Head of Deal Origination Matt Pigram answers questions from our LinkedIn audience

We would like to thank everyone who took part in Matt Pigram’s social media Q&A on March 17th. It was great to follow your questions as they came in. If you didn’t catch what was discussed, we have you covered with all the questions and answers from the day summarised below.

Borrower vs Project – which would you consider more important to Maslow in order to lend against (i.e. project A – great borrower, loads of cash behind them, the project makes single digits return on capital. Project B – the borrower has little skin in the game, A&L statement has little liquid backup, the project makes 30% return)?

“For me, it would be Borrower, especially now. I think we are heading into an interesting period and we will see what fully unfolds post Brexit and Covid. This is going to throw up a number of challenges for developers and contractors alike and the experience of both is something that is invaluable to the delivery of a scheme in uncertain times. Profit can disappear very quickly in a difficult market, especially where both cost and GDV can come under pressure quickly. The ability to be able to cure for cost or programme overruns is vital in protecting a development and sadly I have seen great schemes fail in the wrong hands.”

Do you think Modular and Prefab builds will move in to the ‘traditional’ build column soon, as we know several large lenders see Mod and Prefab as none traditional and won’t entertain them, even though they are quicker and more cost-effective overall?

“MMC is a tough one generally as much will depend on the specifics of the deal and the requirements of the contractor/manufacturer. Data on MMC in the UK is also in relatively short supply as it is still quite a new concept in comparison to traditional build. The biggest challenge for most Lenders will be the amount of cost that needs to be funded “off-site”, whilst the pods are being manufactured. The risk obviously being that the manufacturer goes bust before the pods arrive on site. There is security that a lender can take to help, such as Vesting Certificates and Off-site Material Bonds, Parent Company Guarantees etc, but these will only secure the position so far. We have also explored project specific working capital facilities and trade credit facilities with the manufacturers with some success which has helped ease the process. My personal opinion is that this is something that the industry (lenders/contractors/developers) need to resolve as MMC is most definitely the way that the construction industry is moving, we need to adapt to ensure we move with it.”

Where have you seen commercial lending rates on office space (assuming strong lease covenant) move to in the last 12 months, and equally, where would you predict they will settle post-pandemic?

Maslow Capital are providers of development finance and as such investment lending isn’t something that we offer, so I wouldn’t want to mis-quote you on rates. Sadly, the office sector has been hit hard by the impact of Covid on work life over the last 12 months and the next few years as we come out of it. Lenders will need to assess each deal on its merits, with greater focus on covenant strength and serviceability now more than ever. In terms of where the market will go, lenders will react, they always do. Their rates and LTVs will reflect how resiliently the market bounces back.”

I would like to understand how you view the senior living rental model vs. the “for sale” model when underwriting? The North American sector is dominated with rental stock and I expect the UK to follow, however with a lack of comparables / valuation metrics in the UK to date, conversations are often more difficult. Would be interested to hear your views on this and also understand where you think Maslow fit in the retirement living sector?

“To date, the schemes that we have backed have been ‘for sale’ with a fairly basic level of care offered. That is something that we have been able to underwrite with confidence as the comparable evidence was more freely available. I agree with you that the retirement living sector in the UK is fairly immature and certainly lags the US as well as Australia and New Zealand. I think there is a huge volume of wealth tied up in large, unsuitable properties, where wealthy owner occupiers are reluctant downsizers. This may change however as the next generation of first-time buyers struggle for deposits and rely upon the “Bank of Mum & Dad” to assist, which would lead to more downsizers generally, as parents sell to raise the capital needed to support their children with their deposits. We have seen some affordable age restricted schemes being presented, with nominations agreements from local authorities, and that is something we are keen to explore.”

With sustainability being a key issue in today’s world, how do ESG criteria impact Maslow Capital’s lending decisions?

“When considering a development opportunity, we have a sustainable lending policy in place which aims to balance traditional lending with environmental, social, and governance-related insights. This includes a commitment to responsible lending, strict counterparty assessment and due diligence to ensure sites adhere to environmental standards, Health & Safety regulations and planning permissions.   As part of Maslow Capital’s assessment of a development opportunity, measurable ESG risks that are identified in due diligence are highlighted within a designated ESG credit paper slide. Here, any potential ESG positive credentials are also considered, such as green initiatives that may be incorporated into the design that offset or reduce carbon emissions, for example – solar panelling, insulation, double glazed windows, efficient boilers, living walls etc.   From a social perspective, I am proud that Maslow is a purpose-driven organisation that is pushing forward with its mission to deliver much needed housing to a market that is experiencing chronic undersupply. To date, we have delivered 12,876 units and supported circa 200 unique SME developers.”

How do you perceive co-living as an asset class following Covid-19? And do you think there will be a return to students choosing HMOs with outside space rather than PBSA?

“Looking at the PBSA question first, based on what we are seeing on the student scheme’s that we are involved in, letting rates have not significantly fallen away, which suggests that there has not been a shift away from PBSA stock.  To a certain degree, this will help the Co-Living sector as many see Co-living and PBSA as being closely related. Their similarity therefore gives an indication that appetite for that style of living will continue to grow. However, co-living as a sector is still in its infancy with data on occupancy rates and stabilisation periods still evolving, additionally the disruption of Covid will not have helped. My view is that over time as Covid has less of an impact, the market will start to return to pre-Covid habits, with some tweaks such as a desire for more outside space which is likely to influence potential occupants and underpin the design of new schemes coming to the market.”

What impact (if any) do you think next month’s changes to Help to Buy will have on the market?

“An interesting and somewhat surprising stat, given that HtB was set up to bridge the gap for FTB’s. You may well be right that there may be some fall away now that the scheme is more focussed, which is a shame. But I’m pleased that it will be helping FTB’s more, especially in the next 12/24 months as I suspect there will be some post Covid turbulence.”


If you would like to reach out to Matt to discuss any of the topics covered above, you can contact him on:

t: 0207 016 1462
m: 0750 060 1163
e: matt.pigram@maslowcapital.com

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