"In the more in-depth conversations I’ve had with brokers, it’s about making sure we have plan A, plan B and Plan C in place. Clients should never be placed into deals they can’t exit cleanly. "
Short-term commercial lending is an indicator for the economy, showing how economic reality shapes the infrastructure around us. As the appeal of high street shopping fades, we see commercial space converted into residential flats, or ex-pubs refurbished into day care centres showing us what society needs more of now.
UK property investors are the risk takers driving this change. Buying at auction to refurbish, upgrading to reimagine the old and many of these are turning to short term finance to achieve it. Figures from the Bridging and Development Lenders Association (BDLA) in Q3 confirm investors looking for that opportunity, niche or otherwise are on the rise.
Bridging completions grew to a new record of £1.79bn in Q3 this year, representing a 2.6% increase on the second quarter. Overall loan books across the sector exceeded £9bn for the first time, reaching £9.01bn.
The data also shows strong growth in pipeline business, with applications increasing by 6.7% in the third quarter to reach £10.9 billion. With a government which set property development and infrastructure investment at the centre of its policy commitments, this growth will gather pace.
And the most ambitious projects are likely to bring higher returns.
As a short-term lender, ASG Finance is continually encountering the niche, weird and wonderful among those development deals. From time to time, brokers will get approaches from commercial property investors with something a little different. A broker partner brought us an airport refinance deal last week, with commercial units, distribution and warehousing or a school developments all on our books. We are always open to a discussion.
The green agenda is on the rise. The Labour government’s commitment to net zero by 2050 and accelerating the ban on the sale of new petrol and diesel vehicles is spurring on environmentally-friendly development. The government is still considering moving the total ban of new petrol and diesel vehicles forward from 2030 to quicken the adoption of electric vehicles.
We’ve offered short-term finance on electric vehicle park developments in close partnership with the electric charging point providers, who are doing a lot of handholding on these deals.
The tougher climate for buy-to-let has also brought more deals of a different type. The trend for residential landlords looking to get higher returns means we’re also seeing more development from residential to semi-commercial or fully-commercial use. Landlords continue to benefit from diversifying both their income streams and portfolios.
Assessing value
The value of commercial property is often shaped more by timing and location, compared to the more constant demand for residential housing.
If it’s a built asset, from a pop-up office to a shop, any lender will look at the property in the round to assess every facet of its value against the charge it plans to take. Underwriters will also audit the strength of the leases and the experience and background of the landlord before making a decision on the viability of the deal.
Helping clients produce a common-sense business plan before submitting the case for the loan is helpful. Lenders will also want to hear alternative uses for the property in case the original business plan needs to be redrawn at any point and ASG Finance is always happy to work with clients on this.
Relationship first
For any broker, forming a strong relationship-led approach with their lender is also key. We insist on site visits and invite the broker to join us to understand the assets and build trust with their own clients. It’s important to be hands-on with any case and fully understand its nuance.
So we also work closely with brokers to plan robust exit strategies, ensuring borrowers are set up for long-term success. In the more in-depth conversations I’ve had with brokers, it’s about making sure we have plan A, plan B and Plan C in place. Clients should never be placed into deals they can’t exit cleanly. We like to hear about a multi-layered plan for the exit strategy. That includes any potential buyers and the dynamism of the marketplace in which the asset could be sold or let out.
If the exit plan isn't the sale of the property, we want to know which commercial lender and even potential product the broker is looking at next for the client. Appetite rises and falls for certain assets all the time so it’s great to hear from the broker what that plan looks like. We’re also happy to offer market guidance on term mortgage lenders the broker might want to consider for the next deal.
With recent rate changes and rising business costs, landlords are under financial pressure to work their assets harder for a better performance. Renegotiating lease terms is a great way to maximise value for any landlord, especially on an asset with multiple units. When a property has several uses, say, with a car park, several shop fronts and an entertainment centre, reworking those terms will sharpen that return.
