Amit Majithia

Number of market participants to exit, predicts lender

In an exclusive interview with Bridging & Commercial, Amit Majithia, principal at Avamore Capital (pictured above), predicted that a number of market participants would exit the specialist finance market in the medium term.

The comment was made following a question from Bridging & Commercial with regard to what long-term effect he though the Covid-19 crisis could have on the sector.

The market has been ripe for consolidation, so we can expect some M&A activity or the poaching of whole teams from vulnerable businesses, as well as purchases of loan books,” he said.

B&C recently caught up with Amit to find out his views on what will contribute to market recovery once the Covid-19 crisis is over. Read the full interview, below.

What, in your opinion, has been the most significant change in the specialist finance industry?

The Covid-19 crisis saw the UK lockdown virtually overnight; despite warnings from other countries, I don’t think anybody was prepared for what we’ve had to face. The specialist finance industry has always been relatively traditional in its approach and has definitely been slower at adopting new technologies compared with other sectors. Restrictions implemented by the government on social distancing means we’ve all had to be really quick to adapt and find ways to work around the situation. 

We have increasingly seen our industry partners embrace and welcome technological change, both in terms of internal operations and deal processes. I expect that this time has demonstrated the long-term cost and time savings of technological investments, and that is a theme that will transcend the Covid crisis.

We have seen that Avamore is still going strong in terms of continuing to lend during the crisis — to what do you owe your success?

Tackling the Covid crisis has been a challenge for everyone in the market — global financial market turbulence and government lockdown interventions have created a temporary supply and demand  shock at the same time. 

Avamore immediately took the decision to have a three-stage approach:

  1. fully support existing customers, both with any practical help that was required, as well ensuring development drawdown requests were funded as quickly as possible to assist with their cashflows
  2. ensure that we had the continued support of our various funding lines and communicate the situation to our broker partners so that they are clear that Avamore is still actively lending 
  3. understand the practical implications of lockdown — valuations, drawdown reports, providing KYC documents, signing finance documents, and receiving independent legal advice, to name a few, and deliver an efficient workaround solution.

We didn’t have any operational issues in the immediate change to working from home as we have always encouraged flexible working by having laptops, mobile phones and cloud-based secure storage. This meant we had the room to immediately assess and implement the above and deliver our message to our clients and broker partners quickly and clearly.

Someone once told me a long time ago that, when the next crisis comes, they would rather be lending than dealing with asset management problems. Avamore has always ensured that it has a safe and resilient loan book, and this has given us the clarity to be outward and forward looking.

Lately, Avamore has expanded its deal origination team — why have you decided to bring more people on board and reshuffle the internal team during this time?

Avamore’s first priority is to ensure that its employees feel safe; both emotionally and financially. They are the people who have built the firm in better times, and we feel it is our responsibility to look after them in difficult times. Avamore has always focussed on safeguarding the business and this means that we were in a good position heading into the crisis and can afford to be aggressive in terms of looking to expand our market share, by ensuring we have the origination and execution capabilities internally.

In the past couple of weeks, we’ve had Adam Butler join the team as a new relationship manager, and he will primarily look after brokers in Berkshire, Buckinghamshire, Oxfordshire, Hampshire and Dorset. Communication with the market that we serve is key, and we’ve had feedback from brokers that open dialogue with lenders is more valuable than ever at the moment. Adam will therefore play an important role in serving our existing broker partners, but also in speaking to others that we haven’t dealt with in the past, but who could benefit from the fact that we are still lending. Relationships that are formed and consolidated now will undoubtedly have a strong future. 

We will further announce another hire of a senior underwriter in the next fortnight.

Since lockdown commenced, we have also signed contracts for further new joiners; two graduates from Reading University will join the credit analysis team from early September, when they will assist in analysing incoming enquiries and managing cases through to underwriting.

In terms of internal moves, the Covid crisis has given us the time to reflect on our business and identify areas where members of the team can take greater responsibility. In the underwriting team, we have been particularly impressed with Philip Gould’s ability to progress transactions, structure deals, resolve due diligence issues, as well as his ability bring the best out of borrowers, brokers and professional advisers. We were therefore very pleased to promote Philip to the role of head of underwriting, where he will take over responsibility for ensuring that deals are completed quickly, efficiently and safely.

I’ve been in charge of underwriting since the early days, as well as being heavily involved in the wider growth of the firm; doing both has been a challenge and, by splitting the roles, it means I can really concentrate on the management of Avamore and its strategic future.

These hires and promotions are a commitment to our clients that we will continue to provide resources to assist them on their journey with us, as well as demonstrating our confidence in the future of Avamore.

What changes has Avamore made as a result of the coronavirus crisis? 

We are absolutely still accepting new applications and making new offers every day. Naturally, the amount of completions is down but this not as a result of a lack of appetite on Avamore’s part to lend — it is a natural consequence of the current market conditions.

We have not taken the same approach as some in solely adopting AVMs, as there are questions around  their reliability — we have rather worked closely with our valuation panel to establish a core team of trusted valuers that are willing to undertake inspected valuations where appropriate and while taking Covid-19 related precautions. A similar approach has been taken with monitoring surveyors, who, by and large, are happy to visit sites, provided they can still comply with government guidelines.

As mentioned above, we have not laid off any staff, nor indeed have we furloughed any. We are fortunate enough to have a strong balance sheet and robust funding lines. We have used this time to deepen relationships with borrowers and brokers, and importantly to implement the internal projects that were in the pipeline, but which took a back seat, given the time constraints of the usual pace of business. 

In your opinion, what one key thing will contribute tremendously to the market recovery once the Covid-19 crisis is over?

The same thing that has historically always underpinned any market recovery is confidence — this will feed into lenders lending, borrowers investing and developing, buyers purchasing finished units and high street banks helping finance those purchases. 

Prior to 2020, the UK economy had spent close to four years trying to gain some clarity around what Brexit would mean and when it would happen. The December 2019 election was a small indication as to how transaction levels would be impacted in the UK property market in a period of economic and political certainty. Indeed, recent figures have suggested that while there was no real ‘Boris Bounce’, real estate transactions still helped to ensure economic performance was not worse than it was.

Notwithstanding that short-lived boost, it has been some time since we’ve seen the benefits of consistent market confidence and, to see significant improvements, we’ll need to witness that sentiment driving the economy forward once again.

Do you find yourself relying more on technology/fintech at the moment?

Absolutely. On a company level, we are a small team and although we have always been office based, we’ve always used laptops, mobiles and secure cloud-based storage systems in order to be able to work independently. Nevertheless, the overnight change to remote working meant that we had to rely on technology more heavily to keep operations moving. Like many, we are now big advocates of Zoom and, there has been increased use in our CRM system to ensure full transparency across the business on each transaction. In addition, we have had the opportunity to review our internal processes and identify areas where we could improve our customers’ journey, and this will include an increased use of technology. We’ve been using the time to investigate a combination of how we can use new bespoke software and well as existing solutions to improve our overall business model. We will be making several announcements about this over the coming weeks.

Since the start of the crisis, we have, on a transactional level, implemented and encouraged the use of technology wherever possible — an example of this is on a recent refurbishment deal where we conducted the borrower meeting and site visit virtually, something which has never been done before and, in a similar way, allowed the borrower to receive its independent legal advice through a video link under Mercury rules. Closing a deal like this for the first time was a challenge but demonstrated what technology can do for us. Of course, there is no real substitute for genuine ‘face time’, but we may see that more points in the processes are replaced with technology in the long term.

What long-term effect do you think this crisis will have on the specialist financial market?

I think we’ll see an understandably conservative approach across the market, initially with determined steps back to a full recovery in line with confidence returning. I think, in the medium term, we can expect a number of market participants exiting the market, either due to the performance of their loan book, operational cashflow difficulties or backers/owners shifting their attention to the direct real estate market. The market has been ripe for consolidation, so we can expect some M&A activity or the poaching of whole teams from vulnerable businesses, as well as purchases of loan books.

We may find that lenders continue to offer more conservative pricing and leverage. This may mean that brokers have to reset developer expectations as to what is truly possible in a post-Covid world. Once valuers can say with more certainty where prices are at for properties, and a good level of liquidity is present in the property market, then leverage and risk appetite can return to historic norms. Only time will tell how long that takes. 

One thing is for certain, many current development and bridging loans will need higher leverage than current ‘temporary products’ are able to offer, and we will be working to address that by finding solutions for customers in the months ahead.

In the long term, I believe that we will return to a relatively similar situation as we had pre-crisis — the fundamentals of the market will not have changed and will support the ecosystem that we all inhabit. Regulatory and capital requirements for banks means that there will be a space for non-bank lenders for some time to come, even if some leave the market, we should expect new market entrants to appear. The two changes that I do think we will endure is that lenders have seen that technology can actually make life easier for everyone and that we don’t all have to be together in one office to make the business work successfully. Simple approaches that might actually transform the entire sector in the long term.

What has been a positive development as a result of the Covid-19 crisis?

For us, the biggest positive has been time. Avamore has been using the opportunity to consolidate market relationships and reflect on our own business operations. We hear from our employees that they get to eat dinner with their children for a change and have used the time they save on travelling to be spent with their families or engage in hobbies and leisure activities. These are undoubtedly positives and we believe that we are going to emerge from this crisis with renewed energy, and that’s a really exciting thought!

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