Silbury Finance writes roughly £100m of residential development loans

Silbury Finance, the lender backed by private equity firm Oaktree Capital Management, has completed two senior development facilities, totalling £96.5 million (€115.3 million), to fund the delivery of two UK residential-for-sale schemes.

The first loan, a £68 million stretch facility, has been issued to London property developer Avanton, which is redeveloping a former Carpetright warehouse on London’s Old Kent Road.

The borrower is creating 262 mixed tenure flats, including 92 affordable homes. The first these will be ready for residents in the second half of 2024 and the remainder in the early part of 2025.

The residences form part of Avanton’s larger development scheme, The Ruby, which has planning permission for 1,152 homes over five new buildings, a community sports hall and fitness centre, a public park and flexible commercial space.

Gavin Eustace, founder of Silbury Finance, said: “The development is in an area not far from Elephant and Castle, which has until now not seen the same levels of regeneration [as Elephant and Castle]. Avanton’s site is in a great location and we feel the units will be well received, being within the affordable bracket.”

Eustace added that while the loan was structured on the basis that the homes would be sold in the private market, the borrower could refinance the project if it retained the properties for private rent. “In that case, the rental yield that could be achieved will support a refinancing of the debt at our desired gearing level,” he explained.

Silbury has also issued UK property developer Kings Oak Capital with a £28.5 million acquisition and development loan. The 24-month facility, provided at a loan-to-gross-development value of 69%, will support the borrower’s conversion of an office block in Reading’s town centre to 110 flats. The construction phase will complete in the second half of 2023.

“The existing property has a solid concrete frame which reduced build risk and represents a sustainable way to combat the housing crisis,” explained Eustace, adding that the scheme would benefit from the newly opened Crossrail Line, with the mainline station on the doorstep of the site.

The two transactions mean that Silbury Finance has provided nearly £335 million of development finance to the market in 18 months, against a backdrop of increasing build prices and supply chain pressure hampering the timely delivery of construction materials.

Eustace said the lender was mitigating those issues by backing “good quality sponsors at sensible gearing levels that are using experienced contractors, with good balance sheets, which are backed up by third party performance bonds”. He explained: “We are still seeing pressure on supply chains and while long term increases in build prices are levelling off, they are still not coming down.

“We are asking borrowers to ensure their contractors have 10 percent performance bonds in support of the build contracts they execute. This provides some contingency, in the unfortunate event that things go wrong,” he added.

Eustace launched Silbury in early 2021 with Matthew Pritchard. Its aim is to lend up to £3 billion to mid-market UK residential and retirement living projects over the next six years. Eustace confirmed the lender was on track to hit its £500 million origination target by the end of the year.