Alternative Lenders in Investment FinancePosted on: 21 February, 2020
Monument Real Estate (‘Monument’) has been supporting a London based fund on the re-finance of their retail warehouse investment. We started to advise the investor back in Q4 2019 and have managed to identify a range of senior debt finance offers that fit the investor’s objectives.
The investor decided to review options with alternative lenders during 2019 who could finance the senior debt at a similar level to their existing loan. Their investment had been funded for over 7 years by one of the mainstream banks but, given the market’s bearish view the retail sector, it was no longer considered core by the bank. As a result, the existing bank was seeking either a significant reduction in the loan balance to secure a new loan term or a re-finance away from the bank.
The picture of mainstream banks retreating from certain sectors and assets is a familiar one in the current commercial property climate. Mainstream banks are more cautious than before against certain asset classes; the result is lower loan to values (‘LTVs’) and increased margins being charged. They will typically lend at LTVs no greater than 55-60% on low-risk, or core, properties that have with lower return and predictable cash flows.
The property finance market has become increasingly fragmented as alternative lenders continue to fill the void left by the departure of mainstream banks. The new entrants into this market is being filled by challenger banks, overseas banks and private equity debt funds. Monument can assist investors and developers in this fragmented market who are looking for debt solutions on their core-plus and value-add properties.
The challenger banks and overseas banks are typically competing in the 55-65% LTV bracket. LTVs are no greater than 65% with margins between 3.50%-5.00% on offer from alternative lenders in this risk level.
Private equity debt funds are generally offering property finance in the 65%+ LTV bracket for “stretched senior” or “whole loan” property debt. These loans historically comprised a combination of senior and mezzanine debt, usually from separate providers, but are now being offered by one lender. The margins will start from 5.50% and will vary dependent on the risk in the investor’s business plan and the leverage required.
Monument’s debt advisory service is built on our growing relationships with the challenger banks, overseas lenders and private equity debts. We have identified a pool of over 80 alternative lenders who provide investment finance and development finance for core-plus and value-add investments and projects.
Monument also provides commercial support in negotiation of the heads of terms, loan documents, financial analysis and cash flow modelling to ensure we our clients complete support and identify the optimum solution.
If you have any requirement for support in property debt finance, then please get in touch with us today.