Dorothée Queyroux and James Thomlinson
Voltaire Financial is distinguished by its successful execution of property transactions throughout the UK and Europe and focuses on arranging finance for property investors and developers across all asset classes.
FAQ 1: How have you found the lending market over the past 6 months? Has your role and position within a given transaction as a broker evolved and how do you see the role going forward?
Dorothée Queyroux: I am cautiously of the opinion that the lending market has improved slightly during the past 6 months. I say this with regard to the options available to borrowers. As we all know the lenders have offered lower gearing levels since the downturn hit. Many property developers and investors are left with a shortfall between the debt available and their equity resources. As a consequence the mezzanine and partner equity markets have become much more active. Our aim at Voltaire is ultimately to be treated as a 'one stop shop' for our clients' real estate finance needs. With more than one lender taking part in a transaction's capital structure our involvement results in a more coordinated approach to the execution.
James Thomlinson: One of the things we've always tried to do but have certainly found ourselves doing more of recently is to try to go beyond our core offering. Arranging property finance will continue to be at the heart of our business but increasingly often we identify opportunities to introduce alternative parties to our clients where value can be added to a subject transaction. During the last 6 months we have introduced JV partners, law firms, valuers, hotel operators, and even potential purchasers. I see this being as important as ever going forward as our property investor and developer clients explore creative ways to structure deals.
FAQ 2: What type of deals are you currently executing? What are the most common challenges you face?
DQ: We have seen a greater variety of deal types during 2012. We have also observed much more activity in the commercial office and retail sector; particularly the increasingly sought-after Central London office to residential conversion space. Having said that; the bulk of our executions this year have been in the high-end residential development and investment field. I've been pleased with the creative structures we have been able to utilise to provide our customers with the required combination of gearing and pricing, depending as ever on their priorities and circumstances.
JT: In many cases, the process of taking a transaction from start to finish is lengthier than ever. This is a key challenge to borrowers wishing to acquire a property quickly and we believe as a result we have seen a number of completions take place out of equity resources with subsequent requirements for refinance feeding through. There are two fundamental tasks which can be undertaken to speed up the process considerably:
- Take professional advice on the headline figures when:
- Generating the feasibility in the case of development requirements (a quantity surveyor to comment on construction and professional fees/ a chartered surveyor to comment on re-sale assumptions).
- Running cash flows in the case of investment requirements (agency commentary on re-lettability and market demand; chartered surveyor to comment on yields and investment value).
- Involve legal representatives from an early stage to bottom out any issues or quirky aspects to the security which could cause delays or possibly even deal-breakers at a more mature stage in the transaction.
These steps naturally allow lenders to build their credit applications and approach credit committee without the need to come back for swathes of additional information.
FAQ 3: To what extent do you think it makes sense for borrowers to source real estate funding via brokers in this uncertain market?
JT: It has never been more important to approach the most appropriate source of finance with a borrowing requirement than in the current market. With change seemingly being the only constant just now it is extremely difficult and not least time-consuming for borrowers to maintain the necessary number of different lender relationships to find the best lending home for a new transaction. This is especially true when the borrowing requirement is not entirely straightforward.
One of the key areas where borrowers seek our assistance is where a scheme of theirs is what the industry labels 'distressed'. These scenarios take a number of forms. A typical example would be a development site which is part-completed and where a fall in the value of the site has led to the borrower being in breach of the facility agreement's LTV covenant. In some circumstances the lender is prepared to be flexible; in unfortunate circumstances they are not. Where the latter is the case it is often necessary to introduce fresh funds into the transaction in order to facilitate construction work (and debt drawdowns) resuming. Where the borrower lacks sufficient liquidity to inject these funds out of cash resources Voltaire is able to arrange a unique facility which can be injected in a manner which can suit at once themselves via the opportunity to earn a fair return, the incumbent lender who is able to get comforatble that the scheme is satisfactorily back on track, and the borrower who once again has their development profit in sight and their track record intact.
FAQ 4: In the residential development sector there appear to be an increased number of active short term lenders and a decreased number of active high street lenders. Would you agree? Does this result in available lending being more expensive on the whole?
JT: Yes I would agree with that trend. It's a fair statement however it doesn't necessarily mean the cost of funding must increase. There is a widespread misconception that since the number of truly active 'traditional' lenders has fallen the only borrowing available for real estate transactions of all different types is short term: i.e. expensive. This is not the case. I think the first thing to point out is that short term lending can be an extremely useful tool when utilised efficiently. However whilst the number of short term lenders has increased - including those who call themselves development lenders - and the number of high street lenders has decreased there are still reasonably-priced options available. First, there are still high street lenders and specialist development lenders that are prepared to lend. Their criteria have typically tightened somewhat but many still have lending targets and in some cases the cost of their funding has actually come down. Second, a number of new lenders have launched into the market offering specialist products aimed at meeting the gearing, pricing, and flexibility requirements of the typical experienced developer.
DQ: As James says short term lending can be useful. We have arranged a number of bridging facilities during the last year and continue to do so where the transaction calls for it. As an example we regularly place short term facilities with bridging lenders where a development site has been identified by a developer customer of ours which does not yet have detailed planning permission for the intended scheme. Even where the customer has sufficient equity resources to acquire the property without borrowing it can often still make sense to make use of a 'bridge' to improve their return on equity ratio where the required loan period can be accurately predicted. Through our close relationships with certain individuals at lending institutions we have been able to offer our clients extremely attractive margins on both development and investment requirements.
FAQ 5: What is your plan for Voltaire going forward? Are you planning to grow the team?
DQ: Our plan is to grow the team organically. Many of the structures we put in place for our clients involve varied relationships with different parties within the capital structure and therefore teamwork at Voltaire. We are always on the lookout for new experienced professionals to join us to enhance our team.
In addition to the full-time team we are keen to build new alliances with other professional firms within the industry and create new reciprocal relationships with fellow intermediaries. With regard to alliances we hope to build on our existing relationships with lawyers, agents, accountants, surveyors, and lenders. Numerous opportunities exist to offer complimentary services to a common client base and we have helped many of our clients in this way. With regard to new reciprocal relationships within our industry we see this as crucially important. Voltaire has never tried to do everything! For example we neither arrange regulated owner-occupier mortgages nor foray too far into Europe. We prefer to concentrate on being specialists in our field. This has left the opportunity for us to work with other brokers and we welcome the chance to meet new firms to discuss this further.