UK property bridging lender Glenhawk has secured additional bank finance to fund its expansion – institutional backing its founder argues is a mark of credibility in today’s volatile property market.
UK lender NatWest Group’s investment banking arm, NatWest Markets, has agreed to provide a £200 million (€229 million) senior funding line to the business. The capital will sit alongside an existing funding line from US lender JPMorgan that was secured in 2020.
“This is committed funding. We don’t take individual loans to NatWest,” said Guy Harrington, Glenhawk’s chief executive and founder.
He added borrowers are seeking signs of reassurance that debt funding will not be at risk of drying up as the economic climate changes. Lenders’ ability to demonstrate how they are funded is influencing their ability to place capital, Harrington explained.
“For the intermediary brokers this is one of the hottest topics today. They all ask, ‘Who is funding you and how are they doing it?’. They want to know if you have the money to do the deal,” he said. “Lenders don’t have to disclose how they are funded themselves – it isn’t open and transparent and, in this respect, borrowers are underserved.
“A warehouse facility is a complex structure to set up, and it is costly. But in our market, there is a lot of concern about commitment of funds, so it is very much worth the investment.”
The London-based lender, which was founded in 2018, will use the capital to help it reach its target of lending £1 billion by 2024 and allow its lending cap to rise from £5 million to £10 million.
The capital will also enable the business to fund a wider range of projects, such as complex refurbishment opportunities, and, for the first time, it will undertake term commercial lending in the form of two-year loans against income-producing assets.
Glenhawk’s loan book has doubled in the last year, commented Harrington, driven by demand for its short-term lending products in the supply-constrained residential space. It achieved three consecutive months of record lending in May, June, and July.
Bridging market expansion
This expansion comes as the UK bridging sector experiences increased demand. Second quarter bridging loan transactions were 10.4 percent higher than in Q2 2021, and up 17.4 percent on the previous quarter, while combined loan books reached a record £6.1 billion, up 22 percent on Q2 2021, according to industry body the Association of Short-Term Lenders.
Harrington, who was a developer before he founded Glenhawk, said the bridging loan market has rapidly evolved alongside a professionalisation of the short-term financing sector, with increasing numbers of institutional lenders now involved.
“I founded Glenhawk out of frustration that the market was treating clients in an underhand way,” Harrington said. “Back then short-term finance was seen by lenders as a loan-to-own product, and they charged silly administration fees and rates as a strategic tool that meant they were likely to be able to take over the property eventually. To me that wasn’t right. I wanted to change that, create a whole financial subsector underpinned with strong ethics.”
Demand for bridge finance has remained strong in the wake of the covid crisis. “As a result, there are now more lenders offering bridging financing and they are being backed by sophisticated operators, including investment banks and other global institutions. This fosters a better environment – everyone has to perform to a higher standard and that attracts more capital to the market. Old ways of operating are found out very quickly.”
“The reality is we don’t want to own anyone’s property.”
In its underwriting, Glenhawk places emphasis on the sponsor’s experience and its exit plan. “We want them to exit by repaying the loan by refinancing or selling the property,” Harrington said. “Therefore, we have to make sure the client isn’t taking on anything that might be underwater, that may not achieve the value they want. We need to know they understand what they’re doing.”
Glenhawk is currently lending at average rates of 9.2 percent. Harrington argued the lender is not taking advantage of interest rate rises. “The key thing in a market like this is that you don’t change the rates last minute. Borrowers need to know the rate they have locked in is guaranteed. We lock in the rate, even if the base rate goes up before the deal completes – something that does happen in the wider market.”