The Subplot | Property lending, war for talent, Renaker

THIS WEEK

• Property lending: new lenders, with new rules, could cushion the blow of a recession
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

PEER TO PEER RECESSION

Some things are different this time round

A Warrington-based peer-to-peer property lending business reports boisterous demand, a reminder that the cast of characters has changed since the last recession.

As inflation hits double digits, and yet again overshoots the Bank of England forecast, we can now be pretty sure this is not a blip. But do not despair. The North West property market is in a better place to cope with recession than it was in 2008. On the whole lenders haven’t gone mad; they have hedged loans in less incendiary ways than they used to, and built sensible amounts of sensible stuff. But above all there has been a welcome diversification in property lending sources. If one Warrington peer-to-peer lenders’ experience is any guide, this could be a saving grace.

Small but sensible

Sourced Capital is a special beast. It only lends to property professionals already connected to the franchise arm of Sourced Group. First-half trading involved seven deals amounting to £10.4m funding, ranging from £5m to just £267,000 to fund the conversion of a pub in Heywood. Thus far it has scored 100% repayment of all capital and interest to investors on non-active loans, and none of the current loans are in distress or default.

Non-performing performance

“We already know our customers – who they are, their track record, their capabilities, and we like to get involved very early in a project,” Sourced Capital commercial director Derek Pratt tells Subplot. Pratt never lends above 70% of gross value, and is always the first charge against assets. The key issue is to avoid over-stretch or dreamy optimism. “We are massively keen to ensure a project is within the borrower’s capacity to deliver to a conclusion, because that is the only way this works for everyone.”

Flex space

The upside of this conservative approach is a good deal of wiggle room. “There will always be good deals to do in difficult markets, and bad deals in good markets, and we do not wait for everything to be perfect because if we did we’d never do a deal at all. We don’t have rigid guidelines like the banks, and we would rather back the right deal at 70% loan-to-value than the wrong deal at 50% loan-to-value,” says Pratt.

No surprises

If things get tough, Sourced Capital hopes to know well in advance so variations – a bit of flexibility on repayment timetables, for instance – comes as no surprise to borrower or lender. That way everyone stays on board. “I like to think nothing comes as a surprise to us,” says Pratt. The result is that if the economy turns over more slowly – as it will – lenders like Sourced Capital are unlikely to press the kill-button. “We were OK during Covid – our lenders and borrowers understood,” says Pratt.

And the others

Sourced Capital’s success in squeezing out non-performing loans is not unique. For instance: yesterday ASK Partners announced it had completed £1bn loans in 95 transactions, with no defaults. Counter-cyclical sectors such as student schemes have been part of their underwriting strategy, and their funds come from high net worth individuals and family offices who are not under the crazy spend-now pressure that creates property bubbles and risky loans. ASK has yet to make its North West lending debut, but say it’s not for want of trying, and hope one will come soon.

These are uncertain times: there are no guarantees. But alternative lenders maybe offer a more solid foundation for the survival of the North West property sector during a recession than some might suppose.

ELEVATOR PITCH

Going up, or going down? This week’s movers

Renaker decides to push a new button while the investors behind some of the swankiest office space wonder if the buttons they are pressing are working. Stand clear of the doors.

Renaker moves on

Daren Whitaker’s Renaker has cornered the market in Greater Manchester skyscrapers – plans for the latest 42 storey monster in the Salford cluster were revealed earlier this week. Two more are promised. But times are changing: skyscrapers are big unphasable projects which don’t lend themselves to risk management. There comes a point when market dominance means you’ve already grabbed all the opportunities you reasonably can.

Both are good spurs to diversify from towers to safe-as-houses houses, in the form of Whitaker’s other project, Kellen Homes. This week plans were revealed for 272 homes on a site in Gorton, adding to 168 already in the pipeline in Salford. Kellen Homes benefits from the co-operation of the Greater Manchester Combined Authority, via its Holdco against whom charges were registered in the spring.

War for talent

The theory was simple: city centre office occupiers were engaged in a Hobbesian war of all-against-all in an effort to recruit the most talented staff. One of the key weapons at their disposal was super-cool, hyper-funky, totally on-vibe office space. Few North West offices scored as highly on the bells-and-whistles war-for-talent front than M&G Real Estate’s The Lincoln, 102,000 sq ft of top notch office space within hailing distance of Manchester Town Hall. Yet here we are, more or less a year after the advertised completion date, and office deals there aren’t very visible. The same is true of a clutch of high-spec offices elsewhere in the city, and the same goes for other regional centres and indeed London.

Does this mean the whole war-for-talent premise – the very reason these blocks were developed – is looking shaky? If it is, we’ve some investors with potential headaches coming. Truthfully it is far too early to say, and if the headlines of this week’s labour market data from the Office for National Statistics is your guide, then it’s not an issue: yes unemployment is up a bit, yes the number of vacancies is down a bit, but nothing earth-shattering. However, look closer at vacancies by industry, and focus on the kind of sectors that rent ritzy offices, and you see a slight but significant easing in some cases, holding steady in others (Table 21 if you’re interested – admin and support services are down most sharply). All things being equal, if the heat from the war-for-talent isn’t growing, occupiers are probably not going to risk an expensive office move just now. Meanwhile the talent itself, watching real wages fall, might prefer not to change jobs – better the bird in the hand…? Straws in the wind, of course, but interesting.

Get in touch with David Thame: david.thame@placenorthwest.co.uk

The Subplot is brought to you in association with Oppidan Life.