For the majority of real estate developers, gone are the days of enjoying first name terms with the bank manager. Since the 2008 crash, tightening regulations have forced many high street banks to loosen their grip on the lending market, letting go of the riskiest loans altogether.


A fragmented market

This has paved the way nicely for a David and Goliath-esque scenario, whereby non-bank lenders enjoy greater flexibility in their loan offerings than the larger, highly-regulated commercial banks. This equates to a healthier appetite for lending, and crucially for developers, the ability to close a deal far quicker.

The rise of STEM (Science, Technology, Engineering, Medicine) businesses has also helped boost the emergence of the non-bank market. Without the restrictions of the time-consuming and costly regulatory reporting required from the banks, alternative lenders can offer bespoke terms with fewer covenants.

Challenger banks, peer-to-peer and specialist lenders have emerged to claim their stake in the UK’s £200bn+ CRE lending market. In 2008, pre-crash, 95% of all commercial real estate lending in the UK was from the banks, whereas according to Bloomberg, by 2017, ‘shadow’ and international banks had swooped in to take a 54% share.


Visibility is king

Opening up the market undoubtedly brings more choice when it comes to commercial property finance, but a lack of visibility also means missed opportunity. By banging on the door of every UK bank on the high street, developers are still only scratching the surface of the overall market. Yet many simply aren’t aware of the myriad of non-bank lenders around, or how to access the key decision makers.

The breadth of the market is far more expansive than the majority of developers perceive. Poor transparency, little or no marketing capability and a subsequent lack of brand awareness mean that credible, non-bank lenders with large and flexible development funds become overlooked.

Whilst experienced developers could perhaps identify five to 10, a mortgage broker will have access to nearer 100, with the necessary expertise to ask the right questions, unearth the most suitable property finance solution, and minimise undue risk.


Better the devil you know

With the economic cycle in its latter stages, and financial uncertainty forecasted for the coming years, minimising risk should be high up on the business agenda. Yet the fragmented market of non-bank lending institutions inevitably brings risk, and navigating it without sufficient knowledge, contacts or expertise can prove a perilous manoeuvre for developers.

If the rate and terms a lender is offering appear too good to be true, they probably are. Especially if the operator has been lending in the real estate arena for a short period of time. The likelihood is they won’t be around after the next economic downturn, leaving development projects hanging in the balance.

To maximise equity efficiency, or for developers looking to mobilise quickly, borrowing from the big UK banks isn’t an option. Yet finding the right alternative in the form of a non-bank lender undoubtedly carries a greater element of risk, alongside the potential of greater returns. Using a broker, and letting us do the due diligence, will not only open up the CRE lending market exponentially, but help mitigate undue risk by filtering out the unreliable entities.

Whilst the market may feel like a minefield, it’s really a case of knowing where to look; be it by yourself, or with the help of an expert.


July 2019