Last week we were delighted to host our inaugural Sirius Charity Golf Day where we raised an amazing £10k for SANE: The mental health charity.
A huge thank you to all our sponsors:
Hampshire Trust Bank
United Trust Bank
The Mortgage Lender
UK house prices rose by 13.4% in the year to June, the fastest pace of increase for 17 years. This is according to Nationwide and, while its most recent figures show that annual price inflation dropped to 10.5% in July, with the market cooling following the close of the first stamp duty window, it still represents impressive growth, particularly during a pandemic.
As well as rising prices, the number of property transactions has also been strong. In fact, HMRC said seasonally adjusted monthly transactions in June reached 198,240, which is the highest since records began. Both of these factors have clearly been good news for property developers, but the last year has also thrown up its fair share of challenges.
Whilst many construction sites have been able to continue throughout much of the pandemic, in many cases capacity has been reduced as social distancing rules have needed to be observed. Productivity has also been hit by reduced labour as people have been forced to isolate, either as a result of catching Covid, or coming into contact with someone who has tested positive. This is before you even consider the impact of Brexit, which has also reduced the provision of skilled labour. Consequently, getting hold of specialist contractors has proven to be a difficult and often protracted process.
On top of the challenges of labour, sourcing construction materials has also become harder and more expensive. There are a number of reasons for this – Covid has reduced the production and supply of materials and, as time has passed many have become scarce. The incident of a container ship blocking the Suez Canal has also held up the delivery of supplies, and in recent months, the level of constructions has also increased, putting a further drain on resources. The Mineral Products Association has even warned of the likelihood of a short-term shortage of cement, identifying the cause of as the rise in construction leading to record cement demand.
The time taken to source materials often means a delay to construction and so developers have faced a juggling act to ensure they have the right supplies and the correct resource on site at the same time.
Overall, this means that there is a legacy of ‘Covid sites’ that were just beginning, or partially built when the pandemic first struck, and have been thrown off course by the delaying effect of multiple lockdowns and subsequent issues. Many of these sites are nearing completion and face a significantly disrupted exit plan.
Delays during the construction phase of schemes have eaten into the sales phase of the development finance facility. So, for example, where a 24-month facility might typically be 18 months construction and six months sales, many developers are finding that they are only just completing construction at the end of the 24-month period.
Another challenge is that, while the property market has certainly been hot, it was also stimulated by the stamp duty holiday, which no longer presents an incentive to buyers setting out on their first viewing. Finding the right buyers, with stable finances, who are able to secure the mortgage they need to buy a new property can also prove difficult. It’s true that many people have benefitted financially from lockdown if it has reduced their outgoings while income has remained stable, but there are many others whose income has been unstable or reduced due to furlough. And this means that there are many previously viable potential buyers who will not be able to secure a mortgage until their income stabilises.
The combined impact is that many developers are finding themselves at a point where they are now beyond their lender’s LTGDV covenants, which means they cannot easily secure an extension with their current lender.
So, borrowers are left with two options. The first is that they can inject more cash into a deal. The second is that they can restructure the facility, if possible, to extend the sales period (if there are no pre-sales in place). However, this will be at a higher pricing due to the increased risk factor of the higher LTV.
In an effort to combat potential challenges faced by developers, at Sirius we have bee pre-empting issues by keeping in close contact with our clients throughout the duration of their loan lifecycle to understand their current position and where they expect to be in the future. With this information, we can proactively find a solution that gives them more development exit options than they would if they took a more reactive approach and ultimately this means our clients are in a stronger financial position.
At Sirius, we take pride in being able to structure finance packages the suit the changing needs of our clients. In the current environment we find that a lot of developers benefit from splitting their loan so that the bulk of the debt can be serviced at a cheaper rate, while the extra leverage can be secured with private equity houses. This type of approach satisfies the short-term cash flow requirements of developers, enabling them the breathing space they need to sell units and bring down the capital stack before refinancing onto a traditional term loan.
Nicholas Christofi, Managing Director at Sirius Property Finance
Sirius Property Finance is delighted to announce the ‘graduation’ of its first two Academy members, who have both successfully progressed from Case Manager to Associate (Debt Adviser) whilst working at the award-winning London brokerage.
Luke Casey and Christian Artimadis joined the business with no experience in the world of financial services and are the first Academy members to have successfully completed their training and obtained their full CeMAP qualification, enabling them to undertake the Debt Adviser role.
The Sirius Academy and Young Learners Programme ensures that new, ‘young blood’ is continually encouraged into the business and to the sector, making a strong contribution to the creation of a new generation of brokers into financial services.
Following in the footsteps of Luke and Christian, there are successive cohorts of young Academy undergraduates who are currently undertaking their training at Sirius Property Finance and studying for professional qualifications so as to emulate the success of their colleagues.
As part of the Brightstar Financial Group, Sirius Property Finance embraces the ethos of ‘growing your own’ and ‘teachers and learners’ approach to people development, which is pivotal to the Group’s unique and award-winning work culture. Every team member is considered to be engaged in ongoing ‘learning’ and also responsible for ‘teaching’, supporting and nurturing colleagues.
Clare Jupp, Group Director of People Development at The Brightstar Group, said: “The group has a highly successful Young Learners programme in place which offers everything from our Academy, work experience placements, internships and also taster days for young people interested in pursuing careers in financial services. The programme has been hugely successful to date, with subsequent appointments to the team being made from young
people who have undertaken work placements with the business. The programme has also been an excellent way of embracing diversity and inclusion within the business, focusing on encouraging more young people and women into financial services and operating within a work culture that encourages a fantastic range of applicants in terms of all protected characteristics. Working with MT Finance as our sponsor partner, our Greenhouse facility also supports our ‘Growing Our Own’ philosophy.”
Managing Director of Sirius Property Finance, Nicholas Christofi, commented: ”I am immensely proud of the Sirius Academy and what we have built here to create future generations for the industry. Both Luke and Christian are outstanding examples of what can be achieved with the right attitude, hard work and the outstanding support of our Academy. I would like to congratulate them for their achievement but also to thank our brilliant Sirius Team, whose contributions to the training of our Academy Undergraduates is key to its success. By sharing their expertise, knowledge and experience, we have been able to create brokers for the future and to inject new blood into the industry as a whole.”
The Brightstar Group remains the crowned champion as ‘The Sunday Times Best Small Company to Work For’, being identified as having extraordinary levels of workplace engagement and an outstanding people development culture.
What does the care home sector look like for 2021 and beyond?
There were 703 million people aged 65 or over in the world in 2019 and the number of older people is projected to double to £1.5 billion in 2050, according to the United Nations. It is therefore clear that care homes for the elderly will be in high demand to cater for a growing population of people who are living for longer.
Elderly care homes can range in size and speciality, from homes offering palliative care for example, to homes with specialist dementia care facilities, and homes for those requiring elderly residential care. There’s a range of care facilities available for over 65s, including supported living and care villages that provide a community for residents.
It’s been well publicised that care homes have been under significant pressure since March 2020 as a result of the Covid pandemic and many homes have not allowed visitors for more than 12 months in an attempt to safeguard their residents.
The availability of funding for care homes has also tightened, given the risks of a Covid outbreak being high and potentially devasting, especially with High Street lenders. However, with many care home residents now being double vaccinated, the risk of significant outbreaks has been reduced and we have started to see lenders open their doors again to the healthcare sector. During the pandemic, newer lenders such as “Challenger” and “Fintech” Banks have been active, often taking a much more commercial view due to their specialist knowledge and understanding of the sector, as well as working with the British Business Bank (BBA) to deploy CIBLS, BBLS and RLS loans.
Typically, lenders will consider lending around 60%-70% LTV against the Open Market Value of the business on a standalone asset. Interest rates can vary depending on the lender, the type/size of home and the buyers experience. For existing operators looking to expand their care business, there could be several options to maximise lending capabilities.
Experience within the sector has always been key when it comes to securing finance for care homes. However, it’s clear that in this challenging climate, experience and expertise is even more crucial, not only to ensure high quality care is provided to residents but also to give confidence that the welfare of all staff is protected with robust Covid procedures. With rising costs of PPE and an increase in staff costs due to staff needing to self-isolate, care homes have been under a lot of pressure to keep residents safe and well, whilst ensuring their finance position remains sustainable. As soon as a Care Home who are short on staff are forced to use expensive Agency staff, this can cripple a business as this extra cost comes straight off the bottom line.
I have seen a divide within the sector over the past 18 months, with successful care homes continuing to trade strongly, whilst many of those that were struggling prior to March 2020, have sadly ceased trading. This presents an opportunity for those existing operators, with a proven track record of operating homes in a safe and financially responsible way, to expand and develop new sites. There are also opportunities for investors who want to assist existing operators in expanding, often by considering Asset Management angles for example.
I expect to see existing operators refinance over the next 5-years, as committed loan terms come to an end, where some high street lenders decide to no longer support the growing sector and as such have changed their policies and lending guidelines. However, there are numerous alternative lenders and Challenger Banks taking advantage of the opportunity in the sector, offering very commercial rates and terms to support SME’s and their proposed acquisition/expansion plans.
Overall, the elderly care market is a growing sector, with an ever-increasing elderly population who are living longer, fuelling an increasing demand. The Finance Industry is adapting to help savvy investors make the most of this growing opportunity but securing funding on a care home is rarely straight forward. It requires an experienced Debt Advisor that can match the requirements of an investor/operator, with the appetite and criteria of Lenders in a volatile Market. Quite often, the most commercial funding solutions are not obvious, so this is why the expert guidance of a specialist can be invaluable.
According to the CBRE monthly index, capital values increased 1% across all UK commercial property in July 2021.This marked the largest growth in property values since 2014, by comparison July saw rental values rise 0.2% with total returns at 1.4%.
Despite the work-from-home phenomenon, the UK’s office sector saw capital value growth and rental value growth 0.2%. This overall increase was predominantly outside of central London, which saw values remain the same, whilst developments in other areas of the UK saw a rental growth of 0.5% and capital value growth of 0.3% (a significant increase on June’s -0.2%).
Unsurprisingly, retail warehousing saw the biggest rise with a record monthly increase of 2.1%. Retail as a whole, experienced a much-needed rise of capital values of 1.1% although shopping centres specifically dipped 0.3%. Rental values in this subsector also saw a 0.2% decrease. The industrial sector capital value growth was 2.0%, slightly down from the 2.3% in June.
Paul Debney, Senior Associate – Commercial Finance at Sirius, comments; “With the roadmap out of lockdown now underway and the COVID19 vaccination programme continuing to prove very efficient, the commercial property market appears to be entering a period of sustained growth. The end of Brexit uncertainty at the start of the year has also helped, and this has resulted in a rebound in capital values .Offices and industrials, and distribution warehouses and quality multi let industrial estates remain highly sought after, whilst caution still remains within the retail sector, however the opening of non-essential retail in April, and indoor hospitality from May has added significant momentum”.
An evening well spent riverside in the city enjoying cocktails, music and good company.
July saw Sirius welcome some of the property industry’s finest to the Sirius Summer Soirée. The cocktails and riverside breeze provided welcome relief from the 28 degrees heat as property professionals and friends of Sirius gathered for what was for many, the first large scale networking event post pandemic.
The enjoyment of being able to freely mingle with industry peers after so long was evident by the smiles and laughter as many stayed well in to the evening to catch up, enjoy the ambience and the DJ. The evening provided a welcome opportunity to celebrate having made it through what has undoubtably been a turbulent year for all.
Thank you to all that took the time out of their busy schedules to attend.
As the call to repurpose and revitalise the grey space market grows ever louder, I investigate what this means for owners of office centric real estate.
CATERING TO A POST PANDEMIC WORKFORCE
It is safe to say that the grey space market has experienced a shake up in the past year. Whilst many still hold a firm belief that nothing beats face to face teamwork, the majority of businesses seem resigned to the fact that, to stay competitive as an employer, they must continue to provide enhanced work life balance that many employees have now experienced. The most likely route for many businesses will be a hybrid between working from home and the office, which will inevitably mean a reduction in office space lettings. Landlords will be keen to keep hold of corporate tenants, but the savvy will recognise the need to both spread the risk and ensure that the office spaces they bring to the market offer more than just a desk, kitchenette, and bathroom.
LIVE, WORK, PLAY
In the residential market, many customers expect an array of amenities all under one roof, including gym, cinema, cafe, launderette, gardens, and co-working space. This ‘lifestyle’ transition is happening in the commercial sector as well. You only have to look to experience-led retail and vibrant co-working spaces to see this in action in the commercial environment also. I believe that the pandemic has sped up this process significantly. What was once a luxury will now far sooner become an expectation, particularly within offices in prime city centre locations, and landlords need to be ahead of this.
Commercial landlords looking to spread risk are diversifying from offering strictly office spaces to having a diverse mix of tenants and vendors all under one roof. Mixed use diversification usually includes complimentary service offerings to appeal to the work force and create a community centric space, such as well-being zones, fitness studios, events space, food & beverage, beauty salons, art studios and retail. There is a growing trend for spaces that can be converted easily with temporary walls or movable room divides to ensure it can meet different uses depending on the time of day, and an unstable market will ensure that potential tenants will value flexibility. Young companies require spaces with reasonable fit out costs and a space’s ability to act as an incubator for fresh concepts can generate a welcome hype amongst other tenants, as has been demonstrated by the pop-up phenomenon in retail.
ARE SPECIALIST OPERATORS THE KEY?
Caution is advised for landlords when it comes to structuring the operational side when converting office space to mixed use. Fulfilling a landlord/operator hybrid role for a commercial space in which all floors are occupied by office tenants is one thing. Converting the excess office space to appeal to different types of tenants and manage a diverse collection of spaces requires one or more specialist operators. Landlords will do well to recognise the need to invest in outsourcing these specialist skills for a better chance of success.
WHAT DOES THE LENDING LANDSCAPE LOOK LIKE FOR FLUID MIXED USE REAL ESTATE?
A term being bandied about currently is the ‘hotelification’ of office buildings, with enhanced amenities including improved food and beverage offerings alongside members club style amenities. Some landlords may choose to take this a step further and add a residential offering with onsite rooms to rent.
Even if landlords decide to add a residential element, any mixed use or semi-commercial space borrowing will be treated as a commercial mortgage. Lenders will assess the business plan or require a financial forecast of the potential rental returns. As discussed, the office space market has been hard hit by the pandemic so innovative spaces that can accommodate a diverse range of tenants and demonstrate demand aside from just those seeking desk space could prove to be a more appealing lending option in the current market.
BRING IN THE EXPERTS
The current environment presents many potential variables, so it’s important for investors to consult a specialist debt advisor, or commercial mortgage broker, to structure a bespoke debt package whether this be for acquisition, development, refurbishment, conversion or refinancing.
An advisor that understands the mixed-use commercial space will be able to navigate the crowded lending market to find a product to suit the budget and LTV requirements and a lender partner able to give an investor the best chance of making a success of their space, as well as offering greater flexibility further down the line should any issues arise.
There is much opportunity for the acquisition of prime office space currently but to create a viable business, investors are having to be more strategic, consult experts, collaborate, and know their target market better than ever. Whilst we cannot eliminate David Brent-esque characters, the stereotypical dreary grey office so perfectly immortalised in The Office is set to become an endangered species. The office is getting an inspirational, healthy and reenergised makeover to match the modern-day workforce and I am certainly here for it.
Sirius has strengthened its Structured Finance team with the recruitment of Hari Patel
Hari has worked in finance for 31 years with more than a decade of experience in property, including roles at Coreco Specialist Finance and Knight Frank. He joins Sirius as Senior Associate – Structured Finance to assist developers and property investors across various asset classes including residential, mixed use, PRS and senior living.
Nicholas Christofi, Co-Founder at Sirius Property Finance, says: “‘We are continuing to build an unrivalled team at Sirius and I’m delighted that we’ve been able to attract another industry heavy weight. Hari is very well known and respected within the structured finance space, and his skillset and expertise will further enhance a core division of our business.”
Hari Patel, Senior Associate – Structured Finance at Sirius Property Finance, said: “It’s great to join a team with such a fantastic reputation as Sirius and I’m looking forward to leveraging my experience, expertise and professional network to add value to the business and its clients. I’ve developed a reputation for being tenacious with difficult cases and finding a solution where others have failed, and this is an approach that is shared by all of the team at Sirius.”
Last month in England, our pubs and bars finally threw open their doors to welcome us back inside for that much missed pint.
However, Government guidelines remain with punters and landlords asked to adhere to rules including capacity being restricted in line with social distancing and table service only.
In view of the new “rules” some establishments continue to struggle, especially those with smaller premises. Will they re-open at all? There has been talk of only two in five pubs opening. Near the Sirius Property Finance office in the City of London, you cannot help but feel saddened when at 1:30pm on Friday lunchtime you walk past, once thriving, pubs whose doors remain shut, lights off and stools stacked.
Some publicans have benefitted from Bounce-back Loans (BBL’s) and CIBLS Loans, as well as the Government’s Furlough Scheme. Whilst this support has been welcomed and benefitted many, is it enough? Some operators have adapted and introduced a takeaway service which has been a huge success and is likely to remain a permanent feature. Some, situated outside of residential areas, are less able to capitalise on this.
One problem facing many pub and bar owners is that whilst some support has been available, most High Street Banks have amended their lending policies to more conservative levels and others have pulled out of the market all together.
However, it is not all “doom and gloom”. At Sirius we have been busy supporting our clients by finding commercial solutions to assist experienced operators to purchase new businesses, or refinance to release equity for capital expenditure or expansion. Where the High Street may have lost its appetite to support the Licensed Leisure Sector, there are alternative lenders and Challenger Banks who remain consistently supportive and will be more willing to take a flexible approach on lending to viable businesses and borrowers. Many are focussing on “pre-COVID” trading figures to access debt serviceability and in principle, are lending on average up to 65% loan to value (against the Freehold going concern value).
With several pubs closing, opportunities are created and whilst some will be snapped up by developers for conversions, I would like to think that many will be acquired by seasoned operators looking to expand or embark on a new venture to meet the pent-up demand. This has led to many asking us the question – can you get finance to purchase a closed pub? We have access to lenders who, if the proposal makes sense, will support such a purchase, again with debt of around 65% of the property value. Often interest can be ‘rolled up’ providing an ideal short-term steppingstone until the business is open, trading and generating sufficient cashflow to support a Term Loan over approximately 15-20 years.
Post-pandemic, the lending landscape for pub financing has never been more of a minefield thus partnering with a real estate finance brokerage who have strong relationships with specialist lenders and who genuinely understand the niche sector is proving invaluable.
Landlords, front of house, chefs, bartender, and cleaners alike are all working overtime and need your support more than ever to make the effort worthwhile. A recent study has estimated that every adult in Britain needs to consume approximately 124 pints of beer (or 976 packs of crisps) to save our pub industry following the pandemic. If ever there was an excuse to get down to your local establishment, this is it.
Chris Field, Head of Care and Hospitality, Sirius Property Finance
In light of mental health awareness week and the continued effects of the pandemic being prevalent, mental health is in the spotlight more than ever before. The Centre for Medical Health has estimated that an additional 500,000 people will require support for their mental health in the next two years. From a real estate perspective, this inevitably leads to increased demand for residential facilities to provide care and respite to those in need of further support.
A Learning Disability (LD) or Mental Health (MH) Home is a residential care home that provides personal care and accommodation for adults with Learning Difficulties and/or Mental Health conditions. These types of homes are classed as “specialist care” and there is often a range of care provided depending on the residents’ individual needs. Some residents might require minimal care, such as basic personal help and accommodation, whereas another resident may require more constant/involved and as such is best suited to a care facility which offers 24-hour support. This level of care promotes a long-term residency, with the tenants considering the property as their home. Therefore, placing increased importance on an owner’s ability to keep the asset stable and provide continuity in housing potentially vulnerable adults.
The continued growth of LD and MH presents an appealing investment sector for lenders including some of the high street banks. However, lender’s criteria have tightened up over the past year with CQC rated ‘Good’ homes being sought after and, often, a must have criteria for these mainstream lenders. Homes with a ‘requires improvement’ or ‘inadequate’ rating will be considered by more specialist and niche lenders but due to the complexity of the facilities, they will usually expect the borrower to be an experienced operator with a successful track record of turning around said homes. It is important to work closely with experienced Sector Specialists within the banks, who genuinely understand the market to achieve the most competitive loan terms.
There is currently a shortage of beds in MH homes and high demand where many boroughs are under-serviced. The workforce has had little growth over the past 10 years (BMA Report) and the number of mental health cases continue to rise, with 1 in 4 people said to experience mental health problems of some kind each year in England (Mind Charity). Therefore, this type of asset class can often meet a lenders’ social responsibility targets as these homes are a valuable addition to communities and can provide crucial housing for vulnerable adults.
Regarding the availability of finance for potential borrowers in this sector, Lenders are typically looking at 60%-70% Loan to Value against the Open Market Value of the business as a standalone asset. For an existing operator looking to expand their care home business, there could be several avenues open to help maximise their lending ability.
So, what does 2021 look like for this sector? We are expecting to see several operators looking to refinance over the next year and expand their portfolio to meet both existing and anticipated demand. The sector is understandably likely to attract investors given that there is much opportunity here however, they will find that there are often significant barriers to entry due to the high regulatory requirements associated with the Sector. To stand a better chance of entering the market, investors would be wise to identify and onboard a credible and experienced care operator, to ensure that they are able to deliver the high standard of service warranted.