‘We are perfectly placed to achieve a record lending year in 2024’

Last year may have had its challenging moments but lender Avamore Capital says it is still on track to hit its ambitious but exciting long term growth goals.

2023 was a challenging year for many of us – lender, broker, client or customer.

But Avamore Capital says its focus on innovation, ability to source top talent and its tried and tested products helped keep it flourishing.

“Wow! What a year!” says D’mitri Zaprzala, chief executive of the group which provides primarily residential development and refurbishment finance as well as bridging loans.

“It was certainly more challenging than I thought it was going to be this time last year. The pressures from uncertainty over house prices, interest rates and build costs impacted our borrowers.

Developers, for example, became more cautious and there weren’t as many deals in the market as expected.”

Indeed, he describes ‘borrower apathy and a lack of urgency to get deals over the line’. “On many occasions we were quicker than ever, in place and ready to go, but found that the borrower was more reticent.

There were also unforeseen delays with planning approvals taking longer to complete as councils struggled with workloads,” Zaprzala says.

This, he admits, impacted the group’s volumes, particularly in the first half of the year. But more positively its average deal size – typically in a ‘sweet spot’ of between £1million to £5million – ‘crept up’ during the year.

It also saw more deals outside of its traditional London and Southeast hotbed thanks to the hiring of its first ever relationship manager for the North of England and Midlands Cameron Linnell.

“I’ve become quite the regular on the Avanti train to Manchester – which sometimes is less thrilling than it sounds – to attend events. It is very important for us,” Zaprzala says.

2023 had its own particular journey. It was a classic year of two halves with the last 6 months heralding stronger performance, demand and more certainty.

“In the first half the numbers were more adversely impacted, but from July onwards, the size of our deals pipeline grew considerably as did the number of approvals. We hit all our targets in the second half,” Zaprzala explains.

Matt Foley, who joined the group as Director of Credit in October, adds: “The year just got better as it went on. For most people it was a Doomsday scenario in January but by the end it was marginally more positive. It really highlighted how robust our sector is.”

Avamore’s breadth of service and reputation for innovation – as well as strong hires such as Foley and Linnell- played a huge role in managing the difficult market.

“We are not a bridging lender who does a little bit of development, we are very much a developer first business. As such we were able to pivot to do more refurbishment lending than we had expected to.

We saw a lot more demand for house conversions into HMOs,” Zaprzala explains. “Our USP, the Part Complete Development (PCD) product also remained attractive with transactions being above forecast.”

In August it launched its ‘Flexi-Term’ product to help borrowers looking for the flexibility of a bridging loan but requiring the certainty of a longer term.

“At a time when Buy-to-Let rates and fees were particularly high we saw the opportunity to help some portfolio landlords and investors coming to the end of their current terms and looking to refinance,” Zaprzala explains.

“They wanted more flexibility in their new terms as they were not sure how many of their properties they wanted to keep or sell in the market environment. They didn’t want to get locked into a new high price deal.

The product didn’t go as well as I thought as rates began to fall but there is certainly space for a flexible deal like ours. It’s a good solution.”

Also, in August Avamore further expanded its lending appetite to support transactions in UK Purpose-Built Student Accommodation (PBSA). The aim was to help experienced developers convert properties into high-quality student-ready housing.

Significantly, this marked its first move outside of its core target market, UK residential property.

“We have always had a desire to move into other sectors, but we won’t do it just for the sake of it,” explains Zaprzala.

“We were interested in the underserved part of the student market which are deals between £3 million and £10 million.

So not necessarily new, shiny schemes but the repurposing and refurbishing of existing stock or office buildings.

These are deals which are too small for the banks and the big funders but too big for other specialist lenders. We’ve made our mark and believe that it is a real growth opportunity for us heading into 2024.”

Generally, Zaprzala believes that although some challenges, such as uncertainty over inflation, remain greener shoots of recovery are emerging as the new year begins.

“Last year some forecasts suggested that we might see a 10% annual drop in house prices, but it largely stayed at the same level,” he says.

“The recovery is fragile, and we are all guilty of perhaps jumping too eagerly on a positive bit of news. I am still seeing some signs of the borrower apathy remaining, but overall, it should be a more stable year.”

Foley says that feeling of stability is important. “When it comes to house prices, you want predictability rather than wild swings as that makes it difficult for people to plan.

In terms of rates there is an expectation that the Bank of England base rate will fall this year and we hope that will have a positive effect on the economy in general but also the housing sector.”

More positivity could lead to a more competitive bridging and development market with lenders keener to fund deals.

“The issue is, however, that the development market is not a tap you can just turn on and off,” says Foley.

“The process of buying some land with or even without planning is not quick. But we are seen as a through cycle lender, both there in the good and the bad times, so we will remain competitive.”

Indeed, Zaprzala believes Avamore’s reputation has only been strengthened given the challenges of last year.

“We are a consistent lender offering flexible solutions and able to work with developers and borrowers through any challenge,” he says.

“If an issue arises then we are on the phone reassuring the borrower that we can still make things possible. Developers and brokers deserve more than lenders who say ‘No, we can’t’.”

Aside from eyeing up future growth in PBSA, Zaprzala believes 2024 will be a case of seeing continued demand for its long-established products.

“This is not the year to come out with a host of new products. There is plenty of business-as-usual work to go along with and we expect to herald another record lending year by the end of 2024.” he says.

“We are always interested in other lending areas. There are some nice adjacent sectors that we are exploring such as the Later Life living, care homes space but it is not imminent.”

Avamore is however still keen on expansion, looking to recruit across its team this year and develop its national exposure.

It is certainly likely to help Avamore reach its ambitious plan to become a £500m+ p.a. lender in the next 3 to 5 years.

Another piece of that puzzle came with the hiring of Eric Barnett as its first non-executive chairman of the board in May last year.

The aim was to drive Avamore to its next phase of growth by building its institutional profile, corporate structure and corporate governance.

“It is part of growing up as a business. Eric provides the guidance to where we want to go as a company,” says Zaprzala.

“It changes the way the market views us and helps investor and funder sentiment. Our goals remain unchanged. I believe the bridging, refurbishment and development sector has much more room for growth. There is so much demand out there because of the space banks continue to leave behind.

We are perfectly placed to achieve a record lending year in 2024 and long-term there is a lot more runway to go.”

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