ludo mackenzie

Octopus Real Estate to increase max commercial loan size to £75m later this year

In an interview with Bridging & Commercial, Ludo Mackenzie, head of commercial property at Octopus Real Estate (pictured above), discusses the lender's plans to boost its maximum commercial loan size in the autumn and where it sees potential in the sector this year.

Do you expect Octopus Real Estate’s commercial finance focus to increase in 2020?

We started commercial lending over seven years ago and it has played an increasingly important part of our business. Our maximum loan size is currently circa £40m, but that will increase to £75m in the autumn. The focus for the team this year will be continuing to lend on liquid assets managed by investors and developers with experience and track record. More specifically, we see scope for more land with planning, hotels and, for the first time, more retail. Retail values have fallen dramatically for a number of well-known reasons; however, certain sub-sectors look oversold and we are seeing private equity funds and property companies starting to take advantage of mispricing. We are keen to support those deals.

Would you regard the sourcing of funds as one of the largest tasks for specialist lenders?

Raising competitively priced capital is crucial to the ongoing success of any specialist lender. At Octopus, we are lucky enough to have three sources of discretionary capital: retail, institutional and peer-to-peer — but an important part of our job is continuing to raise capital and deliver consistently good returns.

What trends are you noticing with regard to foreign investment in UK real estate?

Foreign investment has been vital to the health of the UK property market for several decades. The proportion of investment from domestic investors is such that if overseas money withdrew, asset prices would fall significantly.

On our fundraising travels, we repeatedly hear investors say that Brexit has to be resolved before they would invest in the UK. Attitudes improved immediately following the general election and we predict that 2020 will see higher transaction volumes, an increase in overseas investment into the UK, and rising values across most sub-sectors.

In your opinion, are specialist finance providers becoming more mainstream, and do you feel the sector is becoming overcrowded?

Octopus Real Estate was one of the first specialist lenders to emerge from the global financial crisis. We launched our property lending business almost 11 years ago and, in that time, we have seen many lenders come and go. Of the lenders that have stayed the course, there has been a polarisation; a handful have grown in every measure and can lend several hundred million pounds a year. You could call those lenders mainstream, but the distinction between bank and non-bank lenders is still very clear. Both are absolutely necessary for a healthy lending ecosystem. Borrowers benefit from more choice, and lenders benefit from a fluid refinancing market.

How did you get into the industry?

My journey into the property industry started at Oxford Brooks University where I studied Real Estate Management. I then joined the grad scheme at JLL, became a qualified chartered surveyor, and then moved into the fund management arm, LaSalle Investment Management. I left after a decade to run a UK property fund at Henderson Global Investors. In 2009, I left to join three fellow partners and we raised £125m of institutional capital to invest in London and the home counties. There was a tremendous opportunity to make the most of the downturn and acquire commercial assets at historically cheap prices. Having raised and deployed that money, I had a chance meeting with the founder of Dragonfly Property Finance and he invited me to join the business, raise a new fund, and build a commercial lending team. We are currently raising our third fund and we have lent over £1.3bn, with zero loss of capital.  

If you didn’t work in commercial property lending, what would you be doing?

I would play the guitar. If the Edge retired, and Bono called me up, I’d be in U2!

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