Pollen Street Capital manages Honeycomb Investment Trust, a FTSE 250-listed investment trust which was set up in 2015 and aims to be the partner of choice for non-bank lenders.

Honeycomb has found that a sustained shortfall in housing supply has generated significant opportunity in specialist lending to provide bridging and development loans to mid-size borrowers (typically loan sizes of £5m-25m). 

It operates via a senior secured lending strategy and backs lenders and platforms with loans typically secured on portfolios with an average life of two to three years.   

Honeycomb has over 35 different partners across a number of sectors, with approximately a third of its exposure in property loans.   

Over the past five years, the company has lent more than £800m in the property market, generating GDVs of circa £1.5bn. 

The trust currently has five lender partners in the bridging and development sector and revealed to B&C that it will begin working with a further five imminently.  

Howard believes there is a gap in the mid-lending space — which has become more apparent over the past 12 months — yet there is still a need for small, regional bridging and development providers.

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He emphasised that the rise of institutional funding in the bridging market, which generally targets lenders that provide large volumes of business, has left the mid-market with a relative lack of support as a consequence.  

Honeycomb seeks experienced lenders that understand the market, and where it can add value.

“We are also looking for people that have some form of environmental and social impact thought process around what they do — it’s an important component of our investment decisions and that philosophy needs to extend to our lending partners as well,” he said.

When asked how he expects to see the funding model landscape change in bridging, Howard is of the opinion that diversification will continue in the mid-market.

“There are lots of different opportunities and types of properties in bridging, and it’s very hard to fit that into one institutional bucket or type of funding,” he explained. 

“[As a partner], you need to bring to [lenders]  the flexibility that you can look at different types of structure and opportunity, which is what we do with them.  

“I think there will be some lenders that may end up specialising what they do depending on the source of funds they get — which is fine if they’re very good at doing that, but it’s not very good if that’s not where their experience is.” 

He pointed out that an issue with forward flow funding, for example, can result in lenders writing business that fits who they are writing it for. “It starts to convert some of the lending corporations into brokers, effectively,” he said.   

“We tend to want to work with the businesses more,” he added, explaining it aims to develop a product or finance structure together.