Avamore breaks through £500m lending milestone

By David Craik 26th September 2022

Avamore Capital has passed the £500m of lending landmark and continues to support SME developers despite economic headwinds.

Director Philip Gould said the company, founded by Michael Dean, Zuhair Mirza and Nikolay Petkov in October 2015, hit the milestone this month thanks to a large, refurbishment deal in Central London.

Other major contributory deals included a £13.2m part-complete development in Newbury in February 2020, a £13m part-built development loan in St John’s Wood last October, and a £11.7m refinance bridging loan against a portfolio of northern properties this January.

The company, which provides development and refurbishment finance as well as bridging loans, has now supported 326 borrowers and delivered over 2,300 affordable space units to market with 48% of these being sold to first-time buyers.

It has approximately £250m of gross loans under management having experienced no capital or interest losses since launch.

“It is a big achievement for the business and staff,” says Gould. “We’ll celebrate but it’s more the validation that we are doing the right thing, rather than the milestone itself.

We are carrying on towards £600m and beyond but it’s not about setting a target by a certain date. If you do that you are in danger of reaching too far on a certain deal and slipping from your core principles; but really there is no cap on our potential.”

A strong focus on first credit quality and excellent client service has been core to the group’s success.

“Most lenders would say that credit is their main focus, but we take it further,” Gould explains. “We understand that we are not in the business of selling money, we are in the business of selling trust.

Understanding what good credit looks like is central to this, ensuring that we are providing clarity to borrowers and brokers on our ability to finance their schemes. This in turn can leave our funders confident that we are deploying capital on the right projects.

He says the group could already have lent in excess of £500m if they had strayed outside these credit principles.

“A quote that rings truer now more than ever for us is that, “It is easy to lend money, the hard bit is getting it back,” he states. “Equally, with our brokers and borrowers, “Trust is hard earned and easily lost”.

We have taken the approach to SME development financing that we are in this for the long-term. It means that whilst in the short-term we could be turning down transactions which have merit, we’re ensuring that backing the right people and the right schemes will lead to long term success.

However, we are not just a tick box exercise, and always look to take a commercial approach to our lending decisions.

In fact, the London deal which passed the £500m mark highlighted our flexibility as we found ways to work with challenges that we believe other lenders could not have. Flexibility is key in this market and when the deal is right, we will support the broker and borrower.”

He says building that trust is hard-fought.

“Our clients know that when we say we are going to provide financing, we will actually do it,” he adds.

“We make a credit decision upfront and stick behind it. If things change materially, such as valuations, market costs or significant legal issues arise we will look for ways to work with our brokers and borrowers.

However, if a deal is not for us, then giving a quick no is much better for the broker than saying yes and changing your mind later on. Brokers will only place a case with you if they trust you.”

Sticking to these principles has also helped Avamore expand its funding base from solely private money back in 2016 to several large institutional backers who first came on board in 2018 and 2019.

Their support has been transformative given that Avamore only hit the £100m in lending mark in April 2019.

“Institutional funding was a major inflexion point,” Gould states. “While it hasn’t changed our core fundamentals it allowed us to scale up volumes and gave even more confidence to borrowers and brokers that we were able to deliver on funding. It also made us more price competitive.”

In addition, it allowed Avamore to become the first lender to successfully launch the first Finish & Exit (now named Part Complete Development) product in the sector.

“We’ve been doing it since 2016 but the introduction of institutional financing meant we had the capital to really scale it and deploy,” Gould says.

“Institutional funding is like a dating game in that you both want to make sure you are with the right partner before you make any moves! We wanted to work with those with the same kind of attitude towards risk. “

No matter how successful the wooing in 2018 and 2019 nobody could have foreseen the biggest risk to arrive in years – the pandemic. However, again, look at the numbers from £100m in lending in 2019, the group hit £350m in 2021 and now £500m despite the crisis.

“It was trying times at the beginning of the first lockdown, but we remained positive and didn’t furlough any staff, and we took any quieter periods during that time to reflect on what we could do better – something we didn’t get as much time for on a day to day basis with the rate at which we were growing,” Gould says.

“In fact, my favourite ever transaction from the many we have done was the first one completed after the initial lockdown was announced. It was a conversion of an old chapel into 5 residential units in an area with chronic undersupply.

It was great to be able to support a client during such a turbulent time and show the market we still had the capacity to support the right developments. “

Avamore’s strong trusted relationships with brokers also helped during this difficult time.

“Brokers had confidence in our track record of delivery from bridging to ground up schemes and part complete developments,” Gould explains.

“Much like the trading world, sometimes it’s time in the market rather than timing the market which is most important.

Brokers came to us during the pandemic because they know we provide strong opportunities for developers to deliver schemes and can trust what we say. In addition, as our name has grown, we have increased our geographical coverage from being London and Southeast focussed to now being a nationwide lender.

We have grown numbers quickly in the last two years but at its heart we have taken a slow and steady approach.”

Gould had hoped however for some more acceleration as the pandemic faded but admits that the current economic uncertainty of high inflation and interest rate hikes is a significant challenge.

“Increases in interest rates and inflation can adversely impact the viability of a development scheme in 3 main areas,” he says.

“There is the affordability of development financing, increasing cost of materials and the availability/affordability of mortgage finance for the end user, be it owner-occupier or investor. Over the past decade we have had historically low interest rates and benign inflation which led to significant downwards pressure on development financing rates and upwards pressure on end unit values.

It is important for Avamore that we adjust our appetite to reflect the current market conditions so we can continue to support our broker’s and borrowers.

Now more than ever we need to be transparent regarding which schemes we are willing to support, but also show the level of commercial flexibility needed to continue to be successful in a turbulent market”.

Gould says as traditional mortgage markets have tightened lenders need to ensure that developers and contractors are being realistic with their estimated build costs in an inflationary environment.

“We’ve always looked at a developers experience, their track record and the strength of the underlying contractor completing the works,” he adds.

“We want to know that the schemes we are financing are being delivered by a contractor who not only has recent experience delivering similar schemes but also has the balance sheet to sustain increases in material costs or significant project delays.

However, we are not afraid to continue supporting the market for first-time developers if it is the right scheme and they employ a solid team of 3^rd party professionals.”

Indeed, Avamore could emerge stronger from the crisis. This will be down to is historic strengths but also developments such as a new lending platform earmarked for launch next year. T

hey will also keep fulfilling a final core principle – creating a strong team culture which has undoubtedly been maintained as the group climbed from three staff in 2015 to over 30 people in June 2022.

“Our team members are extremely important. We strive to maintain a hard-working and entrepreneurial culture by bringing in young property professionals and moulding them into industry leaders.

We promote a lot within the company rather than hiring laterally,” Gould explains. “The landmark shows to both our internal staff and the market that hard work, commitment and teamwork pays off.”

In closing Gould was optimistic about what’s to come, “The current uncertainty is another opportunity to show our strengths. We know the quality of our credit book, team expertise and our ability to innovate,” he says.

“We will continue to focus on originating new business and supporting SME developers by doing what we’ve always done. Just doing it better. We are looking forward to the future and hitting more milestones.”