Property borrowers go West for the funding banks shun


In the second in a series on specialist lenders, Doug Morrison profiles a leading bridging provider

“The beauty is that people can feel and touch what they’re investing in, unlike almost every fund I’ve come across”

“Thank God for banks; thank God they were greedy and stupid and lent at crazy levels,” says Mark Abrahams, founding director of West One Loans, which claims to be the UK’s largest privately funded bridging lender.

To be precise, former investment banker Abrahams is talking about the usual suspects: the high-street banks – partly in exasperation, partly in gratitude. For in their post-financial crisis lurch to the opposite, parsimonious extreme, the banks have opened the door to specialist property lenders such as West One, launched by Abrahams and group chairman Duncan Kreeger in 2008.

“It was clear that there was a thirst for bridging or short-term finance where banks were keeping out, for no good reason, good quality, asset-rich and cash-poor borrowers,” says Abrahams. “I was excited about making loans to people in property, providing they were short term, at suitable loan-to-value levels and the terms were reasonable, so we wouldn’t expect any losses to our capital.”

West One’s track record of providing 700 loans, worth over £250m, seems to bear out Abrahams’ instincts, informed by 20 years in the City as a fixed-income credit trader with Salomon Brothers and JPMorgan.

West One is not alone. Following its own recent survey of 350 brokers, the firm claims alternative business lending – short-term loans secured against property – grew 16% in the first quarter of 2013, as mainstream finance has declined. A record £360m of short-term business loans have been written in the past year, Abrahams says.

But West One stands apart from most newcomers in being positioned as a ‘peerto- peer lender’ – a reference to the 250 or so wealthy individuals, Abrahams included, who provide West One with its capital.

“It’s like having 250 mini banks available,” he says. “We’ve created a great income stream for 250 people with cash sitting around. They can’t earn a return, as banks are offering absolutely nothing. They’re worried about stock market volatility, although we’ve had a good run this year. They’re not that interested in capital growth per se or where their capital may be put severely at risk. They enjoy monthly 0.85%-0.9% income returns, after our 25% management fee.”

West One is governed by the Financial Conduct Authority to run unregulated collective investment schemes. The firm pools its investors’ money, on a non-discretionary basis; individual investors decide which loan to back. Once a loan is fully funded, the charges are held in the name of West One Loans, in trust for each investor.

Over the years there has been an 80:20 split between residential and commercial property, and today the loan book stands at 175 loans, totalling £75m.

Investors set their own parameters

Abrahams says: “It’s quite management intensive. We are likely to go down a fund route, but for now the beauty is that people can feel and touch what they’re investing in, unlike almost every fund I’ve come across. They can pick and choose what they go into, set the parameters and increase or decrease their investment in any loan. Some investors create their own loan portfolios; it could be residential, refurbishment, some commercial, prime central London, Scotland.”

On the borrowing side, Abrahams says West One fields 15 to 20 inquiries a day and cherry picks three or four for due diligence. About 80% of its borrowers are in property, looking at buying opportunities or perhaps needing short-term finance for refurbishment work or small developments. Others need to raise capital for business purposes and are using their property as collateral.

Duncan Kreeger co-founded West One in 2008
Duncan Kreeger co-founded West One in 2008

West One offers up to 75% loan-to-value levels on loans mainly ranging from £100,000 to about £5m, although the biggest, to finance a lease extension on a Belgravia residential property, topped £7m.

The monthly borrowing rates range from 0.95% to 1.4%, which could equate to about 10% over the course of West One’s average nine-month loan. Abrahams concedes this is “quite steep, given it’s all secured lending”.

In this respect, West One is a product of its time. While categorically refuting the idea that this financial model is a sophisticated ‘pay day’ scheme, Abrahams acknowledges that the unregulated bridging loan market lacks transparency. In 2011, he sought to address this with the launch of the quarterly, market-tracking West One Bridging Index.

He is also critical of competitors that shunt borrowers from one costly, short-term deal to an ever-so-slightly-extended deal without compunction. The end game for West One’s borrowers, he insists, should always be refinancing for the long term.

“We’re not in the credit repair business,” he says. “We don’t target sub-prime property or borrowers. It’s very much mainstream. That doesn’t mean we don’t have borrowers with a cashflow problem from time to time. But clearly from day one, the raison d’etre for us writing a loan is: is that person or asset refinancable or is that asset saleable?”

To date, West One has brought in LPA receivers to sell properties in just 10 out of 700 loans, while the group has “never lost a penny” of investors’ capital, Abrahams says.

Unless market conditions change greatly, West One’s model is set fair for the future. He adds: “We’ve turned an alternative investment that has probably been around for years in a very small form, into a very mainstream alternative asset class.”