Mixed commercial-residential diversification increasingly popular for landlords – Aldermore
According to Aldermore commercial director John Carter, the lender was seeing a large volume of interest in such measures.
He also noted that redemptions being seen were typically through sales where borrowers were realising the value of their investments.
Speaking on Specialist Lending Solutions Television in association with Aldermore, Carter said:
“There are quite a lot of retail on the high streets where uppers may just be used as storage.
“That then becomes an opportunity to get planning for residential and create what is a mixed commercial-residential loan. That helps diversify the income – we see a lot of that.
“And in terms of redemptions on our book, we don’t see much in terms of refinance, it tends to be sales.
“That says we’ve got borrowers who have successfully done that but then had offers to sell what they’ve created in terms of the investment to someone else.”
Carter added that newer investors should be aware that commercial real estate was not a short-term investment and they must go in with their eyes open and be clear about what they are trying to do.
Hybrid lending options needed as low hanging permitted development fruit taken – Sirius
Speaking on Specialist Lending Solutions Television in association with Aldermore, the broker noted that this was driving investors to become more creative.
Sirius Property Finance founder Robert Collins noted that this creativity was fuelling a need for more flexible and hybrid type products from lenders.
“A lot of our clients have completed a lot of those [permitted development] schemes already,” he said.
“The thought anecdotally is that a lot of the low hanging fruit in the PDR space has been taken.
“So now we’re seeing examples where our clients are identifying properties that maybe held for a year, two years or three years as a commercial investment with a view then to develop.”
He noted borrowers were then finding it difficult to obtain funding for this.
“There’s an area then where we struggle to get the right finance, because it’s not really a commercial loan, it’s not a long-term investment, and it’s not really a development loan because they are not going to develop here and now,” Collins continued.
“So we are sometimes struggling to get the hybrid product to develop those types of schemes.”
Lenders ‘short-sighted’ for not accepting first-time investors – Sirius
Speaking on Specialist Lending Solutions Television in association with Aldermore, Sirius co-founder Robert Collins noted the door was closed for new entrants on many occasions.
“A lot of commercial lenders do rely on other commercial experience,” he said.
“We’ll get well-paid professional people looking to invest into commercial, they haven’t got any other commercial and quite a few avenues are closed to them – which seems to me to be a bit short-sighted for some of the lenders.”
Responding to the concerns, Aldermore Bank commercial director John Carter said it was a fair point, but that Aldermore was open to these clients.
“One of our visions is to help borrowers seek and seize opportunities. That plays nicely into the challenge you’ve just set out, rightly,” Carter said.
“But it is about backing borrowers who are clear in what they are trying to achieve and doing that as well.”
Watch all the videos in our Aldermore commercial finance debate on the Specialist Lending Solutions website.
New entrants must know commercial finance is not about rate-chasing – Coreco
Brokers highlighted that many investors looking to move from buy-to-let into commercial property needed to understand the differences in costs.
Speaking on Specialist Lending Solutions Television in association with Aldermore, Coreco partner for specialist finance Matt Yassin said there was a lot of educating the client regarding cost.
“In the buy-to-let market for mortgages people are generally cost-chasing, rate-chasing, [asking] who’s providing the best rate,” he said.
“When you’re looking at commercial there’s so many variables, you need to understand that cost isn’t so important as long as your bottom line meets your expectations.”
Yassin also noted that moving into commercial finance was more daunting than buy to let and warned failures could leave investors “in a very bad place”.
Sirius Property Finance co-founder Robert Collins echoed Yassin’s concerns and emphasised the importance of understanding the differences in leases and methods of repayment.
Watch all the videos in our Aldermore commercial finance debate on the Specialist Lending Solutions website.
Advisers must ‘be mindful of where lenders see risks’ in short lease, high yield market
The call came as part of a debate on how the commercial property finance market was evolving with the changing economy and underlying lifestyle trends.
The advisers also noted that permitted development conversions of offices to residential were driving growth in shared workspace projects.
Clients know the risks
Speaking on Specialist Lending Solutions Television in association with Aldermore, Sirius Property Finance co-founder Robert Collins said brokers needed to be aware of lender’s risk appetites and market views which could have implications for their other decisions.
“We need to be mindful of where lenders see the risks, and when clients come to us with a proposal, we need to be early in the piece telling them what the finance issues may be,” he said.
Collins explained how one client had been forced to change plans because lenders were not going to be willing to re-finance the property despite holding a strong lease with Boots.
“So it’s really making sure that clients know where the risks are from the lending side,” he continued.
“I’m always conscious that we don’t give tax or investment advice, clients make their decision and then we’ve got to wrap the best financial options around it from there,” he added.
Higher yields, different underwriting
Coreco partner for specialist finance Matt Yassin agreed that lenders were adapting to developments in the economy, lifestyle trends and how leases were changing.
“I think you have to consider the advent of technology in today’s world, the flexibility it provides, and the knock-on effect in regards to commercial property,” he said.
This he noted was coming to the fore with shared working spaces where yields were higher for investors, but the underwriting has to be looked at differently.
“It’s more of a case of how can we match that flexibility which individuals have, from a lending perspective,” he continued.
“You’ve got all sorts of new proposals, places being made for people to share and we need to know how to look at the numbers from a lending perspective.
“That has an impact on the investors, but again it’s down to the brokers and the advice that we give to make sure that’s transparent all the way through to the lender.”
Aldermore: Lenders need to ‘buy in’ to a borrower’s strategy
The lender noted that as the property market changed it needed to buy in to a borrower as there was less security in lease tenures.
Speaking on Specialist Lending Solutions Television in association with Aldermore, Sirius Property Finance co-founder Robert Collins asked what commercial lenders were doing to adapt to more flexible shorter-term leases in the dynamic economy?
Aldermore Bank commercial director John Carter replied that this was where it needed to look at the individual closely.
“Who is the borrower, what’s their strategy?” he said.
“We clearly need to buy in to that and that at the sense of what they are trying to do is right.”
He added that the days of 15- or 20-year leases were largely gone but that with the majority of its book having quite short unexpired lease terms on average, this was something it was used to.
“Some retail in the right location is OK because it’s got good footfall,” Carter continued.
“It’s down to who the users are, who the tenants are.”
And in a word of advice for brokers he added: “When speaking to your clients, let’s be clear about what the issues are and call them out early.”
Sirius Property Finance moves to larger London office
A spokesperson from Sirius told Specialist Lending Solutions that the move is in preparation for increased recruitment in the new year as the plans are to grow the business.
The new office has been secured until 2020 and provides Sirius with a third more desk space.
Sirius Manchester is also upgrading its office facilities to support its growth plans in 2019 and beyond.
Earlier this year, Sirius announced its biggest month to date, completing on loans worth more than £65m, and the business launched a new website and branding.
Robert Collins, director at Sirius Property Finance (pictured), said: “There continues to be a huge amount of demand from property investors who want bespoke solutions for complex lending requirements and, at Sirius, we are going from strength to strength.
He added: “This new office reflects the ambition of our business and we will be recruiting to grow our team in the new year.”
Nicholas Christofi, director at Sirius Property Finance, said: “The new office is a great environment to work and we are looking forward to sharing it with more skilled advisers who share our approach.”
Sirius completes record £65m month
The bespoke brokerage and debt advisory service, which specialises in high-net worth and corporate real estate finance transactions wrote several stand out deals in H1 including a development exit deal for £22m and an acquisition bridge for £11.9m that was structured at 90% loan to cost.
In another deal, a £700,000 commercial loan on a property with no tenant was put together to enable the client to service the debt from personal means until it was let.
Robert Collins, director at Sirius Property Finance, said: “There continues to be a huge amount of demand from property investors who want bespoke solutions for complex lending requirements and our team at Sirius has worked tirelessly to source the best funding options for a range of transactions.”
He added: “Consequently, we have finished the first half of 2018 with a record month, and we enter the second half of the year with a commitment to further build our business while maintaining our consistently high standards of service.”
Sirius was launched by Brightstar Financial in October 2016 and appointed Adele Turton earlier this year to run a new Manchester office and grow the business in the North of England.
Stamp Duty surcharge exclusion lures investors to semi-commercial
A surcharge of 3%, to be levied on all buy-to-let and second home purchases, was introduced on 1 April, but properties with both residential and commercial elements to them will not attract the higher fee.
Findings from a Specialist Lending Solutions poll showed that 75% of respondents have experienced a ‘slight uptick’ in semi-commercial enquiries, while 12.5% said they had seen a definite increase in interest. A further 12.5% reported no change.
Steve Larkin, director of development finance at LendInvest, said he has seen a ‘keen interest’ in semi-commercial deals of late.
“It’s really down to the strong demand for residential properties,” he said.
“Any time there is a chance to turn at least part of an old commercial building into residential property, it’s going to appeal to a developer.”
However, he said brokers and lenders need to consider both sides of the deal.
“Sure, there may be great demand for the residential side, but what about the plans for the commercial property? You want to be confident that there is a local demand for their services too,” he said.
Adrian Dadds, director of St Georges Finance, who deals with semi-commercial finance, said his company had not seen any particular change on levels before or after the Stamp Duty changes, which may a result of investor caution ahead of the EU referendum.
“If anything, I would say in the last week or so enquiries generally have slowed slightly,” he said.
“I wonder if this is as we get closer to the Brexit vote people are getting a little more cautious.”
Robert Collins, director of commercial finance at Brightstar, said there had been an increase in enquiries due to the expansion of the company, but that the Stamp Duty issue has also become a factor.
“Anecdotally, I am having an increasing amount of conversations with buy-to-let landlords asking me about commercial purchases, lending terms and Stamp Duty implications,” said Collins, who specified an interest in shops, pubs and cafes with upper residential units.
“So, at the very least, it seems to be putting investors into a position where they are looking at the possibilities,” he said.
Connect for Intermediaries owner Liz Syms, said that while she hasn’t noticed a specific increase in enquiries for semi-commercial applications, an overall upturn in commercial finance interest has been noted.