W. Coleman & Co

W. Coleman & Co
Private and Structured Finance

23/07/19
21:34:03 BST

The Realist’s View from the Armchair – November 2017

Playing the waiting game… but for how long?

A year ago, we reported on the necessity to create optionality when marketing the sale of property. In a market that shows diminished activity with a distinct lack of urgency, today’s common thread is the need to buy time.

As proven time and time again, there are opportunities in all phases of an economic cycle and it will be the strategically smart and active who shall reap rewards in these uncertain times.

Financial Recycling

As a consequence of this lack of urgency, we see property deals trying to be recycled. That is to mean, circumstances amended to try and suit the changed market. The problem is that these deals, upon careful analysis, are often fraught with misrepresentation of circumstances, creating an unrealistic proposition that is simply on the proverbial ‘road to nowhere’.

An uncertain market environment leaves little room for further mistakes, especially when you strive to achieve some form of financial reprieve. To ensure you have the stability of a financial solution, it’s key to understand that all perceived elements of risk have been considered. This often means approaching life on the front foot as oppose to harbouring issues with the pretence that they may be overlooked, or that indeed you will discover a panacea to resolve them all.

When the time comes

The benefit of the post-credit crisis market is that we have a wider availability of lending solutions, some of which provide varying nuances though many chase the same market. Analysis is ever more important today to these dynamic lenders underwriting risk. There is a fine line between a project that appears profitable and one that has had skillful analysis applied, carefully considered alongside an intimate knowledge of the market sector. Under such consideration the numbers can paint a very different picture.

Given the high cost of capital for many alternative lenders, the subsequent cost of debt for borrowers can be high. To achieve the required levels of return on capital, lenders work on a risk-weighted reward return model. In some instances lenders seem to have forgotten this as they appear to request the same levels of information that mainstream lenders required pre Global Crisis, even though for an inflated return that is not necessarily reflective of the risk.

Dynamic partners

Today’s alternative lending market is dynamic, with varying nuances creating an assortment of options that will offer something to suit most circumstances. In contrast to the Prime Central London market, the overall caution expressed by lenders today in this sector demonstrates a tendency to cherry pick locations in Greater London and the Regions. Favouring areas of seemingly attainable values for domestic buyers and hence a fluidity.

The Prime Central London market has been suffering from low activity levels that have not been experienced for some time, but if it were not for the underlying robustness of our market economy, we would ordinarily see more distinct signs of volatility.  This is not to stay that such opportunities, as a consequence of the market environment, do not exist, instead they are limited and often will not always appear obvious.

In a changed market environment it is of course key to the survival of any business that you are not sitting in denial of the transition, however you have clear acceptance of the effects and how you can work with them. Fortune favours the patient and resilient…