A global pandemic is not the ideal time to make financial plans and lending strategies, but it was a great opportunity to take stock of what we were doing well and consider what we could do better.
At Hodge, we were already working with many experienced and successful developers on some great projects in the £5m to £15m debt bracket but, for various reasons, we were considering reducing our principal target sweet spot to loans of sub £5m.
Many of our clients were operating across multiple asset classes and we had fantastic relationships with our intermediary partners, who were doing great business at our ideal lending rate.
But as Covid-19 hit, it was impossible to say what impact it would have on the property market and the wider economy, as well as how our existing clients and portfolio would manage the pandemic.
Shifting Focus
As lockdown one hit in March 2020, our primary focus shifted from new business generation to managing our existing portfolio and doing everything that we could to help our clients.
We pride ourselves on working with our clients and whilst there have undoubtedly been challenges along the way, this, together with a diverse spread of assets, has resulted in minimal adverse impact to our portfolio.
This taught us, that as a bank we made the right decisions – not only with who we partnered with as clients but also that skill and experience in investors and developers is key as they were able to manage to steer this massive upheaval to the market with aplomb.
However, this brief pause in new lending also gave us the opportunity to reconsider our product offering, our strategy and what space we wanted to target our lending in over the next five years or so.
Given the uncertainties that the pandemic created, we initially decided to focus on residential development and investment across the UK in the sub £5m space, which is where we saw strong demand dynamics together with a shortage of supply of stock making it appealing to investors and developers alike.
New relationships
Of course, we weren’t and aren’t the only lenders in this space, in fact it is an extremely competitive landscape but since we were targeting a different debt space than in previous years, it created opportunities to forge new relationships with brokers and developers as well working closely with existing partners.
Positively, our targeting of the sub £5m space has been warmly welcomed by many brokers and developers which has not only enabled us to grow our book, but it has also given us the opportunity adapt and improve our existing offering to best suit the market in which we operate.
Whilst it would appear that the worst of the pandemic is behind us, life has a habit of presenting new challenges in quick succession. The increasing cost of development (and living), rising interest rates, increasing land prices (and its scarcity), stabilising of house prices and possibly even a recession, understandably continues to create an element of caution amongst developers and investors.
With this in mind, together with all that we have learned about diversification over the past two years, we have been busy at Hodge expanding our offering to support our clients through what is likely to be another difficult time.
In April, we launched our new Commercial Investment Finance Product aimed at active and experienced investors who favour acquiring and managing a mix of commercial buildings – rather than just the traditional residential assets.
We have also adapted and extended our offering in Development Finance where we are now seeking to lend in the alternative residential asset class, including student accommodation and retirement living as well as pre-let/pre-sold commercial developments.
Furthermore, most recently we launched a new Stretch Senior Finance option aimed at experienced developers who are seeking additional leverage without the additional diligence cost and complexities of third party finance.
But this is only the start of the changes we have planned and over the coming months we will be developing and launching new products to complement our existing offering to further assist our brokers and their developer clients achieve their goals.
Reconnecting
From a personal perspective, it has always been my view that successful development and investment finance revolves around relationships. Although Zoom and Teams calls will continue to have their place, it has been fantastic to get back out and reconnect with brokers, clients and our other partners, face to face.
If the past two years have taught me anything, it is that if you stand still, you end up going backwards. Adapting, diversifying and listening are key to ensuring that we at Hodge are offering our partners and clients what they need to create a successful future for us all.
Gareth Davies is head of development finance at Hodge Commercial Lending
