A packaging firm has received a record 42 per cent increase in the number of property development finance applications going through its system this quarter, compared to the same quarter in 2012.

 B&C Distributor heard from John Waddicker, Director of Positive Commercial Finance, about the surge in current business levels and the emergence of private development lenders in the market…

 The number of completed development finance cases in 2012 jumped by 62 per cent from 2011, and there has also been a similar rise in the number of new introducers who have registered with us specifically for development finance enquiries.

 We now have close to 200 active introducers who channel their development finance applications through us.

 As the private lenders we work with are generally only accessible through a nominated broker partner, this goes some way to explaining our considerable increase in deal flow. Word can spread quickly when new lending sources establish themselves in the marketplace, and with our considerable network of introducers in place, accessing these new sources becomes possible.

 To date, we have access to 48 private development finance lenders, eight of which are exclusively mandated.

 2012 saw the emergence of a number of private development finance lenders, amongst them seasoned investors and high net worth individuals looking to place their money into projects which didn't quite fit the bill for the existing development funders, usually for geographical or scale reasons. Not wanting or expecting to compete with the established lenders, their pricing sometimes reflects that but also correlates with the perceived risk given that the project was not “right” for the more cautious lenders.

 We have found that the majority of these new entrants are very well-experienced in property development themselves, either coming from a related professional background (QS’s, architects etc.) or having done some property development of their own in the recent past. As they are much smaller organisations (and in some instances being one person plus an advisor), they are more able to take a commercial view to get the deal done, as opposed to being restricted by set criteria or parameters. They are also more likely to prefer to work on their own “patch” for the obvious reasons, but that patch could be anywhere in the country which works in their favour, particularly if they are outside of the M25!

 Noticeably, such lenders are also more open to mezzanine participation and are generally happy to consider structured finance packages where more than one lender is involved.

 The stumbling block with the majority of viable propositions with the more well-known lenders is the developer’s lack of sufficient cash or equity contribution to “unlock” the loan. Stretched senior debt options are becoming more common where the senior lender goes above and beyond their usual loan to value for a higher return, reflected in a blended interest rate. In fact, mezzanine finance is now regularly required and sourced to make the deal work. Again, this is where the private lenders come into play