This Lender Saw A Spike In Loan Applications, As Developers Seek More Time To Sell Luxury Homes

The London luxury apartment market continues to slow, hit by a perfect storm of increased taxes and Brexit-wary buyers. So developers are turning to a type of loan that buys them more time to sell new homes without having to accept a steep discount.

CapitalRise, a crowdfunding platform that specialises in prime Central London residential development, said it saw a big increase in applications for sales period loans in the final quarter of last year, with 20% of enquiries relating to this kind of debt.

Sales period loans are a type of bridge loan, where a development loan with a high-interest rate that is coming close to maturity is refinanced with new debt, typically of 12 to 18 months, to give developers more time to sell completed homes.

“Developers typically take development loans expecting to build and sell the property within a certain time frame,” CapitalRise Chief Executive Uma Rajah told Bisnow. “If this takes longer than planned, they can find themselves in a stressful situation where they are under pressure from their lender to accept the next offer that comes through the door as long as it covers the monies owed by them. But the borrower wants to try to achieve the best sales price in order to maximise their profit on the project. So often they just want more time than their current lender is prepared to give them.

“It therefore makes sense for many developers at this point in their project  to refinance onto a sales period loan, which reduces their financing cost as the project is significantly de-risked, but more importantly gives them more time to try to achieve the best sales price they can and get the best return on all the effort, time and money they have invested in the project.”

CapitalRise was set up two years ago by the founders of luxury residential developer Finchatton. It crowdsources capital from individual investors, who can make investments of £1K and up. It has lent more than £16M against assets valued at £220M, and last year it saw lending volumes almost triple. It lends up to 75% loan to value and provides senior and mezzanine debt.

Rajah said there was a gap in the market for the company because traditional banks remained wary of the high-end residential development sector.

“Traditional lenders are finding it is not economically viable to lend to this sector because of the high capital charge they have to take [to insure against potential future losses]”, she said. “That means development finance is hard to find, and developers with access to good projects are frustrated.”

She said that in spite of the current slowdown, the firm is confident in the prospects for the prime Central London market.

“If you look at the historical data about what happens to prime Central London in a downturn, it is more resilient than other parts of London and the UK, and bounces back faster. The buyers and sellers in this market have a lot of liquid wealth.”