CoStar Column: Maslow senior debt offer targets the potential of alternative finance

By Ellis Sher - Friday, October 06, 2017 9:15

The development funding market was due a shake-up, but it has taken longer than most would have expected for it to fully transpire, writes Ellis Sher, co-founder and CEO of Maslow Capital.

Ever since the capital constrained times of 2008/09, developers have continually sought newer and more innovative funding solutions from outside the traditional banking channels; a more responsive style of funding that prices for risk across the capital stack including the provision of a senior debt solution.

Due to regulatory capital requirements and the need to satisfy credit rating agencies, deposit taking institutions are constrained in both loan size and the leverage they are able to provide. Non-Bank specialist lenders are not subject to the same restrictions and consequently are becoming an increasingly important part of the property development funding landscape.

The need for change represented an opportunity for companies like ours; with deep sector knowledge, an understanding of the intricacies of property development and a balance sheet to deploy for experienced developers with a pipeline of projects for which traditional funding was slow to complete or hard to secure. And demand is growing.

Recent research from Knight Frank suggests that lending on residential development, particularly in the regions, is set to increase, albeit with lenders predicting a reduction in loan to value levels. This more conservative approach, combined with ongoing strong demand and sluggish supply, means that competitive and responsive funding is not only desirable, but it is increasingly essential if the UK’s housing shortage is to be addressed for the long term.

Our senior debt offer supports this drive and comes at a time when the industry needs a more dynamic approach to development funding. Having an ability to offer developers both senior and stretch senior solutions enables rapid and pragmatic solutions across a broader section of the capital stack, while at the same time appropriately pricing for risk. This combination, in our view, presents a compelling new approach for a wider range of clients, especially developers that are comfortable with lower leverage levels and who wish to benefit from lower pricing as a result.

We believe that alternative lenders stand to add considerable value to clients across the sector and in doing so enabling the delivery of much needed housing stock.

Ellis Sher is co-founder and CEO of Maslow Capital

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