Effective interaction between finance and business – Ingenious!
Showhome’s Lauren Barnett interviews the Ingenious Group’s Investment Director Howard Sefton about the company’s development and what they offer the market place.
Tell us about the company and what it is you do…
Ingenious Real Estate is an alternative financier, principally providing stretched senior development and bridging loans. We have a team of highly experienced finance professionals who are able to review transactions on a fully bespoke basis, allowing us to work collaboratively with developers to achieve their aims.
How did the company start?
The Ingenious Group was founded by Patrick McKenna in 1998 to act as the bridge between finance and business. Originally focusing on media, Ingenious has since expanded into the infrastructure and real estate sectors, in response to increased demand from our clients and partners. To date, Ingenious has raised and deployed over £9 billion across our areas of sector expertise. Ingenious Real Estate was formed in 2014 to provide competitive property finance to developers as traditional banks withdrew from the market.
How has the company grown?
From a standing start, the real estate loan book has grown to £100 million of facilities in place, and it is our intention to grow this significantly through 2017. The majority of these are stretched senior residential development loans, although we have recently added bridging and commercial development finance to our product range.
What purpose do you serve in the real estate finance industry?
We start where traditional banks stop. We have no preconceptions of what a great deal looks like and no boxes to tick. We are able to consider any real estate based transaction on its merits, on a case by case basis. If we can make a transaction work for both the developer and ourselves, we will pull out all the stops to do so. We are able to invest up and down the capital stack, from senior debt to JV partner, and pride ourselves on our ability to be a flexible & creative finance partner for any scenario.
What trends have you seen recently within this industry?
Clearly Brexit is having an impact, not only on the highest value properties, but across the whole market, especially in London. There is a definite movement towards the lower and midmarket space in residential development from real estate financiers – we still see deep levels of liquidity for good quality and well-priced housing stock in these domestic buyer markets, particularly in the South East and Home Counties. Sales have slowed somewhat for larger lot sizes, in part due to the changes in stamp duty, which makes it all the more important to fully understand the markets we are working in and structure facilities accordingly.
Commercial development finance is certainly in short supply and we see this as an opportunity. With many regional towns losing office space to permitted development, we believe there may be a shortage of good quality space for SMEs and are looking for speculative projects to fund with experienced partners.
We are also seeing a greater focus on student accommodation and the private rented sector (PRS); both asset classes are providing interesting funding opportunities for Ingenious Real Estate.
How, if at all, do you think the recent change in political landscape in 2016 has affected the market place?
Although the Brexit vote appeared to send the markets into an extended summer holiday, the sense of normality appears to be returning again. In residential, this is supported by the long term structural supply issue, especially prevalent in London & the South East. It seems that the market is now simply getting used to living with the uncertainty. With potential inflation in construction cost, economic stimulus packages and various political milestones to come in Europe, the uncertainty seems set to hang around for quite a while.
Whilst the Government white paper issued February 2017, suggests that England’s housing market is ‘broken,’ I do not foresee a significant change in current conditions, without a complete (and likely very unpopular) overhaul of the current planning system and a massive expansion in home building by central and local government; both of which currently appear unlikely. The Paper acknowledges the structural undersupply of housing; noting that the previous building target of 200,000 homes a year needs to be more like 275,000.
What are the different types of lending that you offer? Could you explain the difference between them?
We offer three core products to experienced developers;
- Stretched senior residential development finance, typically loans will be: £3 million – £25 million debt requirement 18 – 24 month terms in London, the South East and the Home Counties, targeted at local buyers and domestic investors. Maximum LTV 75%, maximum LTC of 90%
- Bridging finance, typically: £3 million – £15 million debt requirement Up to 18 months In London, the South East and the Home Counties. Maximum LTV 70% Sales and planning bridges available
- Commercial development finance, typically; £3 million – £10 million debt requirement Up to 24 months In London, the South East and the Home Counties Maximum LTV 65%, Maximum LTC 70%. Speculative schemes considered.
We also look at student schemes around the country, development for PRS and any other opportunity or asset class that our partners recommend; we don’t tick boxes.
What are the main factors you take into consideration before offering both residential and commercial development loans? How do the requirements for each differ?
Location, location, location! More than this, it’s about micro markets; a good town may have average areas and great areas, a lower quality town or city will still have hot spots that are well worth considering. Exit is also a key consideration; we need to understand how our investors will be repaid, so we always like to see marketing plans, particularly for commercial assets.
How you develop and find solutions to meet every clients specific needs?
We work only with experienced developers and are most certainly not a volume business. As a small team, with a flexible approach, we are able to consider each and every proposal on its merits, and look at various structuring opportunities to make it work for both our partners and Ingenious.What sets you apart from your competition?We are a small and highly experienced team that can move very quickly. Our Investment Committee meets as and when we need it, rather than on fixed dates, allowing us to deliver very complex transactions for developers under very pressurised circumstances. For example, we recently went from terms to completion in three weeks in order to facilitate a complex acquisition. Our business has been built on our ability to work flexibly with our partners to tackle all the moving parts necessary to facilitate swift completion.
What are the future plans for the company?
We intend to at least double our lending book through 2017 as well as creatively invest in mezzanine positons and joint venture partnerships. To achieve this we are increasing our average loan size; most facilities we review are now in the region of £8 million – £12 million.
Are there any plans to expand on projects outside of the South East and London?
In short, yes. While this has been our core market to date, we recognise the need to expand our areas of interests and are already looking at student schemes up and down the UK. As the team grows we will continue to look at high quality projects in areas where there is good liquidity for our exit. We have already considered schemes in Bristol, Bath, Bournemouth, Coventry and Swindon, and will continue to widen our approach as we move through what will no doubt be an exciting and significant year for Ingenious Real Estate.
About the Ingenious Group
Working under the mantra ‘transforming great ideas into outstanding businesses,’ Ingenious seeks to act as the bridge between finance and business through identifying, funding and managing compelling investment opportunities. With skills that extend across investment, corporate finance and asset management, fund management, banking and capital raising.