Short-term financing is here to stay
The Irish property market has shown great resilience in 2021 and its performance gives cause for optimism.
With €5.5 billion invested in the Irish property market in 2021, according to figures from estate agent Savills Ireland and the European Commission’s economic forecast forecasting the Irish economy growing by 14.6% this year , the market recovery is well and truly under way.
This is good news for businesses looking to invest and alongside traditional mortgages and loans, the emergence of short term financiers has started to change the commercial real estate market.
The purpose of short-term financing is to provide a quick injection of cash when needed and, as the name suggests, has shorter repayment periods than traditional loans.
As opportunities may arise that require money, such an option may be useful if the outcome provides a net benefit such as expanded premises, increased income, or the like.
For the industry, this mode of financing is still in its infancy, as new players enter the market and establish themselves in this space.
One of them is Octopus Real Estate, which entered the Irish market in November 2021. The leading specialist property investor and lender has over 15 years of experience behind it and manages £3.4 billion sterling (4.061 billion euros) of real estate assets and secured loans. – with 1.3 billion pounds sterling (1.55 billion euros) devoted to commercial loans.
As part of her initiative, many of the loans she will finance will go towards value-added investments like secondary office space or land with development.
It also achieved Certified B Corporation status in Britain in 2021, a status granted to companies operating to the highest standards of social performance, environmental performance, accountability and transparency. It remains one of 13 investment companies to have achieved this goal.
As the company’s first step in its plans to expand into Europe, it has brought its commercial lending business to Ireland and it is here for the long haul.
“We are not your standard bridge lender, we are a large financial house,” said James Nunn, commercial fund manager for Octopus Real Estate. “We are entering the Irish market seriously and we are here to fully support [businesses].”
“It’s not us who test things or see how it goes, it’s us who fully commit to the country.”
A major selling point for Octopus Real Estate is its extensive due diligence, placing it very early in the lending process.
According to one customer’s organization, credit terms can be provided within a week – Nunn said the fastest loan the company had provided was three days – although on average it tends to be three to four weeks as it includes assessment, red book assessment and full due diligence.
Although rare, the only time a loan may not be approved is if something emerges during the legal process that this client has not yet disclosed.
Either way, the company quickly informs customers whether they were successful or not, allowing them to plan their next move without delay.
There’s a reason repeat business accounts for 60-70% of his loans in Britain, which is a vote of confidence behind his methods.
In Britain, Octopus lends between £4m and £5m (€4.79m to €5.98m) in loans a year in commercial funds alone and, although there are differences between the UK and Irish markets, it will maintain the same speed and diligence for which it is known.
“We are well trained on the process and what is needed to reduce speed,” he said. “We’re a very customer-focused company and over time we’ve done short-term financing, we haven’t had any capital losses and we haven’t had any loans called, which is huge.”
“We have their interest in mind; we will do everything not to ask for a loan because all this only deteriorates the asset, it reduces the value and it removes the responsibility of the person who knows what he is doing.
Along with this, Octopus will lend against the market value of an asset rather than the purchase price. While call options – the process that gives an option holder the right to buy a property at a certain price within a certain time – are not as popular in Ireland as in Britain, their use increases considerably here.
The other part that benefits borrowers is that the funds lent by Octopus are completely discretionary, which means that once a loan is approved, it can move quickly. With loan terms ranging from one to 24 months, it has a maximum LTV of 70% and a rate starting at 0.75% per month.
“It’s our money, we’re not giving it away for anybody else and that’s key,” Nunn said. “A lot of the lenders you see are not discretionary; they must obtain party approval. . . while this is the closed end of the funding, it is entirely raised and managed by Octopus and under our control.
“Everything is done internally; that’s why when we set up the due diligence process and say we can support it, we’re really supporting it.
The other advantage of Octopus is that real estate is just one of the many areas in which it specializes. Some of the areas he covers include energy, renewable energy, and healthcare, and this expertise may overlap.
To give an example, more than £1.3bn (€1.55bn) of the money it manages in property assets and secured lending goes to care homes. Such overlap can help keep due diligence and follow-up organized.
“It’s clean and tidy for borrowers because it stays internal,” he said. “We can easily provide certainty for both ends and provide the expertise in this asset class. For example, the healthcare team is involved in the underwriting, analysis and feedback and understanding of the site from the start, which reduces the likelihood that we will have any hiccups before the end. »
To begin with, the company focuses on five main areas, Greater Dublin, Cork, Waterford, Galway and Limerick. Although these are the general areas, there is room for flexibility.
Nunn said they are there for advice rather than something set in stone. If a client has another location they would like to invest in, their doors are always open to discuss it.
“These are flexible loan terms that we are willing to discuss with any borrower,” he said. “The five towns are indicative, but anywhere in the Republic of Ireland is open to discussion. It’s something we do regularly in the UK and it’s also what we do in Ireland.