Overseas investor

Bridging: 'I cannot see huge levels of overseas investment'




Bridging lenders may have to look closer to home for new funding as a year of uncertainty may dampen foreign investment, a lender has claimed.

Last week, specialist lender Together agreed a £90m structured credit facility with US-based Goldman Sachs Private Capital in order to expand its bridging finance activity.

However, Mike Strange, managing director of Funding 365, has now suggested that economic uncertainty in the wake of the EU referendum could mean the majority of funding will come from UK institutions.

"While there may be a small number of foreign investors who may seek to provide funding to the UK bridging market, I think the majority of senior funding will come from banks that have been established in the UK for some time,” he explained.

“Growth of funding options for bridging lenders is most likely to come from UK-based investment banks who are re-engaging with structured finance models and more generic mortgage funding.

“Given the spectre of Brexit, as well as the backdrop of falling and volatile sterling, I cannot see huge levels of overseas investment into the bridging market in 2017.”

'That will be exacerbated by a potentially smaller bridging market in 2017'

Michael Dean, principal at Avamore Capital, also expressed his doubts regarding overseas funding, stating that foreign investment was likely to remain either unchanged or slightly lower than in 2016.

“We don’t see this as being driven by a lack of appetite – although there are some headwinds, especially driven by proposed changes to the IHT treatment of residential bridging loans – but more because being able to access good deal flow is becoming increasingly challenging if you are not market facing.

“That will be exacerbated by a potentially smaller bridging market in 2017.

“In terms of global investments, UK bridging remains one of the most attractive investment classes anywhere, from a risk-return dynamic.”

Michael attributed this appeal to the transient and short-term nature of bridging loan terms, which enables investors to reallocate capital much sooner than if investing directly.

'The current UK bridging market seems especially attractive'

Residential property
Bridging finance offers investors a chance to reallocate funds more quickly

Despite Mike’s assertions, Rod Lockhart, managing director of LendInvest Capital, suggested that Together’s deal was reflective of strong overseas interest in the UK bridging market.

Rod revealed that LendInvest’s Real Estate Opportunity Fund – which offers investors the chance to capitalise on lending opportunities in the UK real estate market – had doubled in size during 2016, with more than 58% of capital coming from international sources.

“From a company perspective, the current UK bridging market seems especially attractive to foreign investors,” he explained.

“2017 has also started well, with January being the second highest ever monthly inflow into our fund and the majority of investment for the month coming from international investors.

“We expect strong inflows over the rest of the year with particular interest being shown from both private and institutional investors alike, driven by a search for income-generating strategies with strong downside protection.”

'A mountain of global capital waiting to be invested'

Year ahead
How will the bridging sector fare in 2017?

Rod’s optimism was shared by Bob Sturges, head of PR & communications at Fortwell Capital, who also predicted a bright future for the bridging sector.

"For a range of reasons, but not least because of reduced engagement by big institutional players, we believe that 2017 will see specialist alternative lenders consolidate their position in the sector – particularly in the short-term property funding market.

"This will not be lost on domestic and overseas investors seeking reliable and higher returns on their capital.

"With a mountain of global capital waiting to be invested, it should come as no great surprise that some of it will find its way into the UK's successful bridging and property development markets.”

Regardless of where it originated, Mike conceded that lenders did not currently appear to be short of investment.

“Relatively cheap senior funding is now also being supported by significant investment fund demand for mezzanine and equity investment in the bridging space.

“It would seem that funding has never been more plentiful for the bridging sector than is currently the case."

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