ISSUE 4 JUL/AUG 2019
24% of bridging lenders are considering M&A— but when?
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SPECIALIST LENDING SOLUTIONS REFURBISHMENT BUY TO LET
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Contact your local BDM 0800 116 4385 precisemortgages.co.uk
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Precise Mortgages is a trading name of Charter Court Financial Services Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority (Financial Services Register Firm Reference Number 494549). Registered in England and Wales (company number 06749498). Registered office: 2 Charter Court, Broadlands, Wolverhampton WV10 6TD.
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With our unique approach, your customer benefits from a single valuer for both the bridge and Buy to Let Mortgage, and one conveyancer with discounted legal fees. Meanwhile, you can enjoy a single application which we key for you, a dedicated underwriter for the entire case and two procuration fee payments.
Acknowledgments Editor-in-chief Beth Fisher beth@medianett.co.uk Creative direction Beth Fisher Caron Schreuder Senior reporters Simon Thompson simon@medianett.co.uk Theo Osborn theo@medianett.co.uk Editorial assistant Sam Monk sam@medianett.co.uk Sub editor Geoff St Louis geoff@medianett.co.uk Sales and marketing Caron Schreuder caron@medianett.co.uk Contributing photographer Alexander Chai Special thanks Simon Jackson, Capital Value Surveyors Miranda Khadr,Yellow Stone Finance Maxime Bergot, Woodrow Communications Alexander Cowen-Wright, Together Jayne West, bClear Chris Fairfax, Catalyst Property Finance Nick Parkhouse, EY
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ome 67% of finance professionals believe that the market is in need of consolidation and out of 40 UK bridging lenders, almost a quarter are considering M&A opportunities over the next 12 months. “We seem to be like the universe: expanding at an everincreasing rate,” says one broker in this issue’s cover story, The Waiting Game [p32]. Despite this, the sector might not be as ripe for contraction as we hope. We took a 360-degree look at why there has been limited M&A activity amidst the influx of new lenders, if and why brokers are crying out for it in the first place and how it could be accelerated. While we are currently not seeing much of it in the bridging lending sector, consolidation is a talking point for surveyors. With the PI insurance market said to be hardening for the first time in years, we may start to see smaller valuers and surveyors pushed out as costs and barriers rise. We explore why this is happening and the real impact this could have on bridging [p26]. In stark contrast, Adapt Finance isn’t waiting around for anyone. In just five years, the brokerage has hit a staggering £500m in arranged finance. Our exclusive interview with the Burns-McBriar duo [p14] will definitely make you feel inspired. In addition, your favourite In Conversation close-up shots are back, with Pivot’s Sarah Jackson and Together’s Lorenzo Satchell leading the discussion on the perfect balance between underwriting and sales [p56]. Keeping pace with the sector’s constant evolution, our young magazine has also made some exciting changes. We have introduced the brand new section, ‘One Day’, where we spend a working shift at an exciting business, event or location. For its inaugural feature, we visited at an auction house to witness the true speed of bridging when it faces a real-life pressure test [p48]. We have also refreshed The Cut in this issue [p6] and asked six industry experts what they would implement if they were made prime minister. Of course, we have a B&C Awards special, complete with our pick of the best photos [p76]. And, if you like dogs, you’re in for a treat on p68. Over the last couple of years, the UK has been lingering on what it plans to do next. While the new PM might start to get things moving again politically and economically, our industry has always been built on the foundations of progressing promptly and will continue to do so. After all, there’s no place for tumbleweed in the specialist finance market.
Printing Cambrian Printers Design and image editing Russ Thirkettle, Carbide Finger Ltd Bridging & Commercial Magazine is published by Medianett Ltd
Beth Fisher Editor-in-chief
Managing director Caron Schreuder caron@medianett.co.uk 3rd Floor, 71 Gloucester Place London W1U 8JW 0203 818 0160 Follow us @BandCNews
3 Jul/Aug 2019
6 The cut 12 Products 14 Exclusive 20 View 26 Zeitgeist 32 Cover story 43 Explained 48 One day 56 Interview 68 People 74 Limelight 76 B&C Awards 2019 80 Backstory Work and play hard — at the same time
The catch-all approach
Priced out of bridging
Where’s all the M&A?
Coming to a store near you
How to get over 1,000 (potential) borrowers in one room
Sarah & Lorenzo
Pets on the payroll
It feels like the golden ticket.We’re just not convinced it’s going to be that easy to execute p32 4 Bridging & Commercial
Chris Parr
The cut
If I was PM‌ In the weeks before the country found out who our new prime minister was, we spoke to a selection of specialist finance professionals to find out what they would implement first if they had the chance to move in to Number 10
6 Bridging & Commercial
7 Jul/Aug 2019
The cut
The cut
Richard Payne Director of development at Oblix Capital
Marcus Dussard Director of sales at Castle Trust
Housing is a massive issue in this country and the dynamic of demand exceeding supply doesn’t look like its changing any time soon. The reality of our property market is that not everybody will be able to—or even want to—buy their own home, and the private rental sector plays a vital role in the provision of good quality housing. So, I’d like to see a recognition of this and a less punitive approach to taxing landlords. The current tax regime was originally introduced as part of the Cameron/Osborne government, neither of whom are still MPs. You could also argue that they have already achieved what they set out to [do]: firsttime buyer numbers have been boosted in recent years and a lot of casual ‘dinner party landlords’ have stepped away from buy-to-let. Those that remain, in general, are more professional in their approach and committed to the sector for the long term, so let’s give them some encouragement to incentivise the availability of competitively priced, good quality, privately rented homes. I would like to see a government in place that is more representative and in touch with our population. It seems that politicians are creating policy for lives they don’t understand. There is a saying in education that is ‘know me, before you teach me’ and I think we need to have people in government who truly understand the lives that most people live.
If I became prime minister, I would, of course, prioritise peace, tolerance, health and prosperity. Immediately afterwards, I’d address issues that are stultifying the world of development finance. My first task would be to sort Brexit out ASAP, regardless of whether we leave or stay. Confidence has noticeably (and understandably) dropped off since the original leave date in March, and it’s unlikely to increase significantly again until Brexit is resolved. The quicker that happens, the better. Next, I’d address the laughably slow (if only it were funny) planning process. While the housing shortage is well documented—and we haven’t built enough houses to meet demand for years—cuts in local authority budgets have meant that planning departments are shrinking while the demand for their services is growing. I would enable a significant increase in the number of planning officers and legislate to reduce the timeline for the planning process. I’d also look for additional ways to stimulate the first-time buyer market, which underpins and fuels the whole of the residential property sector above it; home ownership has to be a realistic ambition for everybody.
8 Bridging & Commercial
Kimberley Gates Head of partnerships at Sirius Property Finance
Dilpreet Bhagrath Mortgage expert at Trussle
David Higson Sonia Shortland Director at Apex Bridging
I strongly believe that restoring and building confidence is at the core of the nation’s prosperity and that having thriving city centres will play an important role in the economic and social [success] of our great country. So, I would abolish car parking charges in city centres, transferring the income generated from that source to the opportunity it would bring to the retail sector. City centres have to be regenerated and so I would review, as a priority, the constraints current planning legislation imposes on developers and how all stakeholders involved in the funding and completion of attractive inner-city investment opportunities can work with my government to improve the quality of life for so many people. This will involve the chancellor of the exchequer allocating more funds to those authorities that commit to working together with investors and developers and not those who seek to put up barriers at every turn. Education should always be a priority and so I would introduce a recognised standard of competency in the specialist lending sector to support the excellent work that has already been achieved by many of the lenders in a market that is now seen as a major contributor to the growing prosperity of the UK.
Investment director at Blackfinch Property
In order to provide a boost to the economy and the property market, one measure I would introduce would be further investment in Homes England to encourage a greater pipeline of residential housing development. I would also like to see the planning process streamlined to ensure that applications can go through faster. Both of these measures would help to increase the number of homes built over the next few years and slow any upward pressure on house price growth, enabling first-time buyers to get on the property ladder more easily, as well as providing impetus to the construction industry. Outside the world of property, I think committing to implementing policies that will encourage more green energy and reduce carbon emissions would be a key focus. This is something we care a lot about at Blackfinch, reflected in not only our renewable energy investments, but through funding eco-development in the residential housing market.
First and foremost, more needs to be done to improve access to appropriate and affordable housing across the board. The average house price in the UK has soared in recent years. With the 10% deposit a struggle for many, we need to prioritise ways to help get people on the housing ladder by building more affordable homes and developing new mortgage products that offer greater flexibility. Not only is there a lack of affordable housing, but millions of people are currently being let down by the mortgage market because switching isn’t clear or simple. Overcoming the wide-scale switching inertia and the issue of mortgage prisoners— both of which are costing UK mortgage borrowers billions of year—would be my next priority. Theresa May previously warned that her government would take action against those companies charging customers a loyalty penalty. I’d continue this work through the adoption of the Mortgage Switch Guarantee—a set of industry standards to offer greater transparency and make mortgage switching easier.
The government has acknowledged that we need to build more homes and, within its housing white paper in 2017, it recognised the role of small developers in delivering more stock. There is, however, more that can be done to reduce the amount of red tape that developers need to wade through before they can even start to work on a scheme. Section 106 agreements, for example, are private agreements made between local authorities and developers and can be attached to a planning permission to make a development acceptable which would otherwise not be in planning terms. Often the obligations are so restrictive that they can stop a development in its tracks. So, I’d like to see some measures that would make it easier and more efficient for developers to secure planning permission and deliver the housing we so desperately need.
9 Jul/Aug 2019
72 bridging loans funded on average * each week in 2018 . Piece of cake. We’re the bridging loan experts. Complex cases? We eat them for breakfast… and have done since 1985. Over the years we’ve seen it all – so you can trust us to make a quick, common-sense decision. togethermoney.com/bridging or call 0333 242 7281
Rates from
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For professional intermediary use only. *Includes unregulated and regulated bridging loan applications in 2018. ^
The rate offered will depend on product, security and the applicant’s individual circumstances.
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Exclusive
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people’s partners Adapt Finance burst on to the scene back in 2014 and the excitable atmosphere that the business has continued to bring to the sector is infectious. Stephen Burns and Jordan McBriar—the broker’s formidable duo (who to this day do not like to give themselves job ‘titles’)—are known, by the London market in particular, as the inseparable face (and for Steve, the tattoos and the shoes) of the brand Words by
BETH FISHER Photography
alex chai
14 Bridging & Commercial
L-R: Jordan, Stephen
Exclusive
rmed with doughnuts, a crate of Corona and some Prosecco, Steve and Jordan barrelled into the Medianett office on a late Wednesday afternoon. Before even taking off his jacket, it was imperative that Steve did a lap of the room to give the editorial staff each a high-five and a cold beer. Within five minutes, the newsroom— which is usually tense before our 5pm deadline—felt at ease. And that’s how most feel around Adapt’s double act.
“If you work and play hard, at the same time, then I think you can have success in [both] your business and personal lives” 16
Bridging & Commercial
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The Manchester-based brokerage started trading in 2014, when Jordan was just 22. He and his dad, Mark McBriar (a mortgage broker through and through), started up the company as more of a lifestyle business from their dining-room table. Steve—who, back in the day, used to run a busy, four-branch, 30-staff estate agency operation with Mark, which they then sold in 2004— joined shortly after when he realised that they had discovered a businessto-consumer niche in the market. Fast forward five years (which have been filled with epic Manchester-to-Leeds ale trails, charity Flop Gear shenanigans and swathes of award wins) and they’re in a position to proudly share with me that Adapt has just hit the £500m milestone of arranged finance, equating to just over 2,000 homes. When I ask how it has managed to reach such a target in a relatively short time span, they say that, simply, it was a lot of hard work. Since November alone, Adapt has arranged £100m in property finance, which can be attributed to the company’s deals ballooning in size over the last year. In 2018, the brokerage’s average loan size increased year-on-year by over 50% to £1.6m. “But the great thing is, we haven’t lost [our] roots,” Steve tells me. “We’ve just done a £70,000 loan [on] a property in the Midlands, today.” The business brought ex-banker Graham Ball on board at the back end of 2017 to look after its new commercial mortgages division; now, that book is roughly 40% of what Adapt does on a day-to-day basis. Specialist finance business, including bridging and development, makes up the rest. In the last 12 months, it has also started doing more ground-up development, and those are the clients that it has been able to grow with. While 87% of its business is transacted in London and the South, ironically, the deal that tipped it over into the halfa-billion-pound club was a £2.35m development loan in the Lake District. I ask them why, as a northern broker, they barely touch their home city. “The North of England [during] 2013/14 was still a little bit stagnant,” Jordan explains. “There wasn’t a lot of growth. If you go up there now, you can’t see the sky [because of the] cranes.” When Adapt came to London, it found the lenders down here accessible, welcoming and “hungry”... Without being negative to the Northern guys, [the London lenders] had a little bit more pizzazz, urgency and accurate market knowledge,” Steve admits. Another reason why the business works more in the South is because it
thrives under pressure. “If you do not complete in 28 days, someone else is buying it,” claims Jordan, describing the London property market. “[In] Manchester, you’ve got three-, six-, nine-month completions and, because it
“I remember [being in] the kitchen, sat there saying, ‘Deals over a million quid don’t happen to people like us’. They don’t. They’re telephone numbers. They don’t look real. And then we did it.” hasn’t got that urgency … you can take it straight to the challenger banks.” Up until 12 to 18 months ago, the North wasn’t Adapt’s market, but it is now doing a little bit more in and around where they call home. To make such a success in the specialist space, Jordan says it takes a lot of hard work, a bit of luck and strong relationships. “All [Graham] ever says is, ‘We’re not people’s brokers, we’re people’s partners.’” This mantra has really helped cement the company’s place in the sector and make a real name for itself. So much so that, in the last 18 months, it has been approached on several occasions by lenders and funds looking at M&A opportunities. Despite the admirably quick growth— and ambition to smash the £1bn mark in three years’ time— there’s always been an element of humility about them. Jordan reminisces about the first million-pound deal Adapt did back in 2016: “I remember [being in] the kitchen, sat there saying, ‘Deals over a million quid don’t happen to people like us’. They don’t. They’re telephone numbers. They don’t look real. And then we did it.” He adds: “[And] it’s not just a personal success; we want to see people grow. A lot of our clients are going [from] £200,000 houses [to] £10m–15m developments now, and we’re very fortunate we’ve seen every step of that [journey].” While the seven-strong team can all work from home, I am told that they go to the office (where Mondays are defined as “really fun” due to it being ‘deal day’) because they just love to be in each 18
Bridging & Commercial
other’s presence—and everyone around them can sense it. With half a decade under their belt, the Adapt team—which Steve describes as a “family unit”, considering all seven have some sort of blood connection— still walk around on a weekly basis knocking on doors, going to see people and attending events, just so they can generate clients, face to face. “We are archaic, to a point,” Jordan quips. Saying that, in January, the business brought old and new together at the soft launch of geqo, a brand-new comparison site, powered and packaged by the reptilebranded bunch. The now-live website covers around 600 products from 25 different lenders. Jordan explains that it is looking to break the mould by bringing a high conversion rate to a high-volume part of the market. “What we’ve been told before is that high volume equals low conversion, but because you get so much of it, it works. What we [are] trying to do is get high volume, high conversion.” The platform has already received over 400 enquiries from all over the country and has recently celebrated its first few completions. “The enquiries are phenomenal,” Jordan tells me. To keep up with the pace, they plan to hire an extra person per 50% of case number growth to help deal with the influx. “Don’t get me wrong, we haven’t got to the conversion level we want, and that’s purely because it’s new. People don’t know about it yet. We still haven’t [fully] gone to market.” One thing which it has got down to a tee, which so many businesses fail to do, is achieve a desirable work-life balance. Steve dislikes the saying ‘work hard, play hard’, but believes that if you work and play hard at the same time, then you can have success in both your business and personal lives. “We are no different at home as we are at work,” Jordan admits. He adds that the energy in either a serious meeting or in the pub would be exactly the same. “We’re f*****g bonkers,” he says. That type of easygoing personality is hard to come by in the financial services sector—which has resulted in Adapt being extremely picky when growing its team to ensure service doesn’t falter, and the workforce gels. In the last few weeks, it has hired two new people—although it took over 18 months to do so. “It’s not through two conversations with two people. [They] have to understand us, because, let’s be honest, obviously we’re a bit weird ... they have to adapt to our way of life … otherwise, it would be a short journey. [Ours] will never be a volume business.”
“We’re f*****g bonkers”
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ALL BASES COVERED? Bridging lenders are increasingly diversifying into longer-term products such as buy-to-let, term loans, commercial and residential mortgages, and development finance. At a time when there is downward pressure on profit margins, lifecycle lending is becoming more of a common strategy for lenders looking to gain and retain market share. There is also an equal attraction for borrowers; while customers can potentially benefit from speed and savings made from not needing to pay multiple arrangement fees and property valuations, we question whether the convenience of the proposition outweighs the end result Words by
simon thompson
20 Bridging & Commercial
ecent examples of moves in the multidisciplinary direction include Roma Finance’s bridge-to-term, Glenhawk’s planned regulated mortgage and BTL products and LendInvest’s soon-to-launch homeowner loan offering. These are coming at a time when more lenders are pushing typical bridging term boundaries, as we explored in issue three of Bridging & Commercial. “The days of just being a pure bridging lender are probably not far off ending. It is more about diversifying now,” states Guy Harrington, CEO at Glenhawk. There are also macroeconomic forces behind the trend. Alex Searle, sales director at Hampshire Trust Bank (HTB)— a lender which offers a spread of longer-term products— claims that with global asset yields at historic lows, investors searching for decent returns are increasingly investing in the mortgage market. Alex adds that offering a cradle-to-grave package is a natural step for bridging lenders to increase volumes without necessarily having to spend more onboarding clients. It also has its advantages for the end user. “The borrower benefits from working with a [lender] that has a greater understanding of their business and borrowing requirements, which can create efficiencies in the application process and reduce administration costs in the setting up of any further borrowing.” Ludo Mackenzie, head of commercial property at Octopus Real Estate, says that the “daisy-chaining of loans” means less friction for customers. Costs can stack up for a borrower in need of multiple loan arrangements, including valuation, solicitor, application and overall set up fees. Lifecycle lending seeks to bring these costs down by consolidating multiple loans into a single offering. Octopus Real Estate, for example, reduces arrangement fees following the first loan. Most of the lenders we spoke to said that the bridging market is heading down the lifecycle route—but are brokers supportive? According to an online Bridging & Commercial poll, 63% of brokers prefer to work with bridging lenders offering this type of proposition. Dale Jannels, managing director at Impact Specialist Finance, says it has had success with bridge-to-term facilities, and that using the same valuer for the initial valuation and reinspection, as well as one conveyancer, helps with the legal fees. “Other lenders will offer an incentive, such as a reduced arrangement fee
“THE BENEFIT OF WORKING WITH A LIFECYCLE LENDER IS THAT THE HARD WORK OF UNDERWRITING AND DUE DILIGENCE IS ALL DONE AT THE BEGINNING” or rate,” he adds. There is also the potential for streamlining the underwriting process. “The benefit of working with a lifecycle lender is that the hard work of underwriting and due diligence is all done at the beginning of the relationship and the legal charge is in place from the beginning,” says James Chisnall, director at City Finance Brokers. Broadly speaking, the growth of this type of offering has meant more product innovation. Richard Tugwell, senior intermediary at Together, believes this is helpful for brokers arranging financial solutions for borrowers with complex needs. “…Lifecycle lending makes sense when you consider traditional high street lenders are less likely to provide solutions for lifestyles outside those traditionally considered normal.” In general, a wider range of available lending options means a greater number of brokers’ deals have the chance of being placed. Chris Oatway, director at LDNfinance, adds that it “ultimately benefits the property market as a whole through an increase in the volume of deals”. In the current climate of subdued transactions, where it can take longer to sell properties, it could also assist with exits. Rob Jupp, CEO at the Brightstar Group, says that both a broker and borrower perspective, the promise of a “guaranteed exit” is beneficial. Despite our research showing that brokers prefer
21 Jul/Aug 2019
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Ian Norman – Partner inorman@lightfoots.co.uk Rajiv Agarwal – Regulatory Advisor ragarwal@lightfoots.co.uk
to work with lifecycle lenders, several brokers I spoke to raised instances and scenarios where the catch-all approach doesn’t work as well as intended. James points out that one size doesn’t fit all. “It’s not about pulling a product off the shelf for a client, it’s about negotiating the best deal for them.” The speed of multidisciplinary lending may be dependent on the lender offering it, with Richard Jones, managing director at Pilot Fish, claiming that “some of these lenders are slower to commit and execute the original bridge”. When it comes to funding, Nicholas Christofi, director at Sirius Property Finance, speculates that a lot of lenders will be too stretched to be able to sincerely offer the full spread of products simultaneously. “…There will be restrictions within their funding lines for certain transactions and asset classes.” Usually, LDNfinance tries to combine at least two lending stages together, such as the acquisition bridging loan and the development finance. Despite this, Chris asserts that “very few” lenders have the ability to be competitive in both sectors. Dale says that one-stop shop lending is only truly a good proposition if the lender is dynamic and capable in all product categories: “Being a jack of all trades can be great, but only if you are great at them all.” While expertise and skill in delivering this type of lending could continue to develop, Sam Le Pard, asset financial adviser at Arc & Co, says that there are a limited number of lenders who are able to transition smoothly between products. Some brokers’ apprehensions over the growth of this type of lending may emanate from the fact that it could result in fewer proc fees. James acknowledges that this could be the case, but says it is only a concern for brokers which lack the long-term view of repeat business. “Because they already have the client, there is no ‘finder’s fee’ as such. Our ethos is always based on doing right by our clients and repeat business will come from that.” Alex states that as long as brokers are adding value to transactions, then lenders will continue to ensure the brokers receive the “right” fee level. But not all lenders will be following the lifecycle trend. Bridging Finance Solutions (BFS) has been offering straight-down-the-line vanilla bridging for 14 years. Steve Barber, director at BFS, says that, compared with a traditional bridging loan, the legals and underwriting on a bridge-to-let, for
example, take significantly longer as it is far more extensive. “…You are effectively underwriting from the point of which you are moving on to a buy-to-let mortgage—a lot of those ducks won’t be in a row, which is the very reason why you need a bridge in the first place.” Nicholas believes that the approach does deliver slicker transitions between loans within the life of the project, but the underwriting is often slow and “top heavy at the front end”. It seems that the linking up of loans from just one lender comes with complexities demanding adroit management from lenders. In an industry characterised by rapid and bespoke financial solutions, lenders will need to ensure systems are integrated enough to deliver real benefits. Multidisciplinary offerings can also present other implications. For instance, term lending means holding an asset for longer, and the risk rests more heavily on the borrowers’ creditworthiness and capacity to repay. Alex admits that it is not a strategy that will be suitable for every lender. “While we naturally look to develop profitable propositions over the long term, others will focus on providing specialist short-term [finance] and thrive in doing so.” Five of the brokers I reached out to said that while they expect the area to grow, there is still very much a need for lenders that solely specialise in bridging. Ultimately, borrowers’ options may be best assessed on a case-by-case basis. Jones asserts that the speed at which the deal needs to be completed is usually the differentiating factor. “Smaller, bridging-only specialists tend to be more proactive and quicker to respond than the full ‘lifecycle’ providers.” James brings up another potential downside— less room for brokers to negotiate for clients. While lifecycle propositions look set to continue, a shifting of macroeconomic factors could cause other hurdles. We have already seen a number of mortgage lenders exit the market amid a volatile economic backdrop, in response to competitive pressures. Therefore, bridging lenders looking at putting time, money and resource into creating these long-term products will need to take an equally long-term approach to their lending as a whole, to ensure its worth their while.
Lightfoots SOLICITORS 23 Jul/Aug 2019
Zeitgeist
The plight of bridging surveyors
Surveyor and valuation services are key when it comes to certainty and risk management in the bridging market. Until recently, the majority of Royal Institution of Chartered Surveyorsregistered firms have been able to access competitively priced professional indemnity (PI) insurance. While conditions have been favourable and there has been sufficient capacity among insurers, the market is now said to be hardening for the first time in years. In such a scenario, it is the smaller and more nimble valuers and surveyors—crucial to the fast turnarounds that are the hallmark of the bridging sector—that are likely to Words by simon thompson be affected first
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Property Finance, Done Differently.
Zeitgeist
Why do surveyors need PI insurance?
have said they will underwrite the first £2m, but we will have to get the £3m–5m cover from somewhere else to mitigate their risk.” The surveyors we spoke to had PI insurance coverage levels between £5m and £10m.
If the repossessed property from a defaulting borrower doesn’t cover what the financier originally advanced, the lender inevitably turns to the valuer who initially certified that property’s market value. “The first thing a lender does when it loses money [in such circumstances] is look at who did the valuation and make a call to their lawyers to start proceedings against the valuer,” says Paul Wolfenden, director at commercial property consultants John D Wood. If the property is found to have been negligently valued, the valuer is required to cover the difference between the valuation figure they gave the property and the amount the lender was able to recoup by selling the property on the market. This is where PI insurance comes in. To get into the specifics, surveyors aren’t liable to cover disparities relating to falls and depreciation in the property market. An independent assessment of negligence is based on the state of the market at the time the valuation was performed. Furthermore, surveyor’s PI insurance doesn’t cover the lender’s total loss, ie the interest and fees it would have reaped had the deal gone to term. For example, Sean Mansfield, founding director at Capital Value Surveyors, explains that if £14m was lent for a property valued at £20m and it was subsequently sold for £14m after the borrower went into default, PI insurance wouldn’t need to be drawn on. Even though the property sold for £6m below what it was valued at, the lender was still able to get back the amount it lent for the property. In this instance, the valuer would need to be more than 30% wrong for insurance to come into play. The bridging sector’s lower LTVs—compared with the mainstream mortgage market—offers an additional cushion for claims and losses. “You have to be so wrong to get it wrong,” Sean tells me. However, firms can only work viably if they can obtain PI insurance at a commercially sustainable cost.
Why is this happening? In 2018, a review of the insurance market was conducted by Lloyd’s of London. The company review underscored the poor financial performance of PI insurance underwriting generally. As its profits in UK PI insurance have stalled, Lloyd’s of London has retrenched from this particular market. Nathan Hambrook-Skinner, head of media at Lloyd’s of London, explains the shift: “We want profitable books of business at Lloyd’s. That means not chasing market share at the expense of profit.” Consequently, Greg Harrison, senior account executive for PI insurance at Howden UK Group Ltd, says he has seen situations in which underwriters have declared themselves “full” and unable to take on new business. He claims that this has also included renewals. “Less capacity in the market means that insurers will be applying more caution to the risk profiles they underwrite.” While such conditions impact all those holding PI insurance policies across a number of industries, it may
“Our premium has increased 20-fold in the space of 12 months” be even more acute for surveyors and professionals in bridging. Greg believes that insurers see securedlending valuation work as high risk. Any professional in the bridging market will tell you how far the sector has come in terms of credibility, competitiveness and responsible lending, but negative perceptions may still prevail in the eyes of insurers. Sean claims that insurance companies see bridging as what it may have been over 10 years ago, “lending to the wrong people, willy-nilly”, by less reputable lenders and with lax valuations. While the bridging market has become more mainstream in recent years, Paul states that the perceptions and related difficulty with getting insurance may be associated with an oversaturated and competitive bridging market. “There are a lot more bridging firms today than there were five years ago, and inevitably the more firms that you get, the quality is likely to reduce because they will be competing with one another to do business.”
A hardening market Renewing PI insurance is no longer a straightforward process, according to insurance brokers Howden UK Group Ltd. Surveyors that are unable to renew their PI insurance are left to the RICS-assigned risks pool. This is said to be a last resort that allows them temporary insurance to continue trading as they find coverage in the regular insurance market. Sean states that the coverage is £1m on an aggregate basis. This comes at a greater level of expense which delivers a lower degree of coverage than the lenders Capital Value Surveyors works with require. As a business, Capital Value Surveyors is only a year old. Sean says that it was able to renew for the next year, but at a drastically inflated rate. “Our premium has increased 20-fold in the space of 12 months.” Paul claims that this is not just impacting new entrants. “I’ve got to say [our PI insurance renewal] went through, but it was a little bit tougher and took longer than last year.” On top of it consuming more time, Joe Arnold, managing director at Arnold & Baldwin Chartered Surveyors, claims that this year, its insurer was only willing to cover part of its plan. “The insurers
Rates from
0.75%
No admin or exit fees
per month
Knowledge gap The change in the PI insurance market could be compounded by a gap in understanding when it comes to the lenders themselves. Sean claims that many lenders have a carte blanche policy requiring surveyors working with them to have a minimum amount of coverage. The lenders Capital Value Surveyors works with demand an average of £2m of PI insurance coverage, even though the majority of its
28 Bridging & Commercial
We pay our brokers on day of completion
We pay up to 2% broker fees
www.glenhawk.com
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What can surveyors do?
instructions are in the £1m range. In an anonymous Bridging & Commercial survey, we asked 10 lenders about their PI insurance requirements. Only five responded. Two required PI levels as high as the loan amount; a further two needed as high as the properties’ value; and one lender commanded levels more than double its average loan amount. Despite these differing requirements, Sean believes that PI insurance levels only need to cover the loan amount. “We are stuck in the middle of a situation where the lenders think we need high cover . . . and the insurance companies see those lenders as high risk. So, the lenders are telling us to get high PI insurance cover when we don’t need it and then insurance companies are charging us way too much for it because they think that it is risky work.” Sean says the loan value is more than enough to cover the disparity between what was lent and what is recouped on the sale of a defaulted property. Paul adds that it is a conversation he’s had repeatedly with lenders, with little in the way of resolution. “You know you don’t go from a property that is worth £10m to worthless.” But he claims that lenders aren’t reviewing their policies on surveyors’ required PI insurance levels. Instead, he believes they are just going to surveyors that do have the requisite level of coverage. Joe suggests there may be extenuating circumstances where valuations do need PI insurance coverage as high as the property’s value. “The lender might want to advance [the borrower] some more money and so the lender has already got your valuation on file. So, they will be lending on the strength of that valuation, so it is not just necessarily about the instruction that you are working on today.” Larger surveyors may actually benefit from high PI requirements at lenders, as they can serve as a barrier to entry for new, smaller surveyors. Firms that can’t afford, get or maintain the same level of coverage ultimately have to walk away from the higher value work. “We are paying a massive premium just to get work that £1m would probably cover anyway,” says Sean.
Greg states that there are a few things that surveyors can do to boost the likelihood of getting renewed for the level of coverage they desire. They need to stay in contact with their insurance broker to keep up to date with any changes in insurers’ rates and appetite, to be able to budget for any increases in premiums. He adds that they need to ensure that any claims or circumstances are reported to insurers ahead of renewal. “Insurers accept that firms have claims and notifications, but they will want reassurance that you have learned from past mistakes, so provide notes on the steps you have taken within your business to prevent the reoccurrence of a claim.” In addition, Greg advises against leaving the submission of renewal proposals to the last minute. Sean highlights the number of additional details Capital Value Surveyors shared in this year’s proposal and meetings with insurers, such as delving into its internal processes to mitigate risk and how it vets the lenders it works with. Testimonials from its lender clients, professional colleagues and even its nomination for Bridging & Commercial’s Best Valuer of the Year award were included in its proposal at the behest of its broker. “Poor proposal forms [in terms of presentation] are unlikely to result in a favourable response from insurers,” Greg adds. He indicates that the insurance market is only going to get tighter. Non-US PI insurance was found to be the second-least profitable class of insurance at Lloyd’s of London. Greg claims that the PI insurance market has lost half a dozen insurers from 2018. “…Up ‘til now, we have not seen any new entrants take their place and it is unlikely there will be many throughout 2019.”
Is education the solution? With the looming ripple effects for the broader bridging sector, Sean believes there is a need for education. It seems that insurers need more information about bridging and its real risk in relation to other types of lending. Sean states this could be facilitated by professional forums and dialogue within the industry. One reason for the PI insurance knowledge gap could be because of the stigma attached to having difficulty in renewing. “I think a lot of valuers are ashamed of actually saying this out loud to people because they think it is a reflection on them, when it is just the market,” Sean says. He claims that everybody is “pretending” at the end of the renewal process, believing that if they have secured PI insurance that means they are doing something right and someone else is doing something wrong. The reality is—as Sean puts it—it’s difficult for everyone. And while all the surveyors we spoke to were able to renew, they faced longer waiting times, increasingly rigorous application processes and higher premiums, often for the same level of coverage. And they will have to go through the whole process again in just 12 or 18 months, by which time the PI insurance market may be even tougher.
The real impact PI insurance is often a surveyor’s biggest expense after payroll, according to Howden UK Group Ltd. As prices push down margins, Paul predicts surveyors will increasingly depart the bridging market. “As it goes up, some firms will just decide that it is not worth it.” Considering that the average age of a surveyor stands at 55, and 25% of RICS members will reach retirement age in the next 10 years, attracting the next generation of surveyors has never been more vital. While surveyors are now feeling the pressure, ultimately it will be the lenders, and the industry as a whole, that is likely to suffer. Fewer competitors in the surveyor market inevitably means less choice, higher prices and, potentially, slower service. “The whole concept of bridging is that it has got to be done really quickly,” explains Paul. John D Wood is delivering turnarounds within 48 hours of instruction. “[We will] put in the hours if we need to, to turn things around. A lot of firms won’t do that.”
30 Bridging & Commercial
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wa i t i n g THE
In the past decade, there have been just a handful of momentous
mergers and acquisitions in the bridging finance market—the
main ones including Octopus Investments’ purchase of Dragonfly Property Finance, Capital Bridging buying Mayfair Bridging and Exponent Private Equity acquiring a majority stake in ENRA Group. Historically, there has been more M&A activity involving brokers, with the limited number of lender transactions being enveloped by the conveyor belt of new entrants. The bridging lending industry has been earmarked for consolidation for some time, with many claiming it is long overdue, yet the number of players has just continued to increase. With some serious obstacles in the way, the market may not be as ripe for contraction as we think 32 Bridging & Commercial
GAME For a while now, our very crowded sector has expected to see a reduction in lenders. According to Nick Parkhouse, partner— financial services corporate finance at EY, this could be due to the current bridging sector not being a “normal market”. Before 2008, there were few non-bank lenders but, post-crisis, we are now looking at a completely different, and relatively new, environment. Our nuclear space has grown with an influx of people setting up new lenders, with relatively low barriers to entry, which is unusual. Nick tells me that you
wouldn’t normally see so many businesses launch in such a short period of time. With many of these having set up in the last nine years, Nick believes they are coming to a natural point where owners have built up what they perceive as equity value and want to start realising some of it. “Not everyone does, but the psychology of many people that start up businesses such as these is that, ultimately, they can sell [them].” Apart from selling to realise value, consolidation may also be expected due to the high levels of competition. By acquiring or merging, they
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BETH FISHER can become bigger and, in theory, compete more effectively. Nick adds that someone may want to sell their business because they believe the market is due for a correction and want to exit before that happens, or they realise that without a strong institutional partner, they can’t grow. To achieve this, the industry would need to see financiers retrenching from the market, merging with others, or simply selling up. Apart from the likes of Amicus Finance and Lendy entering administration, we have seen few such departures in the past 18 months. In that time period, we have also not witnessed the forecasted prevalence of acquisitions and mergers. The news of Cabot Square Capital taking a majority stake in MSP Capital in late 2018 and Vatbridge being bought by Brightlane Corp earlier this year—along with the boards of OneSavings Bank and Charter Court Financial Services Group agreeing on the terms of a merger— are seemingly significant moves which have been somewhat eclipsed by the volume of new lenders coming on to the scene. Is change really needed? Benson Hersch, CEO at the ASTL, feels that the big risk with a lender-saturated bridging market is that lenders fail to price adequately for risk in order to win market share. “For example, we are aware of the increased use of rebridging, which is inherently more risky than standard bridging, the creep of rising LTVs and lenders pricing products at very slim margins,” Benson divulges. “These may seem like a short-term win for lenders and brokers if they provide a solution for troublesome cases, but if overly risky lending threatens the sustainability of the market then, ultimately, nobody wins.” Harriet Smith, head of bridging at Crystal Specialist Finance, says that while competition is great for pricing, there is always the threat that lenders will drive down rates to unsustainable levels, take on more risk or even reduce diligence. “We are
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seeing lenders in the mainstream mortgage market citing price as a reason for withdrawal, so there is a danger of that happening in bridging.” As a result, Paresh Raja, CEO at Market Financial Solutions, believes that M&A activity could make pricing more stable and reduce the chances of a rate war. Despite this rhetoric coming up in countless conversations across the industry, for the most part, it has been just that: talk. But is a shift now finally on the cards? Let’s just say we’re in the ‘deliberation’ phase. If you look at when the market really started to take off—post-crisis in 2009—a lot of today’s businesses were starting up, meaning that the amount of time they have been running is quite considerable. It would only be natural for a portion of these companies to be looking at a profitable exit or considering the quickest route to achieve even more scale—and recent figures point to that. In the latest EY bridging market study, which surveyed 40 UK bridging finance lenders, almost a quarter (24%) said they would be considering M&A opportunities over the next 12 months. This is a sizeable number (roughly translating to activity among 10 lenders). EY estimated that the market is more likely to consist of around 80 organisations and, if you apply the same maths, this could extend to around 20 companies looking at buying, selling and merging. Nick believes that because of how many lenders have piled into the market around the same time, the number of them looking at the M&A route is likely to rise going forward. “I would expect that [24%] to actually start increasing year-on-year.” Nicola Firth, CEO at Knowledge Bank, said that if there are more lenders looking to merge this year, it is unlikely to be because the market is becoming more difficult and more likely that they are looking for better traction within a growing sector. “There has to be a reason that lenders look to merge, whether it’s to go from unregulated to regulated, or to tap into better funding lines— the end result is that there will be one lender that is able to provide more than the two were able to separately.” Therefore, the benefits of merging with another lender to become a larger organisation could include having access to a bigger pool of credit, clients and distribution. The majority stake taken by Cabot Square Capital in MSP Capital “materially increased” MSP’s funding capacity, giving it the ability to offer a greater range of complementary products and target an enhanced audience. The impact is said to have been immediate for both its borrowers (who are benefiting from the new products), and the lender itself, which is on course for record originations and a loan book of £200m-plus by December 2019. Are brokers crying out for consolidation? A recent poll conducted by Bridging & Commercial found that 67% of finance professionals think the bridging market is in need of consolidation. With the lender landscape shifting all the time, new entrants and criteria changes are making it harder than ever for brokers to stay on top of what lenders want. This means that there is room for market contraction to happen before we will see any knock-on effects from a broker-facing perspective. Miranda Khadr, founder of Yellow Stone Finance, explains that the sheer number of lenders is making it “very difficult” for brokers who are dipping their toe into bridging to be sure they are choosing the right solution for their clients. Complete FS has gone as far as having stopped adding lenders to its panel, because there are too many chasing the same amount of business—with the non-regulated bridging segment being the most over-funded part of the market. Paul McGonigle, chief executive at Positive Lending, agrees that it is probably sensible that the market contracts in terms of lenders, rather than volume. “I receive emails or calls weekly from lenders with a new ‘family funding line’ that want us to support them,” he says. “Our business tends to support the lenders that have a proven track record of service delivery, customer care and product variation—and, if they are in the M&A space, this would not be a concern to me.” Lucy Barrett, managing director at Vantage Finance, agrees that too much choice can lead to confusion—and that almost inevitably leads to poor outcomes for customers.
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67% of finance professionals think the bridging market is in need of consolidation
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“We’re almost seeing lenders falling over themselves to compete in the market with eye-catching headline rates that are almost unachievable—and this can lead to disappointment. Some lenders are now targeting brokers who don’t have a knowledge and skill set to manage bridging cases effectively, and their lack of experience can see them get caught out through placing business they don’t always fully understand…” “The industry is well overdue consolidation in my view,” admits Chris Whitney, head of specialist lending at Enness. “It just doesn’t make sense. I have been saying it will happen for ages now. What has actually happened is the opposite—new small lenders keep coming in.” He adds that, while this is good from a competition perspective, it flies in the face of economic theory. “We seem to be like the universe: “M&A sounds sexy, expanding at an ever-increasing rate.” Tony Smith, managing director at Business Expert, but synergies are hard states that a smaller number of lenders could actually strengthen mean quality of the overall field, “given to realise, and it is a that those the who remain will likely have a more solid and market reputation”. Brokers are also more business strategy best history likely to strengthen existing relationships in the wake of left to the PE houses a market contraction. “M&As always have the potential to negatively affect the end user—less choice is rarely which do it day in, a good thing—however, it is my view that this will likely be offset by positive developments, such as more day out” powerful lending propositions, new offerings and pooled experience,” adds Craig Taylor, head of specialist lending at One 77 Mortgages. While the majority of brokers I spoke to eagerly welcomed market consolidation, there were concerns that lenders could lose elements of the proposition that won them success in the first place. “The main issue I see appearing with a contracting market would be [the] likely reduced levels of service,” highlights Simon Das at 978 Bridging. “M&A could cause real problems within systems and structuring of businesses and [a] real drop in levels of service while teams get used to new ways of working.” Saying that, he does agree there are a lot of lenders competing for the same business and, therefore, M&A would not necessarily be a bad thing for the industry—but on a small scale. Jeni Browne, sales director at Mortgages for Business, adds that when a lender changes shape and the people who had the relationship with the broker move on, this can understandably knock the broker’s confidence in that lender, and so they will need to re-earn that trust. “To simply assume that a broker will be unperturbed by changes would be remiss,” she says. “However, this is not irreparable, and the relationship can invariably be re-established with a successful transaction.” Brokers may need to take more of a proactive approach. Ian Brown, senior property manager at MAF Property Finance, says if its existing contact retains a position of control in the new organisation, it can only be a good thing. “If not, it is up to us to identify the new controller and build up a new relationship.” Brokers which value lender relationships are likely to be able to benefit from amalgamated teams. Craig explains that when he has seen acquisitions or mergers, he has had to re-negotiate the working relationship, but always with a mutually beneficial outcome. “[In] our experience, when this has happened … the resulting entity provides new opportunities and often a better ongoing relationship.”
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likely to be the ones making the move. This part of the sector wants to secure better credit facilities and “I think we will see fewer compete with the bigger companies—and the only way they can do that is by achieving scale. players in the future, Could consolidation of this part of the market forge polarisation? Potentially. The worst outcome would but I don’t think we be less choice from a small portion of heavyweight will get to that point lenders. “I think if you took it right to the very extreme, you could end up with a very small number where we have three of very big [businesses], effectively dictating the market,” says Nick. “I don’t think we’ll get there [lenders] dominating the because it’s so spread at the minute. I think we will see fewer players in the future, but I don’t think we market and effectively will get to that point where we have three [lenders] dominating the market and effectively controlling it.” controlling it” Chris agrees, adding that while it may sound as if it will have a big impact on the industry, in reality, it will just simplify matters and lead to “much more efficiencies and cost savings”. It makes sense: a contraction in mid-sized bridging lenders, which may still rely on family office money, could result in a market backed by more (and cheaper) institutional funding and less reliance on private money. This could result in even cheaper products. “M&A activity by bridging lenders does not necessarily mean a contracting market, even if the volume of players contracts,” Jonathan Samuels, CEO at Octane Capital, tells me. “Lenders, including ourselves, are looking at tangential opportunities in related markets as well as acquiring smaller bridging companies. Given the number of lenders in the space, there is plenty of choice for those on the acquisition trail.” Roger Taylor, sales and underwriting principal at The Bridging Group, believes that the big companies will be looking at the small- to medium-sized lenders which don’t have the ability or desire to securitise their loan books to generate further funds to lend out, or have seen a risk on the horizon that they’re not able to manage in house. He adds that these lenders will want to merge to protect their own interests and enhance their funding potential. “I feel the market is over-inflated, and this is a quick win for the bigger players to instantly add [millions of pounds to] their loan book in a single hit.” However, with little activity so far, and the number of lenders eyeing M&A expected to climb, we may find that there are not enough buyers to satisfy these levels of transactions in the first place.
What type of lender is looking at M&A activity and why? The EY bridging report found that the majority of respondents which are considering M&A opportunities had a bridging loan book of between £50m and £250m—mid-level lenders, basically. With the larger participants not especially incentivised to sell or buy, and the smaller lenders not yet at the size that would produce their target exit valuation, the ‘tier two’ players are
Why hasn’t it happened yet? Michael Hatchwell, partner at Child & Child Globalaw, tells me that M&A activity is not a prerequisite for a growing sector. He also says there is no reason why a merger between two established industry organisations in the bridging finance space should impact or threaten a burgeoning market. But, is it a sector that is suited to widespread consolidation? A lot of lenders are lifestyle businesses that are run for the benefit of their owners and there is a relatively small penetration of corporates. Benson believes that this means they have less to sell, as the value lies in the experience and expertise of their management teams. For a while, valuation expectation has been considered one of the biggest hurdles for M&A activity. Both buyer and seller in a transaction need to agree a value, and there are a range of ways and tools to calculate this.While a business’s worth is normally based on its return and equity, the assets that are within the business, and its profitability, it’s mainly worked out by looking at what other transactions have traded at, and valuation multiples (both profit and net assets). However, the difficulty with the bridging market is that there aren’t many transactions to compare with. “So, it is a little bit of trying to find something that is as close as possible to give people comfort that what they’re paying for
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37 Jul/Aug 2019
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A young bridging lender purely focused on mainstream broking contacts is a tough business to sell, because it doesn’t look different to any other in the market
that business is right,” says Nick. Adam Tovey, valuation director at MSP Capital, tells me that the only real measure of a bridging lender overvaluing its business is its inability to sell. “The key influences on a valuation tend to be historical performance, the quality of the team, distribution channels, funding line depth and diversity and, increasingly, technology,” states Jonathan. However, in the years ahead, if we do see more and more businesses up for sale around the same time, valuations could be adversely affected. Another issue is that it’s a short-dated product which relies on brokers and—to an extent—a lender’s BDMs. The concern is that if a company buys a bridging business, and pays a lot of goodwill for it, if the BDM(s) leave and a number of broker relationships are lost, the loan book will run off quickly and, unless that is replaced, a lot of the value will disappear. “If someone came in to see me tomorrow that had a three-year-old bridging lender that was purely focused on [the mainstream] broking contacts ... that’s a tough business to sell, because it doesn’t look any different to any other bridging lender in the market,” Nick tells me. “So, if someone pays goodwill for that business, that can be eroded pretty quickly.” When Aspen Bridging entered the bridging market, it had considered acquisition as a door-opener, but found determining the quality of a bridging lender’s book challenging. “Moreover, the margins of the purchaser—which is far more competitive than a few years ago—will be reduced by the interest payments on the significant equity pay-off to the seller’s shareholders,” says Jack Coombs, director at Aspen Bridging. “M&A sounds sexy, but synergies are hard to realise, and it is a business strategy best left to the PE houses which do it day in, day out.” Lucy adds that a lot of the small- and medium-sized lenders are offering similar product ranges to similar borrowers. “If they were looking to sell up (to a competing lender or otherwise), there would often be a disparity between valuation expectations and what a buyer would be willing to pay [especially] if they already have the infrastructure in place. Buyers may ask themselves, ‘What am I buying here? The loan book? The infrastructure? The people? Are these things I can create at a cheaper capital outlay?’” Tom Clark, director at NapeX Finance, feels that it’s often easier for new entrants to buy an experienced team, rather than a business—something he claims NapeX is seeing regularly. He adds that for more consolidation to happen, lenders will need to diversify their books to help make their business look attractive through other lending routes, such as mid- to longer-term debt and development finance. “It’s interesting that we have seen more consolidation in the development finance space recently, and I believe this is due to the length of a development debt cycle, typically being between 18 months and three years, combined with the repeat clients within those lenders ... I think bridging lenders looking to consolidate/sell should look at how some of the development lenders have achieved this.” The time and expenditure that M&A activity takes and incurs are also important factors. If a company is buying a lender, it will need to pay for diligence costs, via an adviser, to ensure it is not inheriting problems. It would also need to take into account legal fees and tax. The final expenditure depends on the size and complexity of the deal and how much the interested parties want doing by external companies. With all the considerations, it’s not a cheap task. “You [have] to factor in the costs, and, not only that, you might have to integrate the two businesses, so you may not get savings [or] an uplift in broker introductions [on] day one,” says Nick. The amount of time a merger or acquisition would typically take also depends on the complexity of the business, but also on the number of shareholders. “If you only have two shareholders on each side, clearly it will be a lot quicker,” says Nick. But, if you have four or five on each side, then keeping everyone happy can take a while. A transaction is said to take between six and 12 months to complete. Jonathan explains that M&A can lead to quicker growth, but it is more expensive and cultural differences can be an obstacle. “Organic growth requires a lower financial outlay and provides
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more control on the culture of the business, but is inevitably a slower process,” he says, adding that, most of the time, relationships in the bridging market will not be affected by M&A activity. “Broker-to-lender relationships used to be an issue, but there are several examples of it happening in the market with reasonable success.” Tom Rowlands, specialist property finance adviser at Pure Commercial Finance, adds that, following a takeover, you are often dealing with the same people and, once teething problems have been ironed out, the relationship is “largely unaffected”. It is also worth “Organic growth considering how the dynamic of a lender could change during a merger or acquisition—such as whose policy do requires a lower they retain and how has their attitude to pricing, risk and decision making altered? financial outlay Clearly, consolidation of the bridging market isn’t a task—and this isn’t helped by the fact that there and provides more simple is so much overlap between the lenders. A merger or only seems to be plausible if each business control on the culture acquisition has something the other doesn’t. For example, for an lender interested in regulated business, of the business, but is unregulated merging with a regulated lender would make sense as inevitably a there would be limited overlap. In addition to acquiring the business, it will secure different skills sets and slower process” an FCA licence. Geographic diversity could also be attractive, such as a southern-based lender merging with a northern business to increase national coverage as a result of keeping the two existing offices. On the other hand, a vanilla bridging lender merging with a similar counterpart doesn’t seem to make commercial sense. “You’re going to have people with similar skills [and] two offices with two sets of underwriters, collectors [and] finance teams,” explains Nick. In this scenario, it would be less likely for all staff, and both offices, to be needed. Effectively, you would be paying for broker relationships you’ve probably already got, or could go out and get. Therefore, merging with or acquiring a lender for this alone isn’t enough, and doesn’t necessarily mean it will produce a huge uplift in originations. “If I have a broker relationship and you’ve got a broker relationship, that doesn’t necessarily mean I’m going to get everything that I used to get,” explains Nick. “That broker might be concerned about putting too much to the single lender,
financial services business adopting this strategy—[it] could offer a more rounded service to its clients [by] cross-selling other services. Greater lock-in of clients is paramount to any successful alternative lender.” Michael believes that, in time, a “good” merger should allow a company to save costs, streamline its operations and possibly provide access to cheaper money or other finance sources. “That will enable the merged entity to be more effective and profitable.” On top of all these obstacles, there is also a level of macroeconomic uncertainty relating to Brexit and how this could impact the property market. “That’s going to come up in every conversation we have with people that are looking to either invest in the bridging market or undertake a transaction,” admits Nick. “So, Brexit, the economy and property prices are a big, big hurdle.” Adam Tyler, executive chairman at FIBA, agrees that there are economic conditions outside of the market that will control any kind of consolidation—whether that includes a substantial interest rate rise, a loss of consumer confidence or a stagnating property market. “There are other parts of the commercial lending market that may be more vulnerable to general fluctuations than ours and this, of course, can have a knock-on effect in the future.”
and therefore the benefit I initially thought I might have, I suddenly might only get half of that, or three-quarters of it,” explains Nick. “It feels like the golden ticket. We’re just not convinced it’s going to be that easy to execute.” Jon Preston, sales director at Signature Private Finance—which is currently entering a phase where the potential to merge with or acquire businesses is now more of a consideration than in the past—says that a well-run profitable business will catch a purchaser’s eye. “Imagine a law firm, valuer or other
Is there a way to accelerate M&A? If lenders are finding it difficult to consolidate within the nuclear market, then perhaps they should be looking further afield. Private equity, venture capital and fund management firms have been attracted to the bridging market for a while, with transactions and investments involving Dragonfly, LendInvest, ENRA Group, Masthaven, Together and Octane, as examples.Yasin Patel, joint managing director at Arbuthnot Specialist Finance, tells me that there has been activity from different industry corporates to enter the bridging space. “I can see this trend continuing, but it remains to be seen what appetite new entrants will have when the market turns, or rates rise.” Interestingly, EY is currently speaking to a number of businesses that it doesn’t think have ever thought about owning a bridging lender, to show them that there are overlaps between their customer base and that of a bridging provider, which could create more business for them. This could also attract more mainstream brokers who deal with these types of lenders into the bridging industry. “Are there any businesses out there with synergies to the underlying bridging customer that don’t currently have that?” Nick questions. “Rather than going into BTL, why not a BTL lender buying a bridging lender to create products for themselves?” In this scenario, even if 30% of new bridging business (for example) moves into a lender’s BTL book, that is still 30% more loans than it probably would have had before. There are also a number of businesses in unrelated sectors that could be interested in owning a bridging lender. Nick adds, “Take an SME lender, [for instance], if I am doing unsecured SME loans at the minute, why not add bridging lending to my suite of products?” Mike Strange, managing director at Funding 365, tells me that there will always be interest from companies which are seeking to invest into a growing market—which the bridging sector most certainly is. However, he thinks it is much more likely that investors will seek to get exposure to loan books, rather than to the actual operating companies. “We have seen many funds and banks offering to purchase loans from bridging lenders at completion. I think this is a funding source that will continue.” What I found while writing this article was that the market’s obsession with contraction may not make a blind bit of difference to its overall trajectory if this area remains so attractive. I only really see this changing if margins get smaller, returns on capital dramatically decrease and other investment options become more appealing. While there could be an opportunity for M&A activity in the bridging sector in the near future through companies outside of our nuclear space, I feel that unless entry barriers are raised, the unrelenting flow of newcomers into the market is more of a concern than the lack of consolidation.
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What are the most sellable features of a bridging lender? • Origination: do you have a unique way of originating business? Do you have a direct-to-market proposition less reliant on brokers? Do you have deep broker relationships throughout your firm, and therefore if one person leaves, you’re not going to lose that business? Do you have repeat customers? • Brand: does your brand bring people in? Are you award winning? • Diversified products: do you have a broad product range that other businesses aren’t currently offering? • Strength of team: do you have experienced, skilled staff that have deep market connections? • Regulation: are you fully FCA-authorised for particular lending products? • Location: are you based somewhere more untapped, with the relevant regional knowledge?
Bridging & Commercial
Cover story
Jul/Aug 2019
A retail resurrection
Image: Appear Here
Words by
simon thompson Over the past few years, studies, industry experts and news headlines have claimed that high street retail is facing an existential crisis. The rise of online shopping has been identified as the primary cause of this decline. While some lenders and brokers in the specialist finance market may have written the retail space off as a sector of diminishing returns, Deloitte claims the reality is far more nuanced. It suggests that the high street may be going through less of an apocalypse and more of a renaissance
43 Jul/Aug 2019
Explained
Explained
Image: Tribe Agency
onsumer data suggests conditions for a retail revival are better than they have been for more than a decade. The Office for National Statistics’ inflation-adjusted figures for weekly UK spending showed that consumers in 2017/18 spent more than they have since 2005. A coterie of tech and retail innovators are capitalising on this by channelling more money back into physical stores, but in new ways. As innovations are reinvigorating the sector, they are equally providing new financial opportunities in property and showing that retail should still be on every broker’s radar. As a result, we decided to look at some of these revolutions which are becoming more popular in the retail space. 44 Bridging & Commercial
Image: Appear Here
Pop-up retail Appear Here is showing that the extended lease model that has defined the retail space may no longer be fit for purpose. Known as the ‘Airbnb for retail’, the platform matches commercial landlords with retailers in need of flexible pop-up store space. New labels, entrepreneurs and established brands alike are using the platform to rent out stores and spaces to reach new customers, test neighbourhoods and host events. The website allows businesses to rent space all over London for anywhere from one day to six months. Alice Ratcliffe, head of brand at Appear Here, cites energy drink company Relentless and its collaboration with grime star Stormzy as one example of how retailers are using the platform to generate hype and motivate shoppers into stores. “People in line were served by Stormzy behind the counter. It was launched just after his second week at No 1 in the charts [May 2019] … it was an opportunity for both to unearth a completely new wave of fans in a new neighbourhood, who perhaps hadn’t come into contact with the brand before.” Ben Perkins, head of consumer business research at Deloitte, says that these platforms are also facilitating the entrance and expansion of new companies in the market. “If you are a startup brand with one or two products, then you don’t want to sign up to a 25-year lease for a shop on Oxford Street, because you don’t know that it’s going to work or what the trajectory is going to be.” In the UK, Appear Here receives over 1,000 requests for space per month. However, they are forced to turn down a high percentage of those due to a lack of capacity from commercial property landlords. The company claims that the issue is access and availability, rather than a absence of interest. Appear Here has even facilitated space for influential brands, such as Chanel, Goop, Supreme, Loewe, Browns and Nike, showcasing its widespread popularity. Locational character Part of the challenge with retail in recent years may come from the nature of the businesses that have been leasing space: chain stores. As they are often homogenous in all areas of the country, they can be detached from the character of communities they are operating in. Andrea Vanni, partner at Areli Real Estate, claims that the model isn’t attracting the kind of footfall it did in the past. He says that, today, it is the unique, independent and locally-focused stores that hold sway with shoppers. He explains that standard brands can always be bought online. “Focusing on things that you cannot buy online—that is really the future.” Andrea adds this is why Areli focuses on local independent stores. Areli Real Estate is a London property development group which works closely with local authorities to regenerate town squares and shopping spaces to 45 Jul/Aug 2019
Explained
Explained
Digital-to-physical retail convergence It doesn’t have to be clicks versus bricks. More and more online retailers are opening physical stores. Ben puts the “sheer number” of e-retailers making this move down to the fact that conversion rates are higher than they are online. Westfield highlights Amazon, Warby Parker, Kylie Cosmetics and Casper as some of the names they are dealing with. The trend is also going in the other direction, with physical retailers using online commerce to get people into stores. Ben states that “more than 50% of in-store sales are driven by digital and online”. Narvar Concierge is a case in point. The digital platform enables retail stores to function as pick-up locations for customers’ online purchases. While customers get the convenience and security of using local shops as delivery pick-up points, participating retailers get more people coming into their store, where they are making purchases. Chris Hoskin, EMEA director of marketing at Narvar Concierge, says retailers which are engaged in the platform have been able to gain greater reach and access into the communities surrounding the shops. “By using their physical stores as a parcel pick-up or drop-off point, the retailers that choose to open up their stores to Narvar Concierge will benefit from increased footfall generated by customers who want to collect their parcels in person at a place and time that is convenient to them. Those retailers that take care of customers in store can turn one-time buyers into repeat customers.” Narvar Concierge is currently working with Urban Outfitters, Levi’s, Timbuk2 and Cole Haan. The tech innovator was recently listed by Fast Company as one of 2019’s most innovative companies. Destination retail According to Westfield’s visionary plan ‘Destination 2028’, opportunities for recreation and connected social interaction are becoming more important to the future of retail. A number of
Image: Narvar Concierge
companies are luring in shoppers with combined retail, leisure and social spaces. Instead of concentrating solely on product sales, the shift is repositioning retail into the kind of venue that customers appreciate for a day out. The House of Vans is one such location. The 30,000 sq ft of indoor space in Waterloo has been fitted out with a cinema, live music venue, café, bar and concrete skate bowl, mini ramp and street course. “The space offers a solid platform for the local communities to experience and engage with Vans’ ‘Off the Wall’ spirit,” a spokesperson for skate brand Vans says. Westfield claims that its Stratford City location is the largest urban retail leisure destination in Europe, boasting social space, entertainment facilities, cinemas, bowling alleys and a casino.
Images: House of Vans London
offer locals and visitors different opportunities for recreation, social interaction and culture. Andrea gives the examples of independent jewellery stores, fashion labels and one-off bakeries as the mix of local offerings that can bring shoppers to areas. “They want to shop for the experience, uniqueness and character of the given location …. that makes a place interesting [and] what draws people in.” The company is currently developing and regenerating Nicholsons Shopping Centre as part of the Maidenhead town centre area action plan. Ben explains that authenticity of product and experience is increasingly factoring into consumers’ decisions. “They are starting to reject mass-market manufactured things in favour of [products] that are individual, unique, small batch and local.”
Experiential retail A 2018 Barclaycard study revealed that more than half of UK consumers prioritise experiences over actual products being purchased. Experiential retail is an evolution in the function of the physical retail store. Product is no longer the key focus. Instead, it is being paired with experiences that develop connections, leading to brand devotion and repeat purchases. Ben explains that the phenomenon is shifting the traditional value of the physical store. “We see a lot of big retailers and brands … investing a lot of money in innovative new store concepts. The store isn’t dead, it is just changing its purpose.” Tribe Agency orchestrates experiential projects in the UK, and client services director Olivia Rose says that experiential retail allows brands to draw consumers into existing retail sites through strong engagement. “Creating an experience for your consumers also builds stronger connections with your brand, leading to a higher propensity for brand loyalty and, thus, repeat purchases.” She cites coffee-making, barista experiences for Nescafé Dolce Gusto as a good example. The sensory and informative experience brought customers into stores who were keen to master the artisanal side of coffee tasting and making. The project attracted more than 50,000 people across six different locations. A 2018 survey of more than 400 retail executives by research firm PSFK found that over half of respondents expected to see more of their budgets spent on in-store experiences by 2020.
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Jul/Aug 2019
At an auction There are few better demonstrations of the power and value of bridging finance than in the auction house. The fall of the gavel binds a legal exchange of contract, 10% deposit and surety of sale that a buyer must complete within a 28 business day turnaround. I spent a day on the bidding floor of Clive Emson’s auction house in Kent to take the temperature of today’s property market and get a sense of how bridging lenders and brokers function together in this fast-paced environment Words and Photography by
simon thompson
An investor makes the maiden bid on a residential property
Before the auction house doors open at 9.30 am and streams of people waiting outside roll in, I grab a cup of tea from the refreshments table and get a rundown of the day’s stock from James Emson, managing director at Clive Emson. There are 72 lots of property spread across Kent and south-east London for sale, featuring anything from a Baptist church to an old pub in Maidstone. James says that buildings in need of refurbishment, land for development and properties where people “can see a dream” generally draw the most competitive bids. He adds that those suitable as BTL properties continue to do well at auction—despite recent regulatory changes. Before he peels away to help process the paperwork of the bidders coming in, I ask James what short-term financiers bring to the auction environment. “It is ideal to have multiple funding options all in one place,” he says, mentioning that having a variety of lenders willing to help finance the purchase can put bidders at ease. “There is normally someone on hand to help facilitate the purchase finance for buyers on their chosen lot.” Approximately 1,100 hopeful attendees produce the required proof of identity, undergo money laundering checks, get their bidding numbers and wander into the auction room foyer. One lender estimates that around 70% of today’s auction-goers will be buying with cash, while the remainder will be bidding with the backing of finance. Waiting for them with stalls and displays are bridging lenders Together and Commercial Acceptances, along with brokers DMI Finance and Life Bridging & Commercial Solutions. Rob Harris, senior manager at Commercial Acceptances, explains that auctions allow them to tailor finance options in line with specific properties for sale on the day. Scott Hendry, auction finance director at Together, highlights that the speed required for 28-day completions demands even faster commitments and, usually, on-thespot decisions from lenders. Scott admits it can mean relying on desktop valuations and letting the hammer determine property values. Some investors pre-arrange finance weeks in advance, while others come in cold, sorting out their funding on arrival at the auction or sometimes—as Scott tells me—after winning the property. “They have [access to] a lender that can agree [a deal and] that can make a decision on the spot within five minutes. I think that is something quite unique to our business…” He adds that another challenge for bridging lenders is that auctioned properties often come in below £150,000—
48 Bridging & Commercial
Around 1,100 people came to bid on stock at the Clive Emson auction house in Kent
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lower than some bridging lender’s minimum loan amounts. In that sense, auction lending is a volume business. Sarah Ene, director of AE Building Services, a family contractor and BTL company, pre-arranged her finance weeks ago. She’s attending with her husband Adrian, daughter and building manager to bid on lot 92 (an eight-flat, four-storey Georgian building in Ramsgate, Kent). According to the guide, the property was previously used as accommodation for the elderly. Sarah intends to refurbish the property before renting it out using a BTL mortgage. The building has a guide price of £220,000–230,000 (plus fees), but she has already secured bridging
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can be a deal-breaker in the auction space. Sarah reckons they have a good chance of snatching the lot they have their eye on and says bridging funding will allow them to keep bidding if the price climbs beyond the reach of their savings. Hasan Acik, adviser at Life Bridging & Commercial Solutions, claims that bridging loans are the most common type of finance he arranges at events such as this. “In the auction, the pressure is on for the client … a lot of inexperienced people actually come to auction, buy and then they panic, because they haven’t been advised correctly or haven’t read the legal pack. So our job really is to try to minimise that stress for the client and help them get [it] over
Hasan Acik, finance adviser at Life Bridging & Commercial Solutions, discusses options with a client
Auctioneer Clive Emson has been running property events since 1989
finance options for a variety of different price outcomes. “I gave them three different scenarios of what I think [would be my] lowest, medium and highest bid.” Each of her potential bridging finance options have been pre-arranged through broker DMI Finance. While Rob Lynn, mortgage broker at DMI, avoided the specifics of Sarah’s case, he states that arranging finance at auctions can mean establishing deals with more than one lender in anticipation of different purchase prices. “It is good that we can often put their mind at ease with the selection of options that we have.” But if their client doesn’t win the bid, the pre-arranged deals inevitably don’t come to fruition and, as a result, commitment fees
the line.” I meet Paul Quigley with his wife as he chats to lenders and brokers about bridging options. He is returning to the auction market after retiring from fixing and flipping properties a decade ago. He is following a few Victorian houses that are going up for sale, but is not 100% certain whether he will be bidding. He explains that he’s at the auction to get a sense of the market and what kind of terms and LTVs lenders and brokers facilitate these days. “It used to be that you borrowed 50–60% and they would want it back nearly before they gave it to you.” He’s impressed that lenders are going as high as 75% LTV for as long as six months, and feels that there has also been a change in the type of buyer at auctions.
50 Bridging & Commercial
Adrian Ene, managing director at AE Building Services, makes a second bid on a Ramsgate property
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He points out a young couple with a baby in a stroller at the back of the room. “That wouldn’t have happened 10–15 years ago; these people wouldn’t have been able to access property by this method. They would had to [have] gone through mainstream lending and buy a property that was in a good condition and mortgageable.” Despite a diversifying demographic of investors, many of the auction-goers I speak to are largely unaware of bridging lending. Hasan attends multiple auctions each month. I ask him if the average auction-goer is familiar with bridging. “Believe it or not, not really.” He explains that most of them are looking at purchasing with mortgages, despite the challenging 28 business day completion deadline. “It certainly isn’t impossible to get a mortgage within auction timeframes, but it is very difficult,” Scott explains. Especially if the property isn’t in a mortgageable condition. But Rob claims that it is one of the ways in which broker DMI Finance has been able to differentiate itself from others at auctions. He asserts that he routinely arranges quick turnaround mortgages for auction customers with competitive rates. “We know which lenders are quick and which lenders aren’t quick enough.” This raises the question: if a mortgage can be arranged within 28 business days, why would a lender let a borrower be penalised by the bridging sector’s higher interest rates? Rob admits that if the property needs more than a light refurbishment, that’s when bridging lenders come into play. The key time for lenders and brokers to meet and arrange finance for borrowers winds up, and people begin taking their seats in the ballroom. The auctioneer—the actual Clive Emson—lays down the rules of the hall: lots are sold in accordance with common conditions of sale, mobile phones are to be turned to silent, dummy bidders [who artificially push up the sale price] and win their own properties are required to pay fees and expenses as if they were the purchaser. Bids will also be taken online and over the phone and relayed to the auctioneer by company agents. James explains that when he started working for the family business in 1991, they didn’t have text messages—mobile phones (if you had one) were fixed into cars and there was no remote internet access. Today, technology accounts for a significant share of its auction sales. Hopes are raised and smashed under the gavel as the auction gets into full swing. Most of the first 10 lots sell well above their set reserves. As the auction progresses, brokers and lenders all take moments to peer in and see how their clients’ bids are faring. Like punters at a horse race, their performances are intertwined with their potential borrowers’ successes in the adjacent bidding hall. One of the main properties Paul has been focusing on comes up: a Victorian house ripe for refurbishment (lot 60). Before he even makes a bid, it goes over the reserve and the gavel drops at a figure £50,000 higher than he estimated it would. “Prices are very, very strong,” he tells me. Refurbishments continue to draw the most competitive bids, with very few lots coming in below their sellers’ reserves. Of those that have, many are conventional, ready-to-live-in houses. By
the time Kevin Gilbert, the second Clive Emson auctioneer, takes over, rows of chairs have emptied and the room has thinned out. Sarah and her family have been going over strategy while waiting for their lot to be called. Her husband Adrian will be responsible for the bidding. Sarah speculates that they have a high chance of winning their target purchase as she expects many bidders to drop off as the price increases. “We have got a cut-off point, but we can go, sort of, 10 grand over that if we need to. . .” The auction on lot 92 begins. Bids ping-pong from one side of the room to the other, with an occasional bid from a purchaser relayed via phone. As the lot goes beyond the guide price (£220,000–230,000), Adrian raises his arm for their first bid: £345,000. The phone bidder falls away, three bidders are still in it. The tension mounts. Adrian holds the latest bid at £415,000 and offers flow back and forth between a “man in blue” and a “man at the back”. Adrian makes another bid: £422,000. Sarah, her daughter and building manager all stare at Adrian expectantly as the auctioneer calls: “For the first time—£422,000 to the gentleman in the grey [Adrian]. For the second time.” The auctioneer gestures to the two other bidders. “[You have] seconds to change your mind.” The long pause suggests Adrian has clinched the eight-flat, four-storey Ramsgate property…until he is outdone by an unexpected bid rolling in late from the back of the room. A flurry of subsequent bids are made, but Adrian pulls back. The gavel eventually drops at £438,000 to “the man at the back” and Sarah and company get up to leave. I ask Sarah and Adrian for an additional comment on the result, but they are understandably unenthused and make their way out of the hall. Sarah had commented earlier that there was always another house. “You may think, ‘This house is amazing’ … but, guaranteed, next week you will see something else that will be even more amazing.” By lot 95, around 75% of the properties have sold, yet none of the brokers and lenders have had a borrower place the winning bid on a property. If they are unsuccessful in completing any deals, what’s the benefit of lenders and brokers being at an auction? They all claim it is a valuable long-term approach to connect with investors. Harris maintains that attending auctions gives Commercial Acceptances “tangible insight into how the market is performing” and allows them to meet clients they can assist with a future purchase. Lynn says around 10–20% of his arranged deals are derived through clients he meets at auctions. He claims that this is DMI’s “main route to market”. Straight after the gavel falls on one of the last lots, a successful purchaser strolls up to Together’s table and asks Scott what kind of finance it can offer for the property he has just bought. The random, outof-nowhere deal is done in a matter of moments. Scott says it is the “romantic” part of what they do. “It makes it worthwhile … that client has won that property because we have been here.”
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Scott Hendry, auction finance director at Together, stands by as his clients bid in the adjacent room
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AN ARTISTIC APPROACH TO REAL ESTATE FINANCE SPECIALIST AND BESPOKE PROPERTY FINANCE
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www.siriusfinance.co.uk info@siriusfinance.co.uk 020 7464 4290 @siriusgroupltd @siriusgroupuk
Sarah Interview
Words by
caron schreuder Photography
alexANDER chai
Lorenzo Interview
in conversation
Interview
A
lot of attention has been afforded to the relationship between sales and underwriting teams in the specialist lending market of late, so we decided to invite a representative of each to discuss collaboration between these two important parts of the transaction. We discovered that the roles are seemingly already coming closer than perhaps we imagine. Lorenzo Satchell, who recently won at the 2019 B&C Awards (for the second time), gave us his take on the evolution of the sales function. Having been at Together—a business which has survived several property cycles—for close to a decade, Lorenzo shares his admiration for that type of leadership and his fundamentals for prudent lending. Sarah Jackson, head of underwriting at Pivot, is also an award nominee and cites understanding between departments and broker education as two ambitions which lenders should be putting their weight behind and emphasises the importance of carefully managing potential conflict as hybrid roles become more of a reality.
Sarah Jackson: I got into bridging by accident, really—a happy accident. My background is banking [Ed: BLME]. I started out in banking and worked my way up in their debt risk department, primarily focused on property. That was during 2008–2010 and, at the time, we were funding a couple of bridgers. One of my bridging clients heard that I’d then been made redundant; I obviously knew their business inside-out because I’d been funding them for years and they said, ‘Come and work for us!’ So, I went to Masthaven and that’s how I got into the bridging sector. Although I’ve only been on the actual bridging side for about five years now, I was on the other side of the fence as a funder, so I kind of get both sides. When people say to me, ‘A funder doesn’t allow that,’ I understand that … I probably would do the same if I was back in my funding days. Lorenzo Satchell: Mine’s not too dissimilar to Sarah’s. I came from a banking background—RBS—and I fell into the specialist market by working with Kensington in the early days … That’s where I cut my teeth in the specialist sector and moved on from there to other lenders like London Mortgage Company and Money Partners, and then found myself at Together, moving into different areas of the market, including bridging. On how their roles intercept SJ: In previous jobs it has been very segregated, with a lack of communication between the two roles, very distinct lines of who does what and whose responsibilities sit where. I would say that more so over recent years, and certainly where I am now, it’s completely the opposite. It’s pretty much integral to the business that both the sales and underwriting teams work closely together. It’s easier when it’s a small organisation like ours. We all sit in the office, we can have the same conversation quite easily, it’s not like we’re all in different locations… I think it works better and is more fluid for the business when there is that cohesion between the two. But, naturally, that comes with its problems. LS: I would have to agree with Sarah on this one. There’s been a massive transition when it comes to viewpoints regarding sales and underwriting, over recent years more so than ever. I think the sales role has changed immensely in terms of the BDM job … I can only relate to the team
that I work with, and I’ve worked with them for a very long time—it’s about trust from the credit team internally and trust in the ability of the salespeople to make those lending decisions. I’ve got the trust in our sales team because of my experience and understanding of the market—and the brokers that I deal with in those accounts. I think that’s a fundamental factor—that cohesive approach between sales and underwriting. Simon Thompson: What are the problems that arise? SJ: When two departments work together, you never get the full understanding of what the other department does. There’s a lack of knowledge on both sides. I don’t think it’s necessarily a bad thing, some pushback from sales sometimes—it’s a healthy challenge. If they say, ‘Why can’t we do this deal?’ I don’t think there’s anything wrong with a rational conversation about why we can’t do it, and the sales team putting their reasons forward for doing it … everyone learns from it. Caron Schreuder: The mandating of salespeople to get more involved in preunderwriting—do you see this working? LS: It’s funny you should ask that, because that’s effectively what I’ve been doing for the past three years. My official title is commercial underwriting specialist, so it’s a hybrid role. If you’re looking at a funnel process, you have your brokers at the top of the funnel, you have me in the middle and you’ve got your underwriting team at the bottom … that decision-making unit should be me understanding what’s required, how to package that transaction up, what is needed from the broker from day one. If there are any questions or unforeseen problems from an underwriting perspective, you need to have that ability and experience to provide that information to the broker on day one. When it comes to the underwriting teams, it should be a tick-box exercise. That’s certainly how it works with us in our business. Going back to what I said earlier, it’s a matter of trust. I’m one of the decision makers within our team and it’s because of the trust of the internal team that I can make those right decisions. Hey, you don’t always get it right, but I don’t believe that anyone gets it right 100% of the time. We’re all human at the end of the day. That role is changing now: it’s about how you add value when you’re going into
that account. My position changes every day, basically; I could be looking at new transactions, processing transactions for people in that account, it could be a training session where we identify weaknesses in regard to the packaging requirements … I think that’s where it becomes more dynamic, that sales/BDM/ underwriting hybrid role. SJ: I would say that it also depends how your sales guys are incentivised and rewarded, because clearly you have a conflict of interest to manage there. By having that intermediary layer, which is akin to the old banking model of a middle office— LS: Yes. SJ: It makes that segregation easier, but still having that knowledge and specialty there—I think that is the model to move towards. You’ve kind of got this middleman in between sales and underwriting. Sales can focus on doing their job, out on the road, getting the deals in; you’ve got some technical knowledge in the middle; and by the time it gets to underwriting, it should be good to go. CS: In light of the conflict of interest, do you ever see it becoming a fully merged, hybrid role? LS: It’s only a conflict of interest depending on how that business is incentivised. CS: [Most] salespeople get paid on commission, though, don’t they? LS: That depends on each individual business. Going back to Sarah’s point, there’s potentially a conflict of interest because it can breed the wrong behaviours. However, it depends how you’re incentivised in each individual business. SJ: That’s why I don’t think there will ever be a full integration between the two; it needs that middle ground to manage that conflict, as well as the technical knowledge and all the other governance points that go with that. LS: See, from my perspective, where our team is moving towards is about pack, or case, quality because that breeds the right behaviours. On handling difficulties between the two
59 Jul/Aug 2019
Interview
departments SJ: It can be a healthy synergy, but it’s also good to have a bit of friction in there, because we learn from each other that way. Let’s remember that sales are on the coalface, so they can see what’s going on in the market day to day. Underwriters are in the back, doing the legal and technical aspects of it. They really are poles apart, so naturally there’s always going to be questions and perhaps a bit of head butting every now and again. For me, most of that sits around legal points on the conveyance. As an underwriter, we certainly get quite involved in the conveyance, which I know some companies don’t. So, when my sales guys say, ‘My broker’s complaining because we can’t get past this legal point,’ and I’m saying, ‘No, that’s really something we cannot waive, that’s integral,’ there are frustrations. But we work together to get the same result at the end of the day. It’s more a case of managing those conflicts that do arise and learning from it. If it means that the sales guys can teach me something about the market or I can teach them something about underwriting, we all get to the same end position. CS: Do you get out and about? SJ: I do, yes. I meet borrowers, I go to sites. I like being on the road. LS: We work in the specialist market, so it’s never going to be on every transaction that everyone is going to agree. We’ve got a number of senior managers within the business—if you gave one deal to each one of them, they’ll have an opinion on it … it’s subjective. That’s the norm in our business arena. I’m quite fortunate because I’ve got strong relationships with not only the underwriting team, but the legal team that we’ve got internally, Priority Law. Yes, sometimes you do get a bumpy ride on a transaction, but it’s about solution provisions and how we can make this transaction happen. CS: What’s something you wish your sales/underwriting counterpart knew about your role? LS: At Together, we all understand each other’s roles. I will spend time with the team internally, just to make sure that I’m still connected with everything that’s happening in the office. That happens monthly—spending time with each department in that team and with the solicitor’s team. And vice versa, the underwriters come up to see accounts
“I’d rather do one good deal than ten mediocre deals that I think might fall over” … and get introduced to the right people, putting a name to the face and strengthening that relationship. SJ: Brokers always say to me, ‘It’s good to speak to someone who actually does the underwriting and the work behind it.’ That’s perhaps something that can be worked on between the two roles. Even though the sales guys are leading it—it’s their relationship, their account—it’s actually beneficial if we all get to know the broker and our clients because at the end of the day it’s favourable to the service we can deliver. CS: How can conversion rates in the bridging market be improved? SJ: One of the things the industry needs to look at is education as a whole, including brokers, sales, underwriting, everyone. You then get more facts and accuracy upfront which can only lead to one thing: better conversion rates. The one thing I would probably implement would be broker education: going out, sitting with them and explaining what we look for in a credit report, for instance; what we look at on a land registry entry; what it means if you get a certain entry pop up etc. I think that would make a huge difference because a lot of the problems that cause deals to fall over and the conversion rates to be so low can be weeded out. LS: Case and pack quality is about educating brokers. The fundamental factors are: what are we looking for as a lender, how are we looking at income (there are variants of that), what are we looking for in a valuation? I’d like to think that most people can read a credit report, but you’d be surprised… That is certainly what I do when I am in those offices, so it’s not just about, ‘What transactions have you got on your desk, Mr Broker?’ … it’s more about how we look at processing, packaging and products. On the reported 60
Bridging & Commercial
shortage of talent in the market LS: How you grow the market is from within; you need to nurture the people you have. If there is an individual who has the basic ingredients to be a BDM—and there’s plenty of them out there—it’s about how you nurture and invest time in those individuals. And not only that, it’s important that it’s done from within because every business is different. I say it about our business: you may be able to do a role in our business as a BDM, but can you adapt to the culture? We have an academy set up, there are training sessions constantly running, personal development plans are done regularly. SJ: You can’t expect to retain quality staff if you don’t invest in them … it’s absolutely vital. CS: What is your strategy when it comes to attracting diverse talent? SJ: It’s much harder for a smaller, newer company. One thing that I am quite passionate about is the Women in Finance initiative. As much as I’d like to recruit a female every time to readdress that balance, going back to the talent point—sometimes it’s just not there. It is something that we are consciously aware of and does need readdressing. CS: What do you look for in your team when recruiting? SJ: The bridging sector is quite quirky in the sense that it has a lot of personalities and, certainly in our office, you have to have a personality to fit in. That’s definitely up there. Obviously, I look for people who are skilled and, also, who’ve got the want and the ambition to learn and help develop a small business; they’re not just another number ... they are literally integral to it. It’s that passion and desire that I like to see. LS: If I’m talking about my immediate team that I am working in, my commercial team, the key things or ingredients that you need for the role are accessibility, that’s number one, being able to make quick decisions, flexibility, but, more importantly, a can-do attitude. CS: Would you ever put this attitude, want and desire above skill when recruiting? SJ: If I saw someone that had the potential, but didn’t necessarily have the skills that I needed, I would be happy to
Interview
invest the time and energy in building up those skills as long as they showed that want and desire to make a difference, and they have all the other qualities; if that was all there, then I would be willing to nurture that. CS: Who do you admire in the sector? SJ: I have looked a bit outside the sector—still in finance—and I think what Anne Boden’s [CEO and founder of Starling Bank] done with Starling is brilliant. She’s taken a different initiative in being mobile-only, she’s tapped into technology, her marketing and promos... What she’s built up there is completely different—she’s found her niche in the market. LS: I’m going to be a bit cliché... It’s very difficult not to consider the leader of our business Marc Goldberg (amid laughter), and I’ll explain to you why. SJ: (laughing) Someone’s after brownie points... LS: Trust me, I won’t get any brownie points. I’ll still get the 6.30 phone call in the morning. CS: Because [Marc’s] been up since four! (Laughter) LS: Exactly! I don’t believe there’s anyone more hardworking, relentlessly hardworking, within this business. He has the same enthusiasm as he did when I first started with Together nearly 10 years ago. It’s remarkable, bearing in mind that he’s probably been with Together now for over 30 years and he started from the very bottom and worked his way up to be the commercial CEO. You can only admire and respect the man for that. CS: Where do you get your information from and who’s worth listening to? SJ: On a more specific level, if I want to know what’s going on with house price movements and the general property market, I really like Lucian Cook head of residential research at Savills. I always listen to what he says … he articulates and conveys it very well. The daily emails that come from everyone ... if you mishmash them together, there are things in there that catch your attention. I tend to do a bit more delving into that and maybe find a news editor’s opinion on it, someone from the FT or similar. It’s more a case of keeping your ear to the ground and seeing what’s happening
in a wider sense rather than focusing just solely on one information source. LS: From a statistical point of view, I would probably look at your daily info that comes through online. But, in regard to what’s happening on the ground, face to face, I would go to ... specific brokers within the sector—and get a rounded view. If there’s something specific I want to know, I won’t be asking one or two, I’d probably look at maybe 10 people to get an average. You’ll tend to find there’ll be a couple that are diverse, but the majority are very much the same. That’s how every lender progresses and improves. Voice of the customer, as they say. Listen to what your brokers are saying. CS: Specific to your roles, what do you consider a threat that our industry is facing? LS: Everyone’s talking about the economic climate and Brexit. Quite frankly, I think everyone’s getting tired of it now. It’s there, it will continue to be there for however long it may be, but the world still goes around and there’s still a supply and demand out there. I think the threats are no different now than they have been. What I mean by that is—and it’s the secret to our success, certainly— it’s a very simple word, or letters: LTV. If you’re geared correctly, in whatever climate you’re in, there shouldn’t be an issue in how you’re lending. If you’re making sensible, plausible decisions and sustainable transactions, there shouldn’t be anything to worry about. LTV is absolutely key. CS: Would you say the danger is that there are those lenders who are not adjusting themselves in accordance with the climate we’re in now and forging ahead with a strategy that was maybe applicable five or six years ago? LS: You know the lenders that have fallen by the wayside in the marketplace and for which reasons—probably due to the climate, or how they’ve dealt with their lending book. All I can do is speak for us; we’ve been through a recession, we kept a lot of brokerages alive during the recession because we know how to lend. We made the sensible lending decisions, we adjusted according to the climate, but the one thing we didn’t change is we made sure we stayed at the correct LTV. I think most lenders are adhering to that now anyway, they understand that. SJ: It’s a lot harder for us as a smaller
“It’s not just about what transactions you’ve got on your desk, Mr Broker … it’s more about how we look [at] processing, packaging and products” player in the sector; there’re certainly a lot more threats for us in terms of borrowing is cheap, cost of money is cheap, barriers to entry are low, so competition is high. There’s this race for the downwards rate; who can get to the bottom quickest. The thing that concerns me is, is the risk-rate model being looked at as it should be? Or is it just a race for the lowest rate? I think that’s dangerous and it does concern me and it causes me pressure as a smaller lender. It leads back to your point, Lorenzo—it’s about pricing your risk for what you’re actually lending on as opposed to just throwing out the cheapest rate you possibly can. CS: Picking up on your mention of the barriers to entry, do you have any immediate suggestions for a more discerning way that the market could treat new entrants, or how we could raise the bar? SJ: There’s a lack of regulation, so it is just easy to enter the market. Short of going down the regulated route, which then just completely blasts everything out of the water, there may be initiatives... It may be that the NACFB, ASTL and FIBA need to work with the FCA along the line to introduce some measures—not as harsh as regulation—but just something that keeps the practice standard up and weeds out the bad practices that many have spent years trying to eradicate. On professional milestones
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LS: I set myself weekly, monthly, yearly milestones. That’s just my standards. The natural progression is managing your own team; that’s what I am striving for. SJ: Sales obviously have targets that they can hit and those are their black-andwhite milestones; it’s very different on the other side of the fence in that there is nothing apart from our own internal objectives. As long as my team hit their objectives, I know I’m doing a good job. If I get to the end of the year and I’ve got a clean loan book, I’m doing a good job. So, it’s the longer aim, rather than the shorter aim, as an underwriter. LS: There are elements of targets but, like I mentioned, it’s pack quality as well. You want to make sure you’re bringing the right business in and the quantity that’s required, but the quality of business is absolutely key. SJ: I’d rather do one good deal than 10 mediocre deals that I think might fall over. Current trends SJ: We’re seeing a lot more re-bridges, because people are wanting to hold on to their property. It’s a bit of a sticky market out there, there’s a bit of unsurety. So, rather than perhaps going down their original exit route of selling their property, they want to hang on to it for a little bit to ride it out. Traditionally, re-bridges have been frowned upon … but actually it’s becoming more commonplace. LS: Because of the current climate, it’s certainly coming into play. Is it ideal? Probably not. SJ: No—I agree. LS: However, it probably goes back to: why hasn’t that client exited the bridge in the first place? There could be genuine reasons, it could be that it maybe wasn’t sold correctly ... or maybe it was the wrong decision to look at it in the first place or because of the change in climate—
we re-bridging it, then make a decision where we feel comfortable in regard to an LTV … In a lot of instances, you’ll tend to find that the customer will have to put more money in to make sure we’re comfortable with the gearing. And what’s going to change in the next 12 months for them to actually redeem that transaction? CS: (to Lorenzo) Presumably, in your role [to Lorenzo] and others that involve sales, the process of loan redemption starts at the very beginning when you make the sale? LS: Absolutely. CS: Can you speak to that, in terms of prudent sales process? What would be the things that you would be looking at so that way down the line, however many months later, you’ll be giving the redemptions team a good time? LS: If we’re looking at a bridging facility, a lot of the stuff that comes into me, when I look at it, can be stripped back … although there are caveats around it. There are three fundamental things about a bridging facility: what are we lending on, how much is the client putting into the transaction day one and how are we going to get our money back? If it’s a residential security, they’re putting down a decent (30%) deposit, we’ve got a clear, plausible exit, be it sale or refinance, they’ve got a clean credit profile—it all stacks up. Yes, there are other things from a legal perspective that come into play; yes, we have to look at the valuation when it comes in … but, generally, from a short-term finance facility, that’s what you need ... from experience—and you can only do this from experience—you know what the right transactions are, what makes sense and what doesn’t make sense in a deal. I’m sure you’ve come across them yourself (gesturing to Sarah), something comes in and you think, ‘Hang on, that doesn’t add up’.
SJ: Circumstance changes...
SJ: As an underwriter, I rely on my gut quite a lot. If it doesn’t pass the sniff test and I just feel there’s something wrong there, I don’t want to take that risk. It’s about intuition.
CS: Or it shouldn’t have been a bridge in the first place? (Laughter)
LS: I think you either have that or you don’t. It’s very difficult to explain.
LS: Possibly, possibly. There are so many variables. How I would look at a re-bridge is very simple: why, and what’s going to change? … Why are
SJ: It is.
64 Bridging & Commercial
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People
People
The real employees of the year Office pets are shown to have a measurable impact on staff productivity, stress relief and overall workplace satisfaction. Once a far-fetched prospect, today one third of UK businesses have policies in place for welcoming pets into the office, with leading companies, such as Google, Nestlé and Amazon, boasting pet-friendly workspaces. As our furry companions become a more common and acceptable part of office life, we spoke to bridging lenders, brokers and PR companies about the value they can bring to our own fast-paced, high-stress market
two-year-old border collie
five-year-old co
Dexter at Positive Lending Dexter has been coming to the Positive Lending office since he was 12 weeks old and is without doubt the company’s employee of the year—they say that no one is more loved. However, integrating him into the office was not easy at first. He got his tongue stuck in a spring from a pen on his first day, which nearly made it his last, and three weeks later he chewed through a monitor cable mid-fact find. “We had to put reinforced cable through every monitor and power lead in the building,” explains Paul McGonigle, chief executive at Positive Lending. “But he calmed down and is without doubt part of the furniture here when he attends. The morale is boosted by Dexter’s arrival and it is, in my opinion, a great way to help the office de-stress. Ten minutes in his company will brighten the mood of staff and all it takes for his attention is a tennis ball. Staring at you through the glass boardroom because he has been locked out of a meeting
Monty, a six-mon th-old miniatur e da
chshund
Sam at BFS Border collie Sam belongs to Di McHugh, property manager at Bridging Finance Solutions. He has been making the daily journey into the BFS offices for the past four years. Sam first started coming to work when Di was having her home decorated and he kept on brushing into the paint and soaking his coat. Di asked if he could come in and keep out of the decorator’s way. Everybody enjoyed having him around so much they asked if this could be made permanent. Sam’s home is in a basket behind Di’s desk and everybody spoils him with treats and titbits. “Sam is an incredibly chilled and relaxed dog and regular visitors are always pleased to check in on him,” Di says, adding that the postman even stops to give him a stroke. “When new staff members arrive, having a dog in the workplace lets them immediately recognise that ours is a relaxed working environment with an understanding boss.
Having Sam here helps nurture a certain culture and that is one of a really happy working environment. “I haven’t experienced any drawbacks—he is a very clean dog, calm, relaxed, doesn’t really bark and isn’t a massive hair shedder. I always ensure that the office is hair and paw-print free and, of course, take full ownership of any cleaning etc. I’ve never heard any negative comments whatsoever in the past four years, but have certainly had a lot of positive ones.” Steve Barber, managing director at BFS, adds: “Before we agreed to Sam coming in, we made sure to check there were no objections, nobody was scared of dogs or had any allergies. He’s great to have around, he doesn’t present any distractions, but when people need some time away from their desk, they often pay Sam a visit. We have a close team here that is almost like an extended family—and Sam is undoubtedly one of us!”
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can be off-putting at times,” he admits, but says the business has certainly benefited from utilising Dexter in social media. “He has been tweeted about quite a bit and we find that others respond to the light heartedness of the message, too. On the positive side he is a photogenic poser. My only advice to anyone considering this option is to ensure you are ‘office ready’—set the rules for all on day one so that you do not have an office that focuses on the dog more than the work, and ensure that you check for hazards, especially with young dogs. Following a difficult few months, we are delighted he is part of the team, and wouldn’t change a thing.”
Monty and Hugo at Glenhawk
Glenhawk encourages employees to bring their dogs to work—and Monty and Hugo are two regulars. The lender has found it has had a really positive impact on the company and, most importantly, is a huge asset in terms of collaboration within its team and forging social connections among the whole company. “We pride ourselves on our open, flexible, friendly approach and having Monty or Hugo around definitely accentuates that,” says Guy Harrington, CEO at Glenhawk. “The office atmosphere feels warm and social and inclusive for everyone. When clients or brokers come in, it tends to break the ice (as long as they like dogs!) and they get a sense of our outlook very quickly. They are fantastic for encouraging quick breaks; [getting] 10 minutes out of the office can really rejuvenate the team and make you much more productive. Taking Monty for an impromptu walk has helped me come up with a couple of my best ideas yet! Informal employee meetings sometimes can be really productive outside the office walls and, again, having
Monty or Hugo as an excuse is really useful. They are definitely a great bonding tool and very inclusive for social interaction. I have always wanted Glenhawk to be a place for work, but also for having fun. If staff feel work is an extension of their lives, they are much more motivated and happier—ultimately translating to our clients, which is the most important thing. Having dogs around certainly contributes to healthy and happy living, which I love. The negative side, of course, is if they misbehave and became too disruptive, but my team know what they need to achieve on a daily basis, so I will always trust their call on this [when] bringing pets in. From a logistical standpoint, I know they like not having to rush home at 5.30 to get back for the dog walker. Generally, they have an incredibly positive impact on the business… However, we have not yet crossed g h bulldo ld Frenc o rthe bridge of a e -y two Hugo, a someone being allergic to them!” 69 Jul/Aug 2019
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People
Luna at Mint Bridging critical, as she naturally calms everyone down simply by being herself—especially since she’s not a fidgety pup. Dogs offer many incredible benefits to the office environment by giving it a homely feel, purely by their presence and energy, so the Mint team love having Luna in the workspace environment. As long as she’s scrutinising the staff, she’s quite content and entertained. Luna’s completely toilet trained, but since she’s so adored at Mint, everyone wants to take her out for a walk during lunch breaks. Employees get to blow off steam, press their reset button and this is when Luna can bark at birds and buses. In the afternoons, back in the office, she’s watching, napping and more than happy to receive belly rubs during meetings. Since everyone’s so used to Luna being around, her absence does stand out when she’s taking the day off from work. She doesn’t get a salary yet, but does receive treats as compensation. She is a really kind soul and we love her coming into Mint.”
Mint Bridging’s office pet Luna is the four-legged friend of managing y pp 18-month-old pu director Andrew Lazare. Even though Luna is still a puppy, she’s incredibly well behaved and a holistic addition to the Mint team with her calm demeanour, yet extremely alert personality. “Having Luna in the office has been a great addition to employee morale since many of the Mint team are pet lovers,” says Debra Lazare, marketing at Mint Bridging. “Eight of them have dogs that sometimes come in when there is a dog care emergency. They really appreciate her pottering around between desks and chairs during the daytime, not disturbing their work, but available (at a moment’s notice) for an emergency, stressrelief hug. These subconscious, affectionate acts are a tremendous attribute for employees under time constraints when deadlines are
Margot at Also Communications Margot the cockapoo is the office dog at PR firm Also Communications, who keeps the team company and injects a bit of fun into long days of writing about mortgages and bridging finance. “After the first six weeks of having Margot, however, it seemed like a very bad idea,” Alex Hammond, managing director at Also Communications, admits. “When they’re not asleep, puppies need near constant attention and the most effective way to toilet train them is by following them around [and] watching for tell-tale signs of impending toilet business. This wasn’t great for productivity, but thankfully it didn’t last long and, within a couple of months, she was pretty much selfsufficient and fell into step with the normal working day. There is still the odd occasion when Margot might bark during a conference call but, on the whole, she is an entirely
positive and trouble-free addition to the business. 15-mo There are nth-old cockap oo few things as cathartic after a stressful phone call or email exchange as glancing up to see a soppy dog staring back at you, and having a dog undoubtedly makes you step away from the desk and walk more during the day. This is actually really useful for gaining a fresh perspective on problems and coming up with new ideas. The biggest difference that Margot has made, however, has been to my number of Twitter followers. It’s amazing how many people in our industry love a photo of a dog.”
to get up. Neither can we ignore her when she’s outside the door…any door…she hates closed doors. Her sister, on the other hand, is the quiet one. Amber enters the office, makes her bed and lies contentedly until she decides it’s time to go. She doesn’t need any fuss; she just likes to be around us. Having the cats in the office can sometimes be a bit of a distraction, especially when Mags is rubbing around your legs as you’re working on a tight deadline or wading through spreadsheets. But, by the same token, you can be stressing about that tight deadline until Mags comes looking for a bit of love, then you forget that you were stressed or up Amber, eigh teen-year-ol d tortoisesh against it. It would ell be very strange here without them and their pink bed clashing with the red carpet.”
Magma (the loud one) and Amber (the quiet one) are the feline ell sh e employees at is to r r-old to teen-yea h ig bClear, who add e , a Magm another element to office life, making it a more homely and comfortable place to be. “Even on the days when I’m alone in the office, I’m never really alone,” explains Jayne West, business manager at bClear Communications. “I walk up the stairs and there’s Mags. She likes company as much as I do, and she makes herself known quite volubly—she has the loudest purr I’ve ever heard. There’s something about that purr, the contentment, that makes you feel at ease and happier about the day. Mags likes to sit on the desk and is quite insistent; she used to just jump up, but now she’s older she needs a hand. When she’s on the desk, her favourite position is right across whosoever’s hands are trying to type. It can be disruptive, but mostly it’s nice that she wants the contact. I’m not saying she’s a needy cat, but there’s no ignoring her when she decides she wants
-old whipp eight-month
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Magma and Amber at bClear
et
Bryant at Medianett Schreuder, managing director at Medianett. “Sleeping is his main talent, closely followed by the ability to do almost anything for a treat. Having him around provides a welcome break and the opportunity to get out of the office for short intervals several times a day, which is immensely beneficial. “I have found that visitors respond well to his presence, while he loves the fact that he has what he can consider a second home, complete with two godmothers, Beth and Poppy, who adore the fleece jumper off him. I would welcome another dog in the office—the teething problems fade quicker than you realise, and they grow so fast. I am glad that not only has Bryant had a measurably positive impact on my life, but on those of the team, too.”
Bryant spent his first day at the office at a mere nine weeks old, and he loves being part of the team. A spoilt pup, he tends to choose the moment someone is on the phone to start his own conversation—and it is not uncommon for people in the office to spring into action with a toy to distract him at the sound of a ring. “He is especially fond of destroying Funding 365 stress balls and ‘loving’ Frank from Adapt Finance (if you know, you know),” says Caron
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Limelight a glimpse into our ever-busy schedule
1 Who: The industry Where: JuJu, Chelsea What: The B&C Awards after party, sponsored by Precise Mortgages, where we ate mini fish & chips, downed Sambuca shots and danced a-plenty 2 Who: Capital B Private Finance Where: The Grand Connaught Rooms, Holborn What: Celebrating its first year in business with sunshine and beers on the penthouse deck
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3 Who: Precise Mortgages’ 9th Annual Charity Poker Night Where: Alan Cleary’s home, Solihull What: Raising over £14,000 for charity Socks and Chocs with poker, Prosecco and pizza 4 Who: Medianett Where: Ethos, Oxford Circus What: Celebrating Caron’s birthday with a vegan lunch and spotting Charlie Brooker on the next table 5 Who: BLEND Network Where: Le Bab, Carnaby Street What: Heading full-force into bridging and how to power through a 9am meeting after the B&C Awards 6 Who: Landbay Where: Ole & Steen, Paddington What: P2P lenders undertaking stress tests and building a BTL powerhouse 7 Who: LHV Bank Where: The Gherkin, City What: A political debate on the future of the EU, followed by appetisers and apocalyptic thoughts 8 Who: Octopus Real Estate Where: Octopus HQ, Holborn What: A seminar on the benefits of commercial mortgages and term funding, supplemented by dozens of donuts
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9 Who: Acre Lane Capital Where: Sheraton Grand, Park Lane What: The progress of the new venture and being cautious in the London market
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10 Who: Central Bridging Where: The Langham Hotel, London What: The history of the bridging market and the world’s tastiest peanuts
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We’d like to tell you a story. Now, this is a story like no other. Thousands of years ago, before the Ottoman empire, before the Roman empire, there was an empire… of perfection. This was the city of Atlantis! The 11th Bridging & Commercial Awards—in association with Market Financial Solutions—transported guests to a mystical, watery underworld, complete with submerged mermaids, cocktails served from conch shells and a shipwreck that was converted into a bar. Our largest event to date—with over 650 in attendance—played host to the industry’s leading lenders, brokers, solicitors, valuers and more. From midday (emergency Octane Capital umbrellas at the ready) until the very last drink at Precise Mortgages’ afterparty at JuJu, we put on a day they’ll never forget. Surveying the room, it was wonderful to see so many members of the sector’s most successful companies’ teams, some of whom make up the relatively unsung parts of our market, there in support of their peers. We have it on good authority that ours is the event that people most want to bag an invitation to and, in a sea of industry occasions, we happily take that as the ultimate compliment. Over £11,000 was raised on the day for Lee Albino, who is currently undergoing chemotherapy following the amputation of his leg due to cancer. Through the generous support of his peers, Lee is hoping to face this tough challenge with the help of a state-of-the-art bionic leg. After honouring 25 thoroughly deserving winners, the specialist market’s finest did what they do best: bask and network in the grounds of the Hurlingham Club, under the glorious sun, savouring drinks provided courtesy of Octane. In addition to Atlantis, other more serious themes were explored on the day: leadership, education, diversity and inclusivity, and competition. Self-regulation and a responsible attitude to lending needs to be at the forefront of people’s minds; the market is maturing but shows no sign of plateauing in terms of growth and new entrants—a time more important than any to demonstrate diligence and prudence in every practice.
Best Bridging Newcomer — Broker
Development Lender of the Year £10m+
Underwriter of the Year
Best Development Broker
Service Excellence — Brokers
Lender Relationship Manager of the Year
Winner: LDNfinance Highly Commended: Capital B Property Finance
Winner: Maslow Capital Highly Commended: United Trust Bank
Winner: Gemma Salousti — Octane Capital Highly Commended: Michael Schofield — Together
Winner: Sirius Property Finance Highly Commended: Pure Commercial Finance
Winner: Adapt Finance Highly Commended: Brightstar Financial
Winner: Lorenzo Satchell — Together Highly Commended: Christian Gugolz — MT Finance
Best Bridging Newcomer — Lender
Development Lender of the Year up to £10m
P2P Lender of the Year
Commercial Lender of the Year
Best Specialist Distributor
Bridging Lender of the Year
Winner: Tuscan Capital Highly Commended: Glenhawk
Winner: Aldermore Highly Commended: United Trust Bank
Winner: Assetz Capital Highly Commended: Kuflink
Winner: Together Highly Commended: Aldermore
Winner: Crystal Specialist Finance Highly Commended: Brightstar Financial
Winner: Octane Capital Highly Commended: MT Finance
Best Commercial Broker
Mezzanine Lender of the Year
Best Bridging Broker
Regulated Lender of the Year
Best Solicitor
Editor’s Choice Award
Winner: Pure Commercial Finance Highly Commended: Crystal Specialist Finance
Winner: Proseed Capital Highly Commended: Beaufort Capital
Winner: Adapt Finance Highly Commended: Brightstar Financial
Winner: Precise Mortgages Highly Commended: Together
Winner: Brightstone Law Highly Commended: JMW
Winner: United Trust Bank
Specialist Product of the Year
Bridging Funding Partner of the Year
Best Valuer
Service Excellence — Lenders
Best Specialist Bank
Alan Margolis
Winner: Precise Mortgages — Refurb BTL Highly Commended: Aspen Bridging — 80% LTV
Winner: OneSavings Bank Highly Commended: Toorak Capital Partners
Winner: Robert Sterling Surveyors Highly Commended: VAS Panel
Winner: MT Finance Highly Commended: Ortus Secured Finance
Winner: United Trust Bank Highly Commended: OneSavings Bank
Outstanding Contribution Award Marketing Partner of the Year Winner: Precise Mortgages
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Backstory
Manchester office to represent 40% growth of our UK loan book Fiduciam’s new business development manager discusses how the bridging market in the North of England has changed since he started in the industry, why joining the company was a “no-brainer” and what he will be implementing to ensure the lender’s first northern office will substantially contribute towards the business’s aim to double its UK loan book this year Chris started his career in the bridging market back in 2006 as a BDM at Bridgebank Capital, a position he then went on to hold at Masthaven for close to four years. He then joined Precise Mortgages as a national sales manager for four-and-a-half years, followed by a role at new bridging lender Tuscan Capital. In May this year, he decided to utilise over a decade of sales experience at large and small lenders to head up Fiduciam’s new Manchester office. In his new post, Chris aims to build a strong presence for the lender in the North by expanding its already-strong pipeline of bridging, development and business lending in the region. What has been your biggest achievement to date while working in the specialist finance market? Having been in the business for over 13 years, I can say I survived the credit crunch and have continued to learn and develop along with the market. I’m also very proud to have won the Business Development Manager of theYear Award at the B&C Awards in 2012. Why did you decide to make the move to head up Fiduciam’s new office in Manchester? I was approached through an agency, but I already knew of Fiduciam. I think it is one of the best-kept secrets of the bridging industry. It has a strong team and funding proposition, which makes it stand out from the crowd.To be honest, for me, joining Fiduciam was a no-brainer. What one thing does the industry not know about Fiduciam? In general, people do not realise that as Fiduciam lends in various European countries, we also have local representation that works between London and these countries. So, on days when everyone is together, it can sound more like the United Nations office, with various languages being spoken at once. The other key thing is that Fiduciam is what I would class as a true commercial bridging house. It has an extensive product offering, across residential and commercial.There really isn’t much we can’t look at, which means we can find solutions for most investors and developers. How does your previous experience (in both large and small lenders) help you in your new role? This is a broker-facing industry and relationships are absolutely key. I have 13 years of relationships that I have built up working for both large and small lenders and challenger banks.With Fiduciam, I now have all the tools I need to be able to service them all, no matter how big or small.
What are you looking to implement and change at Fiduciam to allow it to expand its lending activities in the North? My aim is to improve our process at the front end, making everything as easy and swift as possible. Clients want the decision-making process to be quick. Whether the answer is yes or no, they just want to know quickly so that they can get on or move on. As you can imagine, starting from scratch in Manchester means that it sometimes feels like there aren’t enough hours in the day. So, I’m currently working very hard to find a way to create a 48-hour day… Fiduciam intends to double its UK loan book this year — how much will the Manchester office contribute? Realistically, we are looking for the Manchester office to represent 40% of the growth of our UK loan book. As things have tightened in London and the South East, investors are looking north and there is plenty of activity here at the moment. And, although we might not be looking at the size of deals you might expect further south, what we lack in loan size, we will certainly make up for in volume. How has the bridging market in the North of England changed since you started out in the industry and are there still any gaps? When I started out, the majority of bridging companies were all privately owned, with a large number of the lenders based in Manchester. As the market has grown and evolved, more sophisticated lenders have joined the market—many of which have a presence in London.This has brought a more competitive and varied product offering to the market, giving lenders the opportunity to attract more sophisticated property investors.This, in turn, has increased deal size and terms of deals. As with any industry, there are always gaps, but we’re doing our best to fill them. What one thing would you like to change about the bridging lending industry? I think it would be very helpful to have some sort of index that showed the true size of the bridging market.There are a few reports, but none reflect the whole market, which makes it difficult to gauge. We could be a small fish in a big pond or a bigger fish in a small pond—we just don’t know the actual size of the pond.
80 Bridging & Commercial
What did you spend your very first pay cheque on? Ironically, it was paying my mum back for all the money I had borrowed. What is your favourite industry event of the year? Ok, you can have this one.The B&C Awards—it’s the only one I’m allowed to attend. What is your favourite venue for lunch/dinner/drinks meetings? Rajdoot in Manchester. It has a great curry club every month—good company and good food guaranteed. Mind you,The Ivy in Manchester isn’t bad either. Most memorable moment from your time in the industry? Being recognised by my peers when I won the award in 2012. It’s humbling to win something when other people say it’s because you’re doing a good job. Dream job—if you weren’t doing this, what would you do? It may be a cliché, but like most young boys that ever kicked a ball around with jumpers for goalposts (and even now), it has to be playing up front for Man Utd.
Kerry understands
Kerry Bradley understands that you are looking to work with an approachable, adaptable and dependable partner who will look for reasons to say 'Yes' to your proposals. That’s why in uncertain times our book stays open. • Responsive decisions at attractive rates • Flexible funding tailored to individual needs • Loans from the everyday to the extraordinary Kerry is one of UTB's Business Development Managers just one of our growing team of Bridging specialists working closely with broker partners across the UK to help them deliver flexible short term loans. T: 020 3862 1002 E: bridging@utbank.co.uk
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