Going where the banks no longer tread

Lendinvest has become a go-to lender for smaller developers which, since December, has been ramping up its push into development finance. Andy Thomson spoke with two of the firm’s senior executives to find out more.

To enter the offices of Lendinvest a short stroll from London’s Regent Street is to be reminded of the recent past. With an apparently fully functioning bar, changing room-style lockers, avant garde furnishings and a scattering of Lendinvest-branded items (ranging from jackets to water bottles), this could be any aspiring business from the dotcom bubble era of the late 1990s.

Perhaps the most important difference however is that Lendinvest is not just style, but also substance. “Because we’re a technology company there’s a perception of burning money,” laments Rod Lockhart, managing director at the firm. “But the fact is, we’ve always been profitable and sustainable.”

Formed in 2008 as Montello Bridging Finance, Lendinvest was one of the early pioneers of the new world of lending as it spotted an opportunity to move into the gap created by the retrenching of the banks.

Its initial lending activity was backed by high-net-worth individuals on a deal-by-deal basis but it soon became a mainstream bridging business and raised its first fund in 2010. Today, the firm manages two discretionary funds with commitments of more than £85 million (€111 million; $124 million).

Promise of technology

The firm soon saw the promise of technology, partly as an easier way of raising money than through funds, but also as a far more efficient way of getting capital to borrowers. “Applying technology to lending was a major breakthrough,” says Lockhart. “Mortgage lending was basically the same as it had been 50 years ago. For borrowers, what the likes of us were offering was quicker and more transparent and it quickly became our focus.”

Over the last few years, Lendinvest has established itself as a mainstream bridging lender with solid institutional backing from the likes of Australian financial services giant Macquarie, which handed the firm a £40 million funding line in April. It has become a lender of choice for small and medium-sized developers, who can no longer get what they need from the high street banks.

“When you have not got a long established track record which the high street lenders demand, we can come in,” notes Lockhart. “The banks have moved away from the smaller developers as they don’t have long track records and are seen as too risky.”

He adds: “Once upon a time, such loans would have been done by branch networks. But many of those networks don’t exist anymore and, where they do still exist, they don’t have real estate specialists these days.”

In December last year, Lendinvest made a significant push into development finance with the appointment of Steve Larkin, a 26-year veteran of origination and underwriting at RBS, as director of development finance – heading up a team of four.

Through the ranks

Larkin started his career in 1989 at RBS and worked his way up through the ranks, getting into real estate in the late 1990s and early 2000s. He started focusing on origination in 2005 “in the good old days when banks were doing debt, mezzanine and equity”.

In the years that followed, in light of market conditions, the emphasis shifted more from origination to restructuring. Explaining his rationale for seeking pastures new, Larkin explains: “I could have stayed where I was and ticked boxes or I could be creative somewhere and make my own mind up about how to do things.”

The move to Lendinvest took him back into the market where he wanted to be, lending to developers. He does not see high street lenders such as his former employer as competitors:

“The infrastructure of high street lenders, and the regulation imposed on them, means they have to seek bigger tickets. It’s not cost effective for them to do small deals and they accept that our space is not where they want to be. From our point of view, that’s fantastic.”

Until Larkin’s hire, Lendinvest had offered development finance but had not actively promoted it. Since then, that has all changed.

“We released a development lending product for SME developers and it has been getting quite a lot of traction,” relates Lockhart. The product offers no exit fees and rolled-up interest on loans of between £200,000 and £7.5 million at gross development value (GDV) up to 65 percent for terms of up to 24 months.

Healthy deal flow

Larkin says his team has completed 14 deals since he joined in December, with between another five and ten close to completion. In terms of deal flow, they are looking at a healthy-sounding 20 or so deals a week.

The team’s focus is primarily on London and the south-east of England “but as liquidity has returned to the rest of the UK, we’ve become more national,” says Lockhart. He says the firm backed a recent development in Nottingham, which was one of the first residential developments in the city post-crisis. Lendinvest has also recently completed a deal in Birmingham, and “we go where the demand is,” insists Lockhart.

At the current time, the development team’s focus is on residential, which Larkin says is “quite niche and not many people get it”. He does not rule out expanding to look at other areas of the real estate market in future.

One more immediate area of expansion is the buy-to-let market, which Lendinvest is keen to push into by targeting the professional buy-to-let investor. “We are creating a more mainstream product and we began lending more into the space towards the end of last year,” says Lockhart.

While there has been talk that higher taxation might kill off the buy-to-let sector, Lockhart does not seem too concerned by the conjuring of doomsday scenarios. “There has been a huge shift to renting property and I don’t see that reversing,” he says. “There is still strong underlying demand.”

Lockhart also remains confident about Lendinvest’s prospects, whatever scepticism may be expressed about the financial technology (fintech) sector. “Unlike others, we’re not using our venture capital and institutional funding to keep the lights on; we’re using it to grow,” he points out emphatically.