On 30 November, UK-based development finance specialist Maslow Capital and investment manager M&G Investments announced a funding agreement, through which Maslow will originate and manage loans to UK real estate developers for M&G.
Under the terms of the deal, M&G will provide an undisclosed volume of capital from funds it manages to Maslow, which will use its specialist construction underwriting knowledge and UK-wide borrower relationships to source and manage whole loans from £5 million (€5.5 million) to £20 million.
Ellis Sher, chief executive and co-founder of Maslow, said the agreement would provide the firm with greater capacity to support a wider pool of construction schemes in the UK. “The deal has been in the making for 18 months. We wanted to broaden our capital base with institutional grade counterparties backed by long dated capital,” he told Real Estate Capital. “If schemes go overdue, as is quite common with developments, managing long dated capital allows us to avoid the pressures that might arise between the duration of investor funds and our borrower requirements.”
Sher added that the partnership provides M&G with access to attractive risk-adjusted yields in the current market environment. “We are able to originate transactions that offer security while delivering much needed yield for savers and pension funds, which is challenging in a low interest rate environment, especially where there is significant liquidity competing for yield,” he said. “Over the years, we have built up broad loan origination sources that allow us to build granular loan portfolios, the construction of which require a specialist underwriting, loan processing and monitoring platform.”
The funding for the loans will be drawn from a special vehicle that has been created for the agreement, Sher explained. He added that this venture will not change Maslow’s loan type or approach to portfolio construction. “Just because we have an additional capital base does not mean we change our origination risk appetite.”
The lending strategy will focus on residential, purpose-built student accommodation, build-to-rent, co-living, retirement living and aparthotel projects. The sectors, Sher noted, have weathered covid-19 better than other parts of the property market.
Covid-19 has not changed the main risks of providing development finance, but has heightened them, Sher added. “We now have to consider more closely the implications of contractor failures and supply chain disruption,” he said. “We also have to be more mindful of where values will end up. In terms of gross development value, providing development finance has always had a crystal ball element, now more so than ever.”
Maslow has been providing construction finance to real estate developers since 2009, the last five of which have been in partnership with investment firm Sixth Street, covering loans above £20 million with no upper limit. The partnership with Sixth Street will continue, said Sher, “while the addition of M&G to Maslow’s platform will allow us to support even more SME housebuilders”.