Forewarned Is Forearmed

A SynerGIS Partner Piece;

10 years on from the Financial Crisis, SynerGIS spoke with our partners W.Coleman & Co about its effect on today's market. 
 

'The poignancy of the 10 year anniversary of the Global Financial Crisis 2007/08 (“GFC”) continues on. Over the past decade we have regularly reported on the shifting landscape as it relates to our market sector. We further reflect on the convergence of a multitude of factors and the navigation of our new paradigm.

The lending ecosystem has today evolved into one which is in many respects unrecognisable from what was previously known to be the norm.  In 2008 banks accounted for 95% of all lending activity, whereas today non-bank lenders account for 25% of the market (£44.4bn) according to Cass, however we anticipate the true percentage to be somewhat higher. Such a dynamic creates opportunity, but also peril to the uninitiated, as discussed below.

Concurrently, after a decade of growth, Prime London (depending on one’s taste) now bears a resemblance to the all-important froth on one’s morning latte or the famous head on a pint of Guinness. Aficionados of either beverage may bemoan, but that layer must now be shed and re-aligned with the underlying environment of today. Indeed, reports that sales of luxury apartments at the Centre Point development have ceased are yet another example of the chasm between vendor and purchaser.

In response, although resilience in the lending market has been surprisingly strong to date, we now start to hear of instances of distress, perhaps signifying a turning point from lenders “sitting tight” to becoming restless. Recent news that the P2P funder, Lendy, requested assistance from the regulator came in the same week that we received notice of another alternative funder filing for liquidation.

All of this serves as a warning to projects at inception that the key to future success lies in the accuracy of the scheme appraisal, where expectations of cost of debt and estimated sales values must be based on brutal realism. No longer can one expect to be bailed out by the market as was so often the case in yesteryear.

The role of the advisor in such a market fraught with sensitivities cannot be overstated, be it in the subtle re-calibration to presentation in order to ensure a positive outcome, or the preparation of an alternative solution simultaneously so that opportunities are not lost. The latter point being no more apparent than in the current buyer’s market of Prime London, where one’s ability to execute an opportunistic transaction is at times only as strong as one’s certainty and speed of funding.

Equally important in this environment can be the ability to anticipate a lender’s approach to the period of maturity and one’s experience in such matters. No more so was this highlighted than in discussions with a new client, whose profit on their previous luxury development was eroded by their inability to negotiate the refinance of the debt stack and manage the competing interests of all parties. Perversely, certain non-bank lenders may occasionally be the Achilles heel of a product facing a market with subdued demand, despite once being so vital in the re-growth of Prime London Real Estate post-GFC.

Above all, we view that seemingly muted sense of satisfaction through taking action now ultimately being far more gratifying long-term than the potential ache as a result of omission through short-termism. Indeed, a number of solutions have recently been provided to clients via the refinance of significant Prime London developments, allowing a realistic extension to the sales period that would never have been achievable as an extension with the original funders, nor readily available in the market.

Our clients engage our services for these very reasons: to put them on the front foot and to empower them to achieve an optimal position of control in the current climate.'

Wayne Coleman’s career in real estate finance spans 29 years and he established W.Coleman & Co, Private & Structured Finance, in September 2000. Mr.Coleman is known as one of the premier real estate financiers in Prime Central London and since the Global Financial Crisis, has been involved in many think tanks related to the ever emerging 'alternative lending sector’.