Development finance in uncertain times
We are in a period of economic uncertainty and the path ahead is unclear with implications for all business sectors. At the forefront, the housing market continues to be in the spotlight; as a development finance company, understanding how the lending environment is changing tops the priority list.
When Maslow Capital was founded, we were in the depths of the financial crisis and we provided funding alongside traditional banks to ensure that developments reached practical completion. Back then, there were many banks that would not or could not provide the necessary funding to complete the projects, even though doing so provided them with the best chance of recovering their capital. In such circumstances, we were able to generate mezzanine returns whilst assuming a senior debt position in the capital stack.
As the crisis eased and liquidity returned, the lending landscape began to normalise. The new normal however bore no resemblance to the pre-financial crisis era. From 2010 onwards, we saw the high-street banks adopting much more traditional lending models, capping gearing levels to 50% on developments whilst the challenger banks flourished with the provision of slightly higher leverage but still well below 60%.
Lenders like Maslow provided whole loan solutions which provided more leverage than the banks and which became known as stretch senior. In 2016, it became evident to us that another shift in our market needed to happen whereby we could provide competitive financing along the lines of the challenger banks. Earlier this year Maslow Capital launched a senior debt product which with our combination of specialist knowledge and competitively priced products, has been well received by the market.
We have recognised that having an ability to price for risk across the capital stack means we can now cater for a variety of borrower requirements, from those that wish to leverage their equity with our stretch senior product to those that wish to benefit from a lower cost of capital by accessing our senior debt product.
Whilst we have become accustomed to uncertainty, we at Maslow remain confident in our view that the shift towards alternative capital is permanent. Supply shortages in the housing market will lead to an ever-growing demand for development finance and the lending sector will continue to grow.