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Funding dependent on loan book redemptions to finance current commitments could become 'problematic'

In an exclusive interview with Development Finance Today, Ellis Sher, co-founder and CEO of Maslow Capital, claimed that a just-in-time funding model, which relies on the redemption of existing loan books in order to finance current commitments, could become “problematic”.

The comment was made following a question regarding what sorts of development funding models will be tested the most in the current Covid-19 climate.

“Commitments don't go away, you can't control those,” Ellis (featured in the video, above) said.

“…The ability to raise liquidity against redeeming loans, or redeeming real estate, is out of your control — and that can create some treasury difficulties.”

He also believes that open-ended funding arrangements — where investors can make a call for their funds — and when the underlying investments are very illiquid, would be most vulnerable.

Ellis explained that lenders would need to be “really inventive” in how they deal with challenging funding situations, and it would test partnerships and relationships — through the good and bad times.

He expects that this will change the way people think about funding models going forward, and thinks that the market is a home for long-dated capital, not for capital that needs immediate liquidity.

“If you don't have the patience, you really shouldn't be in this kind of business, because a development loan can fast become a long-term loan and, if you don't want to crystallise your loss, you have to be able to transition your capital to move in that direction.”

As a result, he felt that pension, insurance, endowment and superannuation money would be the kind of funding needed in a development loan.

In May, Maslow launched its debut loan book liquidity fund, which will assist in broadening its balance sheet capabilities.

The fund’s objective is to work with development finance providers and borrowers to acquire portfolios of loans, provide costs to complete facilities, and refinance existing loans.

It is backed by long-dated institutional capital and will focus on opportunities from £50m-plus (or with the potential of achieving £50m in aggregate through a series of loans).

Since its introduction, Ellis confirmed that the fund had received “a lot” of enquiries from lenders, albeit with a “cautious approach”. 

“I totally understand that lenders don't necessarily want to go to another lender — I get it,” he said.

“We have no intention of running those customer relationships, we just want to park capital … so, in the first instance, I think people are enquiring about that tension … and we're very flexible as to how that might look.”

He stated that most of the live situations it had on its books, as a result of the fund’s launch, were projects that were weak before Covid-19, and had become weaker since, and where it was working with other lenders to bring assets to completion — specifically those that are nearing, or have already entered administration.

“…We've been quite pleased with the level of engagement we've had from the debt advisory and lender community.”

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