Specialist lender Octopus Property has launched a lending product for what it calls ‘development-light’ residential schemes across the UK.
With the aim to lend £60 million (€68 million) per year through the new product, Octopus expects to meet demand from SMEs and smaller developers requiring finance for residential schemes that sit outside the traditional refurbishment or development lending parameters.
The lender will provide loans ranging between £500,000 and £1.5 million for residential projects that may require more technical support than a typical refurbishment, but are shorter-term, require less monitoring and are lower down the risk curve than a normal development project.
The loans under this new business will be priced at a fixed rate of 8 percent per year, with a maximum loan-to-cost of 85 percent and a maximum loan-to-gross-development-value of 70 percent. Loan maturity will typically be 21 months.
To date, the lender has provided nine loans, totalling £10 million, for a diverse range of schemes. The financings include the conversion of an office in Leytonstone, North London, into 10 apartments, for which Octopus Property agreed a £1.4 million land loan and a £600,000 construction facility.
“We continue to leverage our market knowledge and relationships to better understand the challenges facing property professionals in accessing development finance, and believe that this product is ideally positioned to fill a gap in the market,” said Gavin Eustace, head of development at Octopus.
“With wider macro uncertainty affecting the sector, smaller developers are increasingly looking at ways to reposition existing properties to realise value or embark on smaller ground-up schemes which require a new type of funding to match the risk profile of the project,” Eustace added.
In April, Octopus hit a hard-cap of £230 million for its short-term and bridge lending strategy, through which the lenders will provide UK commercial property loans at tenors as short as one month. Through this strategy, the firm is aiming to generate gross returns of 10-11 percent and net returns of 8-10 percent for the fund.
Octopus, a division of investment firm Octopus Group, provides loans typically ranging between £100,000 and £50 million.