DRAGONFLY PROPERTY FINANCE
Mainstream banks’ retreat gave Dragonfly Property Finance the space to write 1,200 residential loans in the past five years, writes Doug Morrison in the latest in our series on specialist lenders
What do you get when you take out a bridging loan? Another bridging loan. It’s a cheap joke at the expense of the more avaricious providers of this expensive form of debt, but has carried more than a grain of truth in the past and, some would say, holds true again in the era of the pay-day loan.
The new generation of bridging loan specialists fuelling the recovering housing sector are quick to differentiate themselves and their business practices from Wonga and the rest of the pay-day mob. The largest is Dragonfly Property Finance, whose head of sales and marketing, Mark Posniak, says that to the uninitiated, the idea of bridging finance is often outdated.
“A lot of people cannot understand it because you’re still tarnished with the old reputation of the lender of last resort,” he says. “We’re not. If you look at our clients’ profile, it’s those who understand how bridging and alternative finance can work for them; they know how to structure a deal and factor in the price, but also that they’re not talking to us because we’re the only solution, but the best one.”
Posniak scoffs at direct pay-day analogies. “We don’t play in that space,” he says. “We lend to savvy, professional property investors; people who want to do five projects instead of two and understand that they’ll make more money, even though they’re paying a little more in interest or fees.”
Dragonfly has written as many as 1,200 loans, worth nearly £650m, since the firm was founded in 2008 by Jonathan Samuels, a former McKinsey & Co management consultant who cut his teeth in the sector by establishing a mortgage business for Standard Chartered in South Africa.
Samuels started Dragonfly with £25m of backing from Octopus Investments and it was among the first new lenders to fill the gap in the market left by departing mainstream banks during the worst of the financial crisis.
By 2011, the company had expanded into development and acquired specialist mezzanine lender Maslow Capital. As the market has become crowded, Dragonfly has broadened its range of short- term loans, some of which are now regulated by the Financial Conduct Authority.
Samuels is also targeting commercial property in a bid to expand the business. Earlier this year Dragonfly recruited former Henderson UK property fund manager Ludo Mackenzie from Melford Capital Partners to oversee the launch of a commercial debt fund, for which Dragonfly hopes to raise up to £200m.
Big share of residential bridging market
But for now, residential remains the core business and makes up the bulk of the lender’s loan book, currently worth around £300m. Dragonfly claims to have 35% of the residential bridging market.
Typical deals involve up to 70% loan-to- value ratios, a 1.15% per month fixed rate, plus a 2%
‘facility fee’ and ‘procuration’ fees from 1.25%. Some of Dragonfly’s products are subject to hefty early repayment charges of up to 6% of the loan.
Dragonfly steers clear of Scotland or Wales to focus on England, but is cautious about prime London property, which Posniak says may be overheating. Yet the capital and the south east account for most of the loan book.
Indeed, Dragonfly’s largest loan, completed last month, was a joint £62.5m bridge facility with Capital A Finance to refinance a called-in Co-operative Bank senior loan, secured against prime London properties.
Posniak says: “Our real modus operandi is that when we say yes on a deal, it means yes. We can make quick decisions, as we have an experienced team who understand property and risk. We don’t have banking restrictions and we don’t have to operate like a bank in the way we assess a deal.”
Some in the sector are not convinced by such a claim. One rival lender questions Dragonfly’s depth of property experience, suggesting that writing 1,200 loans in just over four years is akin to banks’ ‘box-ticking’ credit controls during the boom: “They write so many deals that I just don’t understand how they stay rigorous in the credit process and in managing them,” he says.
Dragonfly is certainly not a big operation; Posniak says “25 to 30” staff, including treasury support staff from Octopus. But he claims that in the handful of cases of default, Dragonfly has always got its money back.
The immediate goal is to increase the loan book to £500m, he says. Lest Dragonfly be accused of getting ahead of itself, he adds: “All in good time. We’d rather have controlled, steady, profitable growth than growth for growth’s sake.”