutureBricks to make sure that we continue to provide liquidity and back SME housebuilders in these times. Finding opportunity in adversity Lenders are able to offer a more personalised solution for the borrower which is great for trust and transparency. This is down to competition, which has inevitably settled down as a result of the pandemic. It’s encouraging and rewarding to be in a position to finance property developers and we very much welcome new projects with open arms. Business is open and we’d love to hear from all of the remarkable borrowers out there! #LetsBreakTheBrickCeiling
For all enquiries, please contact us at borrow@futurebricks.com or alternatively call us on 020 8050 1522 #LetsBreakTheBrickCeiling The Brickwork Group Ltd trading as Futurebricks is an Appointed Representative of Resolution Compliance Ltd which is authorised and regulated by the Financial Conduct Authority (FRN. 574048). The Brickwork Group Ltd trading as Futurebricks is registered in England and Wales. Registered office: FutureBricks, Aviation House, 125 Kingsway, London, WC2B 6NH.
We remain committed to supporting brokers Here is a sample of deals we have completed since lockdown: Residential Buy to Let
Development Exit
New Start Business
£400,000 equity release on 3 residential investment properties in Greater Manchester to fund further acquisitions
£3,000,000 to refinance the final 3 apartments of a block in Central London. This completed in just 10 days
£135,000 equity release to fund the refurbishment of a new wine bar in West Yorkshire
HMO / Specialist Accommodation
Industrial
Holiday Let
£2,600,000 to refinance a portfolio of small hotels / HMOs in East Anglia
£600,000 refinance and equity release for a manufacturing business in the Midlands
£100,000 equity release to invest in a new business
LOANS up to £25 million
Chris Oatway MD of LDN Finance
TERMS up to 3 years
AWA R D S 2 0 1 7 SPECIALIST PRODUCT OF THE YEAR
WIN N ER
Richard King Head of Sales M: 07388 993985
Jamie Russell BDM — South East M: 07741 196308
Colin Anderson Scotland M: 07776 660376
“
are such “aOrtus reliable lender
RATES from 0.65% pcm
AWA R D S 2 0 1 8 SERVICE EXCELLENCE – LENDERS
WI NNER
Shane Donnelly Northern Ireland M: 07442 091031
HEAD OFFICE: 8 Wimpole Street, London W1G 9SP BELFAST OFFICE: 20 May Street, Belfast BT1 4NL MANCHESTER OFFICE: Village Point, 35 Heaton Moor Road, Stockport SK4 4PB
0203 397 0237 ortussecuredfinance.co.uk Unregulated loans only. For intermediaries only
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TIM WICKHAM Rolling up or retaining bridging loan interest and paying it at the end of the term are usually the preferred methods, but are monthly interest payments becoming a more attractive option, and do industry experts envisage Covid-19 having an effect on this?
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hile serviced bridging loans aren’t anywhere near as popular as their more traditional counterparts, there is interest in them, so to speak. In light of the coronavirus pandemic, might lenders favour the relative control of receiving regular monthly payments? Or, does the need for income assessment and the risk of payments being missed by cash-strapped borrowers amount to lenders having less of a handle on their portfolios? For borrowers, the need for access to higher net loan amounts upfront through a serviced bridging loan may be a pressing requirement in order to continue with projects, considering the prevailing decrease in LTVs across the board. During this unprecedented period of uncertainty, the government is calling on lenders to be more accommodating with borrowers. Following prime minister Boris Johnson’s lockdown edict on 23rd March, the FCA emphasised the need for lenders to treat customers fairly, while also reminding borrowers that they will continue to be charged interest on what they owe. The regulator quickly announced a three-month payment holiday period for mortgages and regulated loans, which are proposed to be extended until October 2020. Historically, serviced bridging loans have appealed mainly to borrowers with substantial alternative income sources, in addition to the asset(s) they are using as the security for the loan. They are probably less financially constrained compared with the typical asset-rich, cash-poor bridging customer. Expressing his personal view, rather than that of the Association of Short Term Lenders for whom he is CEO, Vic Jannels feels that, given the pre-coronavirus combination of liquidity, low rates and competition in the lending market, borrowers were more comfortable adding interest onto their debt, even though that, ultimately, makes it a larger sum to be repaid than if it was taken out on a serviced basis. PROS AND CONS This view is generally echoed by lenders. Pivot offers mainly retained and serviced interest, and asserts that its serviced offering is strongest for assets with underlying income, such as BTL, HMOs, let commercial offices and retail shops, as well as student accommodation. PakSan Wu, funding and portfolio manager at Pivot, doesn’t see much change in demand for the serviced option, but noted that
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some will be looking for the maximum drawdown from day one. “Sometimes, to accommodate that, we offer serviced interest instead of retained interest,” he says. Oblix Capital reports that serviced loans have relatively limited appeal. “In one month, [we] may have half a dozen that want servicing, and the next month, [we] have none,” states Andy Reid, sales director for intermediary and network at Oblix. He thinks this is more down to the individual assets that need funding and the amount people are looking to borrow. “While we would be quite happy to transact that type of business, it is not the usual request.” According to United Trust Bank, borrowers prefer interest to be rolled up because most requests for bridging relate to assets that aren’t currently generating income. Similarly, Aspen Bridging doesn’t see much demand for it. “Bridging loans are expensive, so you have to have high levels of income to service [them],” says Jack Coombs, director at Aspen. Referencing the impact of Covid-19, Jack considers the general strain on income is likely to result in serviced options becoming even less popular. Funding 365 allows borrowers to repay part or all of their loan at any time during the loan period and adjusts the interest rate due accordingly. “We haven’t seen a rise in popularity of serviced loans. In fact, while it’s far too early to call this a trend, this year we’ve seen a dip in serviced and part-serviced loans. In 2018 and 2019, serviced and part-serviced loans accounted for approximately 25% of our bridging loans; in the first quarter of 2020 they accounted for only 15%,” says Mike Strange, director at §Funding 365. This is due, in part, to the types of deals being completed by the lender. “We need to make sure that borrowers have the income to be able to do this—most commonly via property yield. Often, if a bridging loan is for refurbishment or development exit purposes, or for property purchases where the security is untenanted, retained interest is more appropriate,” Mike explains. In March, the lender reported a larger number of refurbishment projects and auction purchases, but noted that this could of course change throughout the year. The firm says coronavirus hasn’t impacted its lending approach. “There’s been no change from us in that it’s the purpose of the loan that drives our decision [on] the method of interest payment rather than anything else,” adds Laura Kendall, marketing director at 74
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Funding 365. MFS points out that receiving a higher net loan using the serviced model reduces the borrower’s initial deposit, potentially saving them money, depending on their circumstances. The company offers the option to service a loan after a minimum of three months until the end of the term. “Borrowers are now generally looking to obtain a higher net loan amount, therefore it may make sense for them to service the payments to facilitate that,” says Ian Miller-Hawes, head of sales at MFS. But, in the current climate of lockdown and social distancing, such a desire from borrowers may be hard to fulfil. Dale Jannels, managing director at Impact Specialist Finance, observes: “With fewer servicing options available currently, the old mantra of ‘cash is king’ applies and the customer’s ability to service the loan reduces when cash is scarce.” AFFORDABILTY CHECKS One of the potential drawbacks of serviced loans highlighted by brokers and lenders is that they require greater scrutiny to ensure borrowers will be able to maintain monthly interest payments. “…The customer would have to demonstrate affordability more or less in line with what they would have to do if they were taking a high street mortgage . . . all of their living costs, utility bills, pensions, you name it, would have to be taken into account before a lender [decides] whether the customer has the ability to meet [a serviced loan],” says Vic. Chris Oatway, director at LDNfinance, notes that the only time it will really look at serviced interest is when an individual either has income from a development site which will be able to cover it, or they are really pushing for maximum leverage, but can show that they have sufficient income to cover the interest on a monthly basis. Broker Coreco reports a small rise in borrowers who require serviced loans in order to access more cash upfront—but its relatively minor appeal has more to do with lenders not wanting to “operate an element of affordability”. “It’s the larger, more established lenders who have the staff and capability to spend time assessing borrower affordability,” says Guy Nyirenda, mortgage broker at Coreco. “Smaller lenders aren’t really doing it; they just don’t have that capacity.” Crystal Specialist Finance doesn’t expect too much of a change in favour of serviced loans, either. “There aren’t that many borrowers in need of bridging that can afford the payments . . . [it can be] a big chunk of your disposable income,” says Kris Corns, Crystal’s operations director,
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for whom the option makes up a “pretty low” proportion of its business. Of course, being able to carry out thorough affordability checks is a challenge in a locked-down scenario. “The assessment of the primary exit strategy, as well as viable alternatives, has become more difficult. For example, it’s much [harder] to know how long a property might take to sell, how long the refurbishment could take to be completed, and [whether] the potential refinance to exit the loan will be possible in six, nine or 12 months’ time,” says Dale. Gavin Diamond, commercial director of bridging at United Trust Bank, agrees that these are the challenges all lenders face under the current circumstances. “A commonsense approach needs to be applied in making such assessments and decisions, taking the latest available information into account,” he comments. Certain asset types that may attract the serviced interest model, such as tenanted properties, are easier to value in the absence of valuers being able to access them, claims Laura. “So, it’s likely that we will see more of these types of loans and . . . by default, serviced loans being completed in this environment,” she adds. As the coronavirus situation plays out, Guy thinks that lenders can exert greater control when the interest is borrowed. However, given the status of certain exit plans, there may ultimately be a move towards servicing those that can’t be repaid. “That’s because most current and new loans are relying on an exit to repay the bridging loans, which will most probably be delayed now for an indeterminate timescale,” he explains. “Lenders are being pragmatic and extending facilities, where practical, in the short-term. However, this cannot last, so more servicing will be required moving forward.” But just because a borrower agrees to pay interest monthly doesn’t necessarily mean lenders won’t lose money in the long run, notes Laura. “For example, if the property market crashes or a heavy refurbishment isn’t carried out as agreed. Plus, of course, many people may have issues paying monthly if the current social distancing measures last for much longer.” CORONAVIRUS AFTERMATH The cashflow pressure imposed by serviced loans could be too much for many at the moment. “Not many borrowers will have the financial strength to service their loans during these unprecedented times. Even if the borrower is able to provide
financial evidence to support their case, I cannot imagine many lenders are willing to take on this risk…” thinks PakSan. Lenders might decide to become more selective on what deals to take on. “Even if there is a demand in loans to be serviced, I cannot see lenders wanting to offer this unless the income from the asset or the personal income of the client is likely to be maintained during the [loan term] and can easily support the monthly payments. Demand may be higher, but I suspect most lenders are more likely to insist on retained interest,” Chris says. One legacy of the coronavirus pandemic could be more varied ways of charging interest, like Aspen’s steppedinterest payments, which Jack describes as a “fundamentally different” way of structuring bridging finance. He illustrates that, on a 12-month loan, the charge may be 0.59% for the first six months, then 1.24% for the next six months. So, if a borrower redeems in seven months, the blended rate will be lower. “It’s a product that works best for a customer who is quick and efficient,” Jack adds. LTV IMPACT LDNfinance highlights a general fall in LTVs from 75% to 65% as lenders exercise caution in the current market. “Some lenders have such large loan books that their focus has moved solely to looking after their existing clients rather than securing new deals. This has meant there has been a surge in pressure on those lenders who are still in the market,” Chris says. “Where we previously could have had numerous lenders competing for deals, and we could request loans to be serviced to increase the net loan or negotiate on the interest rate, we are now finding there is a higher importance on deliverability.” Even if the borrower is keen on servicing the interest, PakSan thinks the coronavirus pandemic creates huge uncertainty around their ability to do so. Nevertheless, there could be room for this option in a market where LTVs are lower. “We have seen, historically, that the lenders’ first reaction to a crisis is to reduce LTVs, or withdraw temporarily from the market. This will lead to a gap in LTVs, and servicing may reduce this. So, it is likely we will see an increase in demand for serviced loans in the short to mid term until LTVs recover,” suggests Guy. Business was brisk last year for the bridging industry. The ASTL reported that bridging loan books grew to £4.5 billion
INTEREST CHARGING ILLUSTRATION
Key Loan Details Net Advance Arrangement Fees Interest Rate p.m. Term (months)
£1,000,000.00 2% 1% 12
Gross Loan Arrangement Fees Total Interest Net Advance
£1,162,790.70 £23,255.81 £139,534.88 £ 1,000,000
Gross Loan Arrangement Fees Total Interest Net Advance
£ 1,152,805.23 £23,056.10 £129,749.12 £1,000,000
Gross Loan Arrangement Fees Total Interest Net Advance
£1,020,408.16 £20,408.16 £122,448.98 £1,000,000
Retained Interest
Rolled up Interest
Serviced Interest
Source: Pivot, based on a net advance of £1m
in 2019, an increase of 19.7% compared with 2018. The effect of a housing market impacted by social distancing measures will undoubtedly distort this upward trajectory. “…It is fair to assume that the value of properties will likely drop by at least 10-15% as demand falls in the next few months,” predicts PakSan. Dale agrees that there’s a degree of nervousness about property values at the moment, and that some borrowers might have to offer more security if they still wish to obtain higher net loans. “However, sensible lending decisions should always be based on the borrower’s requirements and the plausibility of the exit strategy. That should never change in any market conditions,” he says. If property values keep falling, lenders will probably continue along a path of precautionary LTV readjustments. As 2020 wears on, it remains to be seen whether the situation we are in will lead to more demand for serviced loans. No one can predict when normality will return but, as with many other areas of life, the industry may never be quite the same again.
75 May/Jun 2020
Mezzanine’s rising importance in the loan structure
Words by andreea dulgheru
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ith the Covid-19 crisis casting a shadow over the property development and construction sectors, this type of funding could be a remedy for developers now—and once we are out the other side of the pandemic. With lenders having dropped LTVs, and GDVs now uncertain, will mezzanine become the market’s saviour by plugging the gap in the capital stack to help the UK to continue building? To ensure that more introducers and developers are educated on the benefits and challenges associated with this type of facility, especially during these unparalleled times, we spoke to a selection of mezzanine lenders and brokers
Explained
The history and evolution of mezzanine finance Unlike more mainstream development finance, mezzanine has been relatively shrouded in mystery. Although it was initially used for leveraged buyout transactions, it was during the global financial crisis—when many senior lenders pulled back on lending—that this specialist type of funding really came into its own. “Mezzanine finance filled that gap in a developer’s equity and helped many projects happen that may [have] otherwise struggled to be viable,” states Andrew Gardiner, co-founder and director of Saxon Trust. According to a study conducted by Partners Group, mezzanine debt in Europe outperformed nearly all asset classes during the GFC from 2007 to 2009, and was proven to be one of the most resilient. As a result of the property slump between 2009 and 2011, mezzanine loans became vital to support many developers. Over the years, this somewhat niche type of development funding has evolved, with some lenders exiting the market and others joining in their stead, offering mezzanine finance as either an “add on” to their product range or as their sole offering, explains Martin Gilsenan, managing director of sales at Iron Bridge Finance. “As the market has grown, the ‘typical’ mezzanine borrower profile has broadened to include developers of a very wide range of asset classes and project requirements,” notes Mark Quigley, managing director of UK real estate finance at Beaufort Capital. Andrew agrees, highlighting that mezzanine has also helped developers expand their businesses and take on larger projects, with one example from Saxon Trust including a scheme of 116 homes in London. “In challenging conditions … we’re seeing that the provision of mezzanine finance is allowing developers to free up equity—either to complete projects which may come under some stress, or to seek new land buying opportunities,” adds Mark. How does mezzanine work? To put it simply, think of it as adding another layer to your cake. In a development lending cycle, mezzanine finance is a tranche of debt added on top of the first-charge loan obtained from a senior debt lender, and below the equity, thus enabling the borrower to reduce the amount of ‘skin in the game’ in order to reach 100% of funding. “Most high street and challenger banks, and alternative financiers, will usually allow a developer to borrow between 55% and 60% of the project GDV,” points out Mark. “The differentiation between the types of senior lender tends to focus more around speed of execution and flexibility. We have often seen the most competitive rates offered by high street banks, but deals can take some months to complete. By contrast, the [nimbler] challenger banks will often offer terms, enter legals, and execute much faster—but will usually be priced slightly higher. Alternative financiers are typically quicker [still] … but will usually charge more than the challenger banks.” A mezzanine facility will generally allow up to 70%
GDV, or 85% of the project costs to be borrowed. However, some lenders have been able to offer more. “Mechanically, the project equity will be injected first, followed by the mezzanine finance, with the senior debt going in last and typically on a drip-fed basis against architects’ certificates, which are then corroborated by an independent project monitoring surveyor instructed by the lending institutions,” Mark adds. Christopher Adamou, managing director at Lendhub, explains that securing mezzanine finance is similar to that of senior development loans—independent reports, legal arrangements, insurance warranties, and due diligence are all part of the process. Once the project is completed and sold or refinanced, or in the unfortunate case of default, the senior debt lender is repaid first, followed by the mezzanine lender and, lastly, the equity investment is returned, with any profits distributed accordingly. Adding that extra layer with mezzanine allows borrowers to improve their cashflow and consider additional development projects by retaining liquidity of their own. In addition, by using mezzanine instead of equity funding, the borrower retains more, or all, of the project profits. “When comparing the total finance cost of a stretched senior facility to a senior debt plus mezzanine finance solution, it is often surprising to borrowers how cost effective splitting the debt can be,” says Mark. As well as the rate of interest, there will usually be additional charges such as arrangement, exit and non-utilisation fees. “A blended rate will incorporate all interest and fees charged and annualise the cost of the debt across the entire project. [This] enables a borrower to understand what the true cost of the debt would be if it were borrowed as a whole, providing a useful tool for comparison,” he adds. Typical blended rates that Beaufort sees on its projects are between 6% and 8%—depending on the senior lender and project. Flexibility is also an advantage with this type of finance, as it often comes from private sources. For example, Beaufort is funded by capital from two UHNW family offices. “…We have a diverse range of funding sources and pools of lending capital available to us,” adds Andrew. “This means that we can be flexible with loan structures and terms and can draw on different funding capacity, depending on the types of loan.” However, with high reward usually comes high risk. As mezzanine finance sits behind a first-charge loan, lenders have a greater chance of not getting paid back, should there be any complications with the scheme. This is why mezzanine lenders are often more careful when considering applications, which is reflected in higher interest rates—thus, any timeline delays can erode profits faster. It should also not be forgotten that the inclusion of mezzanine adds an extra party to the transaction. “For a developer using mezzanine finance, this does of course mean they are working with two [lenders]. Therefore, there is some additional work for the developer to do, both initially when structuring their finance, and also during the monitoring of 78
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Explained
the project,” clarifies Andrew. Daryl Thorpe, cofounder and principal of ZSL Capital, states that it can also incur additional legal and professional fees, which the borrower needs to take into account. However, an experienced broker can help the completion go faster and smoother. “A broker [which] understands what the requirements will be from a lender will often save a funder valuable time and energy by gathering all necessary information and truly understanding the strengths and weaknesses of a deal,” says Mark. “Inevitably, this will make the decision-making process for the lender more streamlined and consequently quicker.” Matthew Dailly, managing director at Tiger Financial, agrees that a specialist development and mezzanine finance broker is an important player in arranging a suitable deal. “The mezzanine lending market is fragmented, with a plethora of niche [providers] offering various different loans dependent on location, asset class, LTV and sponsor profile. It’s impossible for a developer to have confidence [in] getting the best and most suitable loan for their property project, unless they use a specialist development and mezzanine finance broker,” he says. What does the future hold for this product? Under current Covid-19 conditions, it is hard for anyone to predict how things will evolve in the property development sector.Yet, despite the crisis, some mezzanine lenders we spoke to seem cautiously optimistic about it increasing in popularity. “We believe [mezzanine] will [grow]—developers continue to look for optionality in the stack above senior debt,” confirms Martin. “It makes sense for those developers who are agile and looking for new opportunities to diversify risk across multiple sites and spread their equity,” adds Lance Joseph, chairman at Iron Bridge. “By using mezzanine, we also enable them to maximise their profit.” A factor which could have a significant impact on the need for mezzanine funding is the availability of senior debt. As uncertainty caused by the outbreak is influencing banks and other firstcharge development lenders to step cautiously and reduce LTVs, it is creating an even wider gap in the capital stack. “Brexit uncertainty over the last couple of years, followed by concerns over a Corbyn government, saw more senior lenders starting to reduce their leverage thresholds, creating a further gap in the capital structure,” explains Daryl. “…Despite the unprecedented levels of government support to the economy [during this crisis], access to liquidity for projects will likely decrease, with pressures on both mainstream lending leverage and reducing levels of appetite for equity”—with mezzanine funding the obvious choice to fill the void. When asked whether the product will therefore become more in demand, the responses were mixed. While some lenders believe there is potential for growth, others think there could be a decrease in applications, due to developers taking a more sensible ‘wait and see’ approach.
“Most senior lenders, if not pausing lending completely, are reducing their leverage thresholds,” states Daryl. As a result, ZSL Capital is seeing a larger volume of enquiries. “That said, mezzanine lenders are reducing their leverage, too—so either additional equity still needs to be found, and/or acquisition prices need to be renegotiated.” Mark expects that the pandemic will most likely see a “flight to quality”, with developers looking to deal with well-capitalised businesses. “… Consequently, with senior debt providers looking to reduce their leverage, this will give greater opportunity to mezzanine finance providers to pick up the slack,” he adds. “With much uncertainty now ahead for the coming years, the UK property market faces many challenges, but so long as there is demand for construction, and the associated debt that enables it, the mezzanine market will continue to support growing and established developers— it is all about lending to good companies [and] undertaking good schemes in good locations.” However, Andrew claims he has seen a general ‘market switch off’ towards mezzanine lending from most of the major lenders. “This is because there are simply too many unknowns to be able to make sensible and proper credit decisions in [today’s] market—especially for mezzanine loans.” Education will be an important aspect that will determine the popularity of mezzanine finance going forward, as there are still developers who are not familiar with it. Mark believes that this still remains the largest challenge for the mezzanine community. “I believe the lack of awareness can be due to developers selecting a non-specialist broker to source their funding,” argues Matthew. He explains that, with only a handful of well-known larger players, the rest of the market comprises smaller, specialist providers. “[These] lenders can be very useful for smaller developers who need top-up loans under £1m-2m for their developments, which may make an otherwise unaffordable project viable. Due to the complexity and relative obscurity of these mezzanine lenders, it is imperative for developers to use a specialist development finance broker,” he states. Cameron Hayes, asset finance adviser at Arc & Co, agrees that being put in front of the right person from the outset is key. “First impressions are important, and presenting the opportunity in the best possible light can massively change the makeup of the overall transaction,” he says. “The broker can also help negotiate and advise the client on the project with the wider corporate strategy in mind.” While mezzanine isn’t expected to see a sudden boom in activity, it looks like it will remain a firm funding option for property developers to see them out of this troubling period. “The Covid-19 situation is certainly not a perfect time, with unprecedented uncertainty,” describes Daryl. “However, it seems most current economic predictions [suggest] we will see a V- or, worst case, U-shaped bounce back, and mezzanine will be well positioned to offer that additional leverage as some alternative senior lenders leave the market and those remaining [continue] with lower leverage.” 79 May/Jun 2020
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Limelight a glimpse into the charitable schedule of the sector
1 Who: Market Financial Solutions and Benares What: MFS has partnered with Indian restaurant Benares to provide meals to NHS staff. MFS is jointly donating funds to cover the costs of the meals How: The restaurant has been delivering daily takeaway food packages since 23rd March to NHS doctors and nurses. For every takeaway order it receives from its paying customers, Benares donates one meal to NHS workers in the local area. To date, Benares has delivered close to 1,000 meals to the NHS 2 Who: Aldermore What: Aldermore has launched an appeal for colleagues across the Aldermore Group to donate to How: Some 70% of the monies will go to the National Emergencies Trust Coronavirus Appeal, with the other 30% going to its two charities of the year (Mind and LATCH). Aldermore CEO Philip Monks has made a significant personal donation to this appeal, which equates to 20% of his net salary for three months 3 Who: Unity Trust Bank What: Unity Trust Bank has purchased a three-month subscription for each of its 110-strong workforce to help support the Big Issue How: Around 1,500 vendors who sell the magazine—many of whom are vulnerable or homeless—can’t earn a living due to the social distancing guidelines, and therefore the Big Issue is now encouraging people to subscribe, with 50% of net proceeds going to sellers 4 Who: Isolation Golf Bucket Challenge What: Started by MT Finance’s Christian Gugolz, the challenge nominated peers within the specialist finance industry to attempt to hit golf balls into a bucket and to donate money per missed ball to NHS Charities Together How: At the time of writing, the challenge had raised £8,070 by 142 supporters—645% more than the original £1,250 target 5 Who: Brecher LLP What: Brecher has been working with NHS Wales on a pro bono basis and acting on behalf of Swansea Bay University Health Board in connection with the acquisition of Covid-19 field hospitals in South Wales How: One hospital includes Bay Studios in Swansea, where works have taken place to provide a facility with up to 960 hospital beds 6 Who: Yorkshire Building Society Charitable Foundation What: The foundation has donated £100,000 through its Coronavirus Response Fund to support smaller charities during the Covid-19 outbreak How: Includes a £2,000 donation to Rhyl Foodbank at Sussex Christian Centre; £2,000 to Sporting Family Change to fund food parcels for families in need; £2,000 to Loaves N Fishes; and £2,000 to Bradford PHAB Club
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7 Who: Redwood Bank What: The dedicated healthcare heroes of the East and North Hertfordshire NHS Trust have been given a £10,000 donation from Redwood Bank, to help in the fight against Covid-19 How: The East and North Hertfordshire Hospitals’ Charity has set up a donation appeal to support healthcare workers amid the global pandemic. Some of the funds raised through the Here For Each Other campaign will go towards items and services to support the emotional and physical wellbeing of staff 8 Who: Kirkby Diamond What: A new centre providing safe accommodation for homeless people has been opened by Luton charity Signposts, with support from commercial property consultancy Kirkby Diamond How: Kirkby Diamond liaised with the landlord and obtained consent for change of use from Luton District Council from student halls of residence into accommodation for 45 homeless people 9 Who: United Trust Bank What: Donations to Refuge, Age UK, The Trussell Trust, and Food4Heroes How: UTB extended its fundraising efforts from its main beneficiary, Refuge, to include Age UK and The Trussell Trust. To support Mental Health Awareness week, UTB has also made a donation to Food4Heroes 10 Who: Construction industry What: £320,031 has been raised so far by the construction sector in response to the recent cry for help from the Lighthouse Construction Industry Charity How: Donations have been received across the country from both individuals and organisations who supported the charity that provides physical, financial and mental wellbeing to the construction workforce and their families. Calls to the charity’s helpline have been up by over 55% compared with the same time last year 11 Who: Homes for Heroes What: The national campaign is calling on the government to commit to deliver 100,000 affordable factory-built homes for key workers on public land How: An alliance of the UK’s biggest housing associations has come together with business leaders, developers and architects for a national drive to deliver homes for key workers over the next five years 12 Who: River & Mercantile What: Investment firm River & Mercantile has increased its donation to Critical NHS to £50,000, and its CEO has pledged 25% of his salary How: Critical NHS was established as a lifeline for the NHS Critical Care Unit at St George’s Hospital in London to provide food for the hospital staff. It now supports 16 hospitals, including the new Nightingale Hospital at the ExCeL London. To date, over £205,000 has been raised to deliver over 1,300 meals a day 13 Who: Midlands Asset Finance What: Broker Midlands Asset Finance (MAF) has launched a Help to Supply scheme aimed at providing the NHS and its staff with additional equipment How: When a new customer is introduced by a partner that has signed up to the scheme, MAF will donate 15% of the income they earn on every completed transaction. After speaking to the selected Trusts, MAF will purchase the equipment chosen and arrange for its delivery 14 Who: Historic England What: Historic England has launched an emergency fund to help tackle the impact of coronavirus on the heritage sector How: The aim of the fund is to extend the safety net as far as possible for the industry by helping small heritage organisations both to survive the immediate challenges posed by the pandemic, and to prepare for recovery. The sector employs 100,000 construction workers (including specialised craftspeople), 6,000 archaeologists and 24,000 architects, engineers and quantity surveyors. They are vital for the maintenance and continued enjoyment of England’s heritage
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Backstory
‘More people than ever will be struggling to pay bills and find a home’ The founder and former managing director of West One Loans—who in the midst of the Covid-19 crisis launched his latest venture, National Housing Group (NHG)—discusses why he decided to leave the bridging market, the significance of the private sector on the growth of the economy in uncertain times, and his ethos of buying and developing modern and affordable homes that people will actually want to live in Stephen started his career at the age of 21—after living out of a van for eight months (more on this below)—when he co-founded bridging lender West One. After managing the business for 14 years, during which he sold the lender to Enra Group in 2014, he decided to step down in November last year. Within five months, the entrepreneur had launched his new company, NHG, which partners with associations and charities in order to support individuals who are most in need of housing. While he hopes to emulate the success of his first venture, entering this new market—in the most volatile of conditions—could be seen as a big risk, but with more people likely to require assistance after the pandemic, it is likely to be a lifeline for many. What has been your biggest achievement to date while working in the real estate market? I would say my biggest achievement was founding West One Loans in a difficult financial environment. At the time, I had limited experience in the mortgage market with no committed access to capital. I adopted a consistent, formulaic approach to underwriting but, at the same time, ensured the applications made sense with regard to flexibility in decision making. I understood and accepted that every loan carried risk and always sought to break down and understand it and set the price accordingly.The risks of bridging finance are variable and understanding the market, borrower and asset were key to good decisions. Why did you decide to leave West One after 14 years, and would you ever return to bridging? It was a difficult decision, however, I felt ready for a new challenge. I had been with the firm since I was 21 and managed the business through lots of change and, simply put, the timing felt right. I remain on very good terms with the business and I have no doubt they will go from strength to strength for years to come. I have great memories and friends from my time in the bridging industry. It’s impossible to predict what the future holds but, at the moment, I am focused on NHG. How did you come up with the idea to launch National Housing Group? I decided to found NHG for two main reasons: firstly, there remains a shortage of housing. I was therefore attracted to work with organisations that assist with fulfilling this need. When setting up a new business, it is always helpful when there is large demand for your product. Secondly, I was looking at return and risk. The organisations that I am working with are well capitalised and professional and want to forge longterm relationships with like-minded firms.They are agreeable to entering into long-term lease agreements, which works well for my model. I am happy with the return, and they are happy with the product. How important is a company like NHG during the uncertain times we currently find ourselves in? After hearing Boris Johnson speak outside Number 10 after his first day back since fighting coronavirus, he mentioned the importance of the private sector
to the economy. Without it, we would have no economy to protect. I am doing what thousands of others are doing—believing in the ability to create and run a business. It is important that SMEs continue to move forward for the good of the economy. Separately, providing housing for people is vital—especially in times of need. Due to the financial difficulties that people are facing, more people than ever will be struggling to pay bills and find a home. At NHG, we want to help the less fortunate find a home—even in troubled times. How does your extensive experience in the lending market help you in your new venture, and what skills have you had to acquire? I have worked in property-related lending for a long time. I was involved in large-scale developments and understand how to identify and manage risk. Hopefully, these skills will help me with NHG. How do you aim to scale up the business and unlock more vital homes? My focus is on buying and developing a good product that people will want to live in—not just providing a stopgap.This will allow me to further grow my commercial relationships on all sides of the business. I can, in turn, let the property on a long-term basis and have the security of income and continue to evolve the business. What one thing does the industry not know about you? I love holidays and experiencing new things. One thing not widely known is that I lived in a van for eight months in Australia, just before starting West One, [where I] travelled the circumference of the country. Has the Covid-19 crisis halted any of your plans for this year, and how are you working around that? We have two new individuals moving into a property today [ed: this was at the end of April] and it has been logistically difficult managing developments, and furnishing, along with people settling into a new property, all while following social distancing. Our plans, however, remain unchanged and we are doing our best to work in difficult circumstances.
84 Bridging & Commercial
What did you spend your very first pay cheque on? An Alfa Romeo. It was a great car— until the engine blew up What is your favourite venue for meetings? I am a bit boring and like the setting of an office environment. It’s familiar and helps with focus Most memorable moment from your time in the specialist finance industry? Selling West One to Enra Group in 2014 What is your favourite industry event of the year? The Bridging & Commercial Awards, obviously Dream job — if you weren’t doing this, what would you do? I have always wanted to be a footballer— until I realised that I wasn’t very good
The Platform for Development Finance and Bridging Lenders Aurius DF from Apak Group, a Sopra Banking Software Company, is the only platform targeted specifically at the UK Development Finance and Bridging Market. Lending for Development Finance presents unique challenges: •
The flexibility demanded by the highly changeable nature of the projects being funded
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The need to monitor complex deals to make sure they stay within their agreed parameters
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The involvement of brokers and multiple third party professionals
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The requirement for close management of the relationship with the developer
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The difficulty of producing clear, consolidated business information in order to be able to manage risk and predict cash flow
Meeting these challenges is vital to a successful Development Finance lender in order to manage risk and increase efficiency. This helps control the cost of managing these complex loans which ultimately increases the margins available in this competitive and dynamic market.
Based on Apak’s Aurius platform, Aurius DF meets the business needs of Development Finance lenders by providing market specific functionality, including: •
Loan Schedule Modelling (both preapproved and in-Life)
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Facility Limit, Advance Limit and Loan Tranche Management
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Tracking of involved Brokers, Third Partied and Professionals
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Guarantees and Security Monitoring (including tracking constantly moving LTVs)
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Notes and Diary Management
On top of the Development Finance specific functionality, Aurius-DF clients benefit from access to all the underlying Aurius platform capabilities: •
Open API access through the Aurius connectivity suite
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Configurable, embedded workflow and document management
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Tried and tested accounting, payments and transaction handling
Delivered using a cloud-based Software as a Service model, unlike traditional software delivery models, lenders have a low cost of entry and pay based on the amount of business handled by the solution.
Want further info? Continue the conversation and contact us at apak.info.team@soprabanking.com
Purchase l Capital Raise l Developer Exit l Refurbishment
YO U R T R U S T E D PA R T N E R Bridging Finance you can depend on Kerry understands that you are looking for a partner you can depend on to provide funding tailored to individual needs. Approachable | Adaptable | Knowledgeable
Kerry Bradley | Business Development Manager T: 07741 630 574 E: kbradley@utbank.co.uk
we understand bridging finance