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When is a bridging loan not a bridging loan?

Managing Director, Brian Rubins, discusses how property finance has become more complex in recent years but can be rewarding for those who can measure the risks and implement a wider process in an efficient and timely fashion.

Turn back the clock to when bridging finance was simple – Mr & Mrs Smith wanted buy a new home before selling their own property or a buy-to-let investor did not have time to wait for his long term loan – that was bridging finance, that was! Now, for some lenders, bridging finance covers a whole spectrum of assets and brokers and lenders need more information and greater knowledge to make informed lending decisions.

First, assets now range from commercial and residential investments to development sites, hotels and care homes and onwards. As some lenders have widened their offer, their processes have needed to change. For example, a panel valuer on a tick-box form for a multi let commercial investment? I don’t think so. It needs a detailed report from major firm, a Savills, CBRE, JLL or similar which covers tenant demand, rental values, investment yield and comparisons all of which lead to a Market Value, i.e. as is with the benefit of the income and possibly a V.P. (vacant possession) value, assuming the tenants have failed or moved on. Tenant quality and the unexpired period of the lease is often an issue. It not only affects the valuation but can prejudice the borrower’s ability to refinance. Term lenders wish to be confident that the rent will continue to be paid and if the lease expires a new tenant or tenants will be found. This becomes a major focus on single-let assets but equally is not ignored where investments are multi-let. Bridging lenders are alert to refinance / exit strategy risk and brokers need to consider this before starting the exercise.

Some bridging lenders really favour privately owned, purpose built student accommodation and are active in this market. These opportunities present issues specific to this asset class. For example, the university’s profile; is it an established institution with longevity or one of the newer places of learning which may fail to attract sufficient students? Similarly, are there already adequate halls of residence or, as is often the case, a dramatic undersupply? Where construction finance is being provided, will the new project be ready for the start of the academic year as if this is missed, the property will remain empty, burning interest, until the following September.

For those who also offer development finance, an extra set of skills are needed to analyse the ability and experience of the developer, the cost to carry out the project and the saleability of the finished product. Construction cost consultants need to be employed to report on the viability and then monitor the ongoing process.

What does all of this mean? Well in simple terms lenders are progressing beyond bridging finance as we knew it before and brokers and lenders alike need to gather additional skills. Simple it isn’t but profitable it can be for those who can measure the risks and implement the wider process in an efficient and timely fashion.

Brian Rubins, Managing Director, Alternative Bridging Corporation Limited