Julian King

An interview with Julian King: 'Competition is the reason that leverage is increasing while rates are falling'




In an interview with Bridging & Commercial, Julian King, asset finance adviser for structured finance at Arc & Co (pictured above), discusses the key elements of a bridging deal, the introduction of technology within the lending process, and what's currently missing in the short-term finance market.

What can make or break a loan deal? 

Information and knowing your client are key. Also, building implicit trust between the broker/adviser and the client, so that the they can be well positioned early on in a loan. Trust facilitates open lines of communication, and this can encourage a client to tell you as much as possible, rather than holding back a piece of information that impacts the loan or stops it from going ahead.
 
What are the biggest concerns for the bridging market at the moment?
 
Competition, mainly. Although it is healthy for the most part, I’d say competition is the reason that leverage is increasing, while rates are falling. This is fine while the market supports it, but you always have to ask yourself, as a client, “How am I going to exit?” If the market softens and the asset value decreases, then highly leveraged loans become even more leveraged until something implodes. It also raises the question of whether lenders are undertaking sufficient due diligence.
 
Another concern is that legacy loan books, which comprise loans that were underwritten in 2018/19, are now rolling on. Although, the increased confidence in the market means that more lenders are lending, and this will of course help.
 
Finally, there will be some concern with those bridging loans that have terms which go over the Jan 2021 Brexit date.
 
How do you feel about the introduction of technology in the bridging lending process?

The industry is now using smart-search technology for KYC and passport checks, as well as DocuSign for signing important documents digitally. I think this is a good thing as it will speed up the process of verification and allow a deal to progress without manual delay. To counteract this, the underwriting process still has to be bespoke and, for me, the advisory piece — between the adviser and lender — should remain in the control of the humans.
 
Do you feel there is something missing in the industry that could improve the bridging market? 

Transparency is important, together with compliance. The bridging market has become hugely overpopulated and knowing which lenders to work with can be a difficult process, particularly for the client.
 
Bridging is an area that involves a lot of unregulated lending. I feel that bridging lenders should adhere to more codes of conducts to ensure responsible lending.
 
How did you get into the industry?
 
I studied for a degree in real estate at Oxford Brookes University and then moved to London for work, followed by Birmingham to work for a property developer during the recession. I got involved in all aspects of property and development which gave me a really good grounding in some of the worst market conditions. I think of myself as fortunate to have experienced land buying, development management and asset management in these times and, now, when I am working with my developer clients, I find myself asking questions that others may not consider — particularly around cashflow, market exposure, sales rates and how this affects funding and deal structure. Often when I’m arranging debt for my clients, I’m using this experience to better structure the deal and/or the funding surrounding it.
 
If you didn’t work in finance, what would you be doing? 

I love the world of development and I love working with my clients, which sees me getting involved with lots of different building types. I really enjoy working with clients on more bespoke or unusual developments that will enhance the built environment. That said, I have a passion for the sea, so I’d probably be working on a superyacht sailing around the world (although, I’m not sure my wife would agree with this). Or, I’d be working on a farm driving tractors and harvesting my crops.

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