Positivity on the horizon: Henray Capital’s March 2024 Round-Up

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Jenna O'Sullivan - Director // 29/03/2024 // 0 Comments

March 2024 Specialist Finance Market Overview

There’s been plenty of optimism in our market this month, inflation overshot forecasts which in turn had a positive effect on SWAP rates, the 5 year SWAPs are now predicted to stay below 5% into the foreseeable future until inflation falls further and BOE rates decrease. For the first time since September 2021 no members of the MPC voted for a BOE base rate increase and the 5.25% has been maintained. We’ve also started to see the rates on bank savings accounts reduce, signifying yet again a BOE base rate reduction is on the horizon.

This optimism has carried through to developments we have reviewed this month. The consensus with many of our developers is that construction costs and labour costs have stabilised and availability of materials back to normal levels. The concern which is voiced on a regular basis by all our developers however is the lack of improvement to our planning system. Consents are down by over 20% in comparison to last year. It’s a topic which is gaining traction in government, however most feel this is going to be a policy tool to win votes rather than actual improvements to our slow and costly system that developers currently have to navigate.

This month the consultation on the Future Homes Standards comes to a close and I was fortunate enough to attend an event where we had a lively panel debate between government representatives (Conservative and Labour) and also developers looking to implement decarbonisation solutions. The general consensus was that this is a good thing to be implementing, however the practicalities around actually building net zero and ensuring new homes built in this way are still affordable and insurable was a consistent concern. A large proportion of the audience was made up of planning consultants and developers all of whom raised the one overarching issue; the planning system itself. In summary the key points were that the framework needs to be fit for purpose and stand the test of time, the value of the builds needs to be correctly priced from a build perspective but also end product (they should be worth more), and planning in general needs to be improved and ensure schemes where net zero is being achieved are consented as a traditional build would be.

From a funding perspective our development facilities of 75% LTGDV and 90% LTC have maintained their rates and fees however there have been benefits established for builds which are focused on ESG initiatives, net zero builds and also EPC A rated end products. These facilities offer significant savings on fees when completed. We have a new product offered at 65% LTGDV at sub 10% which only falls inline with the optimism on the horizon for all rates. Our most competitive partner on bridging is at 70% LTV gross plus light refurb costs if applicable at a rate of 0.82% PM 1% fees, making the offering very attractive.

 

Henray Capital deal review

We are awaiting reports back on three deals currently and to ensure our developers have been supported in the best way possible Henray Capital has provided thorough comparable evidence to supply to the surveyors along with local agent commentary. It’s important we manage the borrower expectation on values yet also provide a well packaged project to the lenders and surveyors.

PG concerns

One client came to us with a serviced accommodation block, he had 2 other shareholders on the SPV with him who are investors only and did not wish to sign PGs for the final stage of refurbishment on the commercial units. He had tried his usual funders however they demanded all shareholders over 25% must sign the PG. We packaged this up and sent it to our trusted lender who we knew would be able to take a view on this and provided terms within 24 hours. The client is progressing the deal and we are due to instruct professionals in the next few days.

JV options

A client who has been waiting on planning, for some years, finally had consent granted, subject to many pre-commencement conditions however he can now start the process of securing funding. The scheme is profitable and well phased and the developer has contributed a fair amount to the site in planning and professional fees. After review Henray Capital raised a concern relating to the contractor. For a site of that magnitude a tier one contractor was going to be required to secure funding. There was also going to be a potential shortfall on day 1 to repay the current debt associated with the site.

As such Henray Capital proposed a structure incorporating senior funding at 65% LTGDV, 10.5%PA 2% fees plus an introduction to a tier one contractor on a JV basis 70/30 in the borrowers favour with them injecting the cash required to redeem current debt. We have instructed surveyors to enable us to finalise agreements. This project will take some months to come to fruition however all parties are on the same page and want to start on site in the summer with infrastructure across all 3 phases.

Summary

It’s definitely been a positive month for Henray Capital. The deals we’ve been pushing through are now all with professionals and we have spent the time to ensure they are presented in the best way to the correct funders and not go out to all of the market and dilute a good project. The new deals coming through seem to be improving in standard mainly due to the fact the borrowers we’re working with were high street customers however they are now looking for higher leverages to retain cash.

 

As we close Q1 of 2024 we’re excited to be working with new and existing borrowers and as always happy to jump on a call or meet for a coffee to discuss your funding requirements, comments are always welcome. Contact [email protected] or call +44 (0) 20 3814 9499

About the Author Jenna O'Sullivan - Director

Director of Henray Capital

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