Avamore sets sights on another record breaking year

By David Craik 19th January 2023

It is easy to feel optimistic when welcoming in the New Year. The champagne, fireworks and energetic dancing add weight to your declarations that this year will be ‘the one’.

Roll on a few weeks however and often those hopes of a new job, body or bank balance have been drowned in the January rains.

But when Avamore Capital’s Chief Executive Officer D’mitri Zaprzala says that he is “more excited going into this year than I have ever been before”, it may be something more lasting.

“Yes, there are undoubtedly challenges ahead this year in the housing sector and wider economy,” he says. “But when I speak to peers in the specialist lending sector, we feel that it is weirdly a good time for us. This is why we exist. We help developers and other borrowers when the high street, challenger and clearing banks reduce their lending to the sector. It is the sort of year when we can come into our own.”

His warm feelings about the new year are in stark contrast to the old year which he describes as ‘unexpected’. He cites the surprise of a war in Europe breaking out, the cost of living and energy crisis and the shambles of the mini-Budget.

“What I loved though was how we pulled together as a team in 2022,” he declares. “We could have felt sorry for ourselves but we showed creativity and determination to help our borrowers find the options they needed.”

Indeed Avamore, which provides primarily residential development and refurbishment finance as well as bridging loans, reported a record 2022 in all areas including volumes and overall lending.

Its average developer transaction size also increased by around £1.6 million but the team is keen to stress that this was still within its ‘sweet spot’ of between £1 to £5 million.

“That is still where we see a gap in the market. So although we grew we stayed true to the type of deals we are known for,” explains Zaprzala.

Powering much of the growth was a Springtime rebrand and refresh of its four key product lines – Refurbishment, Part Complete Development, Bridging and Development.

“It was really about simplifying what we do. A good example was the rebrand of Finish and Exit to Part Complete development,” Zaprzala says.

“We were doing ourselves a bit of a disservice with the name. We were known for stepping into part-complete schemes but then a lot of our competitors started doing the same.

However, they tended to do it at a later stage than us when deals were further down the development programme. So by rebranding, going out to the market and talking about it again we were able to focus on that differential.

The increase in demand for part-complete didn’t happen as early as we initially thought but from Autumn onwards we’ve really seen an uptick in interest. We expect that to continue into 2023.”

Brokers and borrowers have also responded well to changes in the group’s bridging loans processes.

“When we revamp products we want to stay true to what we do well – that is anything complex and residential,” adds Philip Gould, Avamore’s Chief Lending Officer. “We are at core a development lender that also does some bridging rather than vice-versa.

It means that our team is set up to look at transactions with lots of different moving parts. As such when it came to bridging we were asking too many development style questions.

Now we still have the same level of due diligence and focus on credit quality, but it is more customer friendly and product appropriate.

It is a competitive market and we mainly provide bridging to developers who require it as part of their schemes, but we think we can also compete strongly with bridging focused lenders.”

Zaprzala says that having the four key products provides great flexibility both for Avamore and its borrowers.

“In terms of demand, our products are pretty even. We find that each one is busier than the others at different times of the year.

We can pivot our products very quickly for our clients depending on the state of the economy, industry or their needs. That was important last year and will remain so this year.”

He also praises the support of the group’s funders – several large institutional backers – in the success of the revamp. “As the Summer went on and some of our competitors began to suffer from funding constraints we were in a really good position thanks to our backing,” he says.

Staying on the finance angle Gould adds that the loan management side of the business also flourished last year.

“We were successful in not having any capital or core interest losses and saw the largest amount of redemptions in a 12 month period,” he states. “I believe ongoing loan book and asset management will be extremely important as we go through what could potentially be a tricky economic climate.

We proved last year that we are set up to tackle any challenges that come our way.”

One of those will be a pressured property market in an era of higher interest rates.

“There is a lot of negative news around where house prices will go this year. But much of it is to grab eyeballs and headlines.

Our view is that yes potentially there will be a small pull back in prices but there are already some market predictions that they may not fall as steeply as expected. It is very difficult to predict where the market is going to go,” Gould says. “The uncertainty has impacted our clients in terms of both current and future schemes.

Rising prices throughout the supply chain make development appraisals and scheme viability more difficult to assess. In these moments it is vital to communicate continuously with clients about viability and be adaptable and flexible to their needs.”

Gould says Avamore has a dynamic team of asset managers who work closely with developers to ensure projects are going as planned. Some schemes are more challenging than others, but he says Avamore is very actively managing its entire loan portfolio.

“We and the developers benefit from schemes being completed on time and budget. Our role is therefore to advise and provide our experience when developers really need it,” he explains. “I am excited to see what we can do this year when there is a little bit more certainty in the market, not the flux of 2022.”

Indeed, Gould is already seeing constructor price inflation and fuel costs begin to fall. However, he expects interest rates to keep rising given inflation in the UK has yet to be tamed.

“By the middle of 23 we see base rate topping out somewhere beginning with a four. That’s an improvement though on post-mini Budget expectations of around 5 or 6%,” he says.

Zaprzala says the market is now getting used to floating rates after so many years of fixed. “In fact I think rates have become less of a key factor when it comes to deals both from borrowers and brokers,” he says.

“Everyone is charging much of a muchness now. There are fewer people out there able to support the borrowers. Two years ago maybe 15 or 20 lenders could do a particular transaction, but now that number is around 5 to 7 who are all within a reasonable price metric of each other.

More than ever winning business is going to be about deliverability and service. We can give borrowers that element of certainty.”

Zaprzala believes those lender numbers may fall further as high street banks curtail their sector exposure. “It gives us the opportunity to work with more and more developers particularly on part-complete.

The high street pull back will lead to opportunities for developers to acquire sites which have not been completed for one reason or another. They will need to borrow money and we can be their provider.”

Gould agrees: “If the economy goes into recession, banks will likely pivot away from development lending towards less capital-intensive products. . As a specialist lender we can be more nimble and pick up some good loans.”

Helping in this growth aim is its first ever Relationship Manager for the North of England and the Midlands, Cameron Linnell, who began his role at the beginning of 2023.

“We want to lend more outside of London and the South East this year than we’ve ever done before” says Zaprzala. “Along with the biggest sized sales team we’ve ever had I feel confident that we will naturally see more borrowers this year. I feel so positive about the months ahead. We are aiming for another record year.”