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Peer to Peer Lending Comes to the Rescue of Commercial Property

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The property professionals’ journal – Estates Gazette – had one of the most interesting editorial comment pages that I’ve seen for a long time on the 8th June.

“Suddenly, it seems, borrowing has ceased to be a problem.  New lenders are tripping over each other to offer terms, and there could be a lending surplus within 12 months.  But, as with any smoke signal to emerge from a financial institution, pay close attention to the small print.”

Savills says it has identified 52 new lenders entering the UK market in the past 12 months, 47 of them willing to lend on deals of more than £100m.

“Indeed, DTZ now foresees a lending capacity surplus for 2013-14”

The source of these funds will be the institutional players filling some of the void left by the banks.  Insurance companies and pension funds have cash available and DTZ predicted last November that the UK would see £30bn in new real estate lending from insurance firms and funds between 2013 and 2015.    

But then they have a reality check.

“Many – most - of the new lenders ate targeting prime and core property.  And that all but rules out huge swathes of secondary property and assets outside London – don’t forget that 70% of the UK’s outstanding £197.9bn real estate loans are secured against properties outside the capital.  As Savills’ Willian Newson wisely points out: Everybody is chasing the same product.”

Can lenders be persuaded to rediscover, in Newsom’s words, “the joys of the regions and good secondary product"?  Some will, but at a price.

So, in summary, where is property industry going to find the £197.9bn?

As Funding Circle have shown, funds are available in current accounts across the country with savers and investors keen to see a return they can’t get from traditional investments.  The peer to peer lending model is based on a simple premise that a business has a requirement for funds to grow or expand.  So why not borrow from hundreds of small investors than rely on a single bank or institution.  The company gives full disclosure of their accounts and provides security, so the lender has some piece of mind.  The lender is also encouraged by Funding Circle to make sure they build a balanced portfolio, so if one loan goes bad they have others in place.  An approach to risk we assumed our banks followed before 2008.

Relendex  has seen the success of Funding Circle and have launched the first peer to peer lending site for the commercial property sector.  They have a selection of commercial properties  - retail, offices and industrial units.  They outline the value, rental income, terms of lease and grade the perceived level of rick.  The lender registers and deposits a minimum of £5,000 and they can then lend in multiples of a thousand.  This is higher than Funding Circle where investors work in hundreds, which opens it up to a much wider audience.  The Relendex borrowers are looking for sums in the low millions rather than tens of thousands that the businesses in Funding Circle require.

Lendinvets are approaching the same space with their peer to peer lending site for commercial real estate.  There is similar full disclosure but on a much less sophisticated platform.  You are given the information and then invited to contact the platform when they will give additional information and facilitate any transactions.

As someone with extensive experience in property it’s clear that there are some fundamentals that make the Relendex and Lend Invest offerings attractive.  You can clearly see not only what you are lending is secured against but also where your interest payments are going to come from.  Unlike most businesses a well let commercial property has a steady predictable income stream, and not many businesses can boast that. 

The other attractive aspect of their offering is the position they have taken in the commercial property landscape.  Investors wanting to invest in commercial property can invest in a REIT, where the investor has to rely on a rising property market or exceptional asset management to see a positive liquid return.  The other option open to investors are development schemes which rely on a final sale of the properties for a return. Crowd Baron is offering investments of this type.  Offering investments of £5,000 + on development schemes in high profile London locations.  They are based in Singapore and the crowd mention in their name is arguably a marketing play rather than fully embracing the crowd funding movement, which the lending sites are currently doing.

What Relendex and Landinvest are doing along side companies such as Growth Funders is giving small investors the opportunity to do what pension funds and insurance firms have been doing for a long time - profiting from commercial real estate.  In our opinion - if it’s a good enough asset class for them, it’s good enough for the rest of us.  And let's be honest – if the banks hadn’t run out of money they would still be doing it!

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Sapphire Capital Partners LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. 

We assist our clients obtain finance via Seed EIS, EIS, onshore and offshore funds and preparing for an AIM or CISX listing. We focus on the real estate and renewable energy sectors and have a particular interest in crowdfunding and peer to peer lending. 

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  Michael McDowell 
 
 
 

Written by Michael McDowell 

Micheal focuses on all things crowdfunding - he is a wealth of knowledge on this subject and is happy to give to advice to anyone interested! Contact him by email at michael@sapphirecapitalpartners.co.uk or view his profile here

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