The third Bank Base Rate drop in less than a year to 4.5% in February - with hopefully more to come - will add a further head of steam to an already re-energised commercial development market.
The mix of opportunity is evident as the recovery continues to be demonstrated by property website, Rightmove’s, Q4 commercial development tracker. Demand to invest in commercial property of all types is up 28%, showing the biggest year-on-year shift since 2021.
The tracker, measured by enquiries to estate agents to lease or invest, showed the largest groundswell in interest emerging out of London and the East Midlands, driven by demand for industrial listings, which are 72% higher than Q4 the previous year, followed by office space with a jump in interest of 57%.
Flexible lending in an evolving market
The new world after the pandemic is still reshaping and trying to make sense of itself. This is creating both a mass of opportunity and a dynamism among certain investors looking to optimise their current investments and explore new ones.
The right lending partnership and expertise with a solid knowledge of the markets involved can lead investors through the complexities of these types of mixed-use purchases and refinance deals.
With the market shifting towards more diversified investment strategies, lenders must adapt to meet the needs of borrowers who are no longer following traditional asset investment patterns. Lenders like ourselves that understand this have evolved their lending criteria, loan structures, and underwriting approaches to support market demand.
Brokers may struggle to find lenders willing to accommodate investors with diverse portfolios that span residential, commercial, and mixed-use properties. The traditional lending models in both the mainstream and commercial markets may not be able to consider certain deal types.
As a lender, we know it’s critical to offer more flexible payment structures and higher LTVs when the deal demands it.
We’re seeing borrower profiles changing away from standard landlords interested in single unit properties. Many are diversifying into different sectors, often across asset classes and setting out to understand those new dynamics.
Commercial lenders need to move to accommodate this shift, offering accessible funding to investors with mixed income streams and alternative investment strategies.
The complex case study
In recent weeks, we offered a £14 million bespoke buy-to-let loan to a family office client, in partnership with commercial broker, Fusion Funding. The client had a proven track record in investment and development and involved multiple large-scale properties in London and Manchester which the client wanted to harness to unlock equity for future investment.
Initially, we refinanced four substantial apartment blocks comprising 72 flats in a single block in Manchester. Then the bank offered nine additional loans to refinance a portfolio of fully-refurbished six-bed HMOs in West London. The initial loan was completed in just eight weeks, covering credit approval, valuation, and legal processes, beating off a counter-offer from the borrower’s existing lender.
Then LHV Bank hurdled a series of challenges from non-standard construction to ongoing conversion works and HMO licensing applications. The client agreed a competitive five-year loan and expanded their portfolio, achieving their strategic goal with the broker, Alex Haffner, MD at Fusion Funding, congratulating us on our agility and know-how to get the deal done.
Relationship building
Successful development projects rely on the ability to spot a deal, a solid contact book and trustworthy lending relationships. Lenders that prioritise their relationships with those trusted brokers will gain a competitive edge and ought to be ready to support those deals as quickly as needed.
Our longstanding relationships built on this trust continue to serve us and the development community well, but we never take these for granted. Our business development team stands ready to review each case on its individual merits because we know far better than to apply a one-size-fits all lending approach.
Well-funded by our listed parent company, as a lender, we also have the expertise and confidence to back the most complex deals. Not every lender can say that.
