Financing Renewables

Ten years ago I was involved in a groundbreaking UK Energy from Waste (“EFW”) project which combined 3 technologies providing 10MW into the grid, 2 MW from tyre crumb, and a biodiesel plant.

At the time I travelled extensively to the Far East (South Korea) and the Middle East. People were talking about the day the “Lights go out” in the UK and I have to confess I thought it was scare mongering-how wrong was I?

Today I read on the BBC news site that children may be sent home from school on Fridays “to conserve energy”. So it was true, oh how true and the problem is here to stay and one which we have to address and quickly.

Every time we look at the news the word “energy” is prevalent, every day it is an issue. The availability, the cost, and the impact on the economy, this is a huge subject and extremely important one.

 Renewables are how we are addressing this, solar, wind farms, and a host of other technologies, utilising natural resources to harvest much-needed energy supplies.

 Our team at Sophell are heavily involved in this sector and not only advise and raise funding for renewables projects but also we are actively involved in a significant UK renewables business giving us hands-on day-by-day experience in the Sector, building a solar and battery storage business. So we “know our stuff”.

Sophell get involved in the funding of major projects in the UK and globally and Renewables are a big part of this work, so we have the practical knowledge as well as the route to investors and funders to properly advise and support renewables and energy from waste projects.

 So it is not just about real estate at Sophell, we have the skills knowledge, and contacts to advise on what is a huge and ever-growing sector and a sector that is here to stay.

russell@sophell.com

“What is stability and where do we find it?”

We all know the value of stability, certainty, reliability, and security…..words that make us feel comfortable and safe.

We also know that we live in a world that is anything but stable, wars, political unrest, and who is going to be Prime Minister this week! The media attention these endlessly attract means there is no escape from these dynamics. They make us feel insecure, threatened, and scared.

So where do we find stability?

This may sound like a contradiction to many readers but economics and markets are stable in the sense that they are predictable.

Whether you studied economics or not we all appreciate the impact of supply and demand-no matter what where how why or who, supply and demand will always feature. So supply and demand as a measure are stable-it’s that simple.

Timing, cycles, property cycles, and economic cycles are all predictable.

So when considering an investment, a purchase, a development opportunity, or a sale we have to assess all these dynamics, that process is stable, it doesn’t change.

I have just reviewed the Sophell website, embarrassingly it has been 2 years since the previous review.

The interesting thing was that I didn’t change hardly any of it, added a couple of products and markets we can now service, and changed my profile pic to something less scary and that was it!

It was that process that led me to realise things don’t change much. They are stable even when they are not!

I remember a previous boss explaining to me about cycles and that they re-occur over and over again, the gap between them can change but the inevitability does not change-that is the stability.

Once you reach a certain age you come to recognise these, you know what happens before them during them and after them, it doesn’t change what you offer or your behaviour, it just means you have to adapt to the timing.

“For every seller, there is a buyer” or “for every upside, there is a downside” or “for every boom, there is a crash” All of these provide opportunity.

I remember one of my wealthiest and most successful clients saying to me in 2008-just as the market in commercial property crashed 40%- “Russell this is great news-it will get rid of all the ******* that have been talking the market up and making deals difficult to do”

At that moment he changed his strategy, he became a buyer, the previous week he had been a seller (thankfully for him!) "Buy low sell High”

At Sophell our team has all lived through a number of cycles, we are a stable force in an unstable world. If you are buying we can help to find funders/investors, and buying opportunities. If you are selling we can help you find buyers, investors, and funders to fund the purchaser.

Our services are STABLE, we provide STABILITY.

Give us a call, email us, follow us on Linked In or join our mailing list.

Whatever is happening around us, Sophell can help guide you through it.

Where do you find stability? At Sophell of course!

russell@sophell.com

It’s not all about real estate…

At Sophell, we have been developing a range of funders who will support almost all asset finance/plant and machinery transactions at competitive rates. We are keen to discuss funding for wheeled assets, as well as hotel fit-outs, from warehouse racking to large-scale processing lines costing many millions.

Within our team, we have extensive experience in many industries and we would be delighted to work with you to see if we can add value to your current business plans…..

Asset finance remains an important solution to funding plant and machinery and providing separate streams of capital away from core banking facilities to support asset replacement and also business expansion.

Asset finance has traditionally employed debt and leasing solutions to provide benefits to the business. Additionally, the use of Residual Values can be used to improve cashflows for the business. Historically operating leasing has been off-balance sheet but now many companies are finding that the new accounting standards are bringing operating leases back onto the balance sheet negating the benefits of improving ROCE measurements.

This is a highly specialised subject and in our team, we have a former Head of Asset Finance and a complex deal team with a Major UK Bank. So we have the knowledge and the best connections in the market to assist you with your asset finance needs.

Get in touch today click here

Russell

russell@sophell.com

+44 7587358110 or +357 99079331

Happy New Year from Sophell!

That was a year that was! 2020, we will all have our reasons, many of them of course C-19 related, for being glad to see the “back” of 2020.

So as we raise our glasses, wherever we are and under whatever circumstances, to our families, loved ones, those close to us, to say Happy New Year, we have a really great chance that it will be!!

Could it be worse, is one argument? Life is amazing and it throws challenges at us all the time, otherwise, it would be boring really.

There are genuine  reasons to be optimistic about 2021 and some are listed below,

 Ø  We have a vaccine!

Ø  Brexit done

Ø  We have more resources from what we have learnt in 2020

Ø  We can work from home and stay married!!

Ø  We have learnt to manage our time more effectively

Ø  Finally, as my Dad used to say, think of what you have got not what you haven’t got.

At Sophell. we are hugely excited about 2021. It is like building a house, put in great foundations and then build the house of your dreams. For us 2020  was laying foundations, re-connecting with old and existing relationships and creating new ones. Investors, funders, developers, builders, our professional colleagues in the services industry, all hugely important to our business.

We are engaged on an amazing pipeline of opportunities and we will deliver on them. We are a great team and know the importance of putting the client and the deal at the forefront of our minds. It always pays off.

So to all our friends existing and those yet to meet, let’s have a few drinks, but not too many, as tomorrow we wake up bright and breezy and ready to smash 2021 in whatever form that takes for each of us.

We hope you have a fantastic evening and a wonderful, healthy and prosperous 2021.

Sophell.

All I want for Christmas is… a New House!

Research reveals that buyers will be focused on better broadband, separate home working space and more outdoor working space in the post-pandemic market.

Well it may not come in time for Xmas, especially as all the lawyers will be on an extended holiday, but 2021 is going to see the start of a “shift” in what working people want and need from their “home.”

Home is where the office is! The flexibility and efficiencies that have been revealed to millions of people “forced” to work from home have led to a greater desire to do so long term.

In a poll of 2,000 UK adults undertaken by house builder Redrow has revealed that there is resolute demand for homes with more space to live and work as customers reflect on their lockdown experiences. With more people expected to work from home regularly, even after the worst of the pandemic is over, space to work from home has rocketed up the list of priorities for buyers.

This has led Redrow to say “we are excited about 2021”

There will be a greater focus on broadband, which is now seen as the 4th utility.

“Today, broadband connectivity is one of the first things potential buyers want to discuss with us when they come to visit one of our new developments.”

……and what about outdoor space?

“With more time spent at home, gardens are becoming increasingly important and are now the top priority for many buyers when searching for their next home. In the colder months, we’re seeing high demand among residents for gardens that offer the potential to provide snug entertainment spaces that can be quickly equipped with fire pits and outdoor kitchens.”

The survey also found that less than 10% of respondents are looking to live closer to their place of work in the future and half of the respondents (49%) are happy to move further away.

THIS IS A MAJOR SHIFT

Even transport and commuter habits are set to change as we enter a Brave New World.

City dwellers have seen the benefits of living away from traffic pollution and crowds, and are now in search of a healthier lifestyle – even if this means looking further afield where they can find attractive price differentials that will enable them to afford the extra room they crave. There is now less need to live near a place of work, encouraging a general movement away from cities, and a willingness to commute further and less frequently. 

Redrow’s research found that a quarter (23%) would be happy to spend an extra 30-minutes travelling to their place of work and we’re anticipating a big rise in the ’90 minute commute’ which in future is only done a few days a week.” 

Looking ahead Redrow expects 2021 to be a strong year for the market.

Pratt said: “Following an incredibly busy re-start when the stamp duty holiday was first introduced it’s inevitable that this urgency will regularise, however we expect the demand to remain high. We are currently selling well beyond both the stamp duty holiday ending and Help to Buy changes, as buyers progress purchases following a re-evaluation of their needs.

“Along with the pandemic, 2020 has also been plagued by Brexit uncertainty, as negotiations and parliamentary gridlock continued throughout the year. With both sides of the negotiating table committed to continuing talks, we hope that further clarity will be achieved in the coming days. This would be welcome news to buyers, as well as our suppliers and construction workers on the ground. Further indecision in the new year threatens to hold the market back for months to come.

And there’s more………..

“We very much welcome the government’s support of the housing sector and the recognition of its value to the wider economy, with recent research from the HBF and Knight Frank showing that each housing transaction results in a broader economic benefit of £9,559 on average. This research highlights the importance of a functioning housing market across all tiers and all demographics and shows why we must encourage activity from first time buyers right the way up to downsizers. It is vital that the second-hand market is as supported as new homes and we would welcome wider and longer-term reforms of stamp duty to support this aim. 

“Sustainable homes that offer residents a more environmentally friendly way of living are at the top of our agenda in 2021 as we support the government in aims to achieve zero carbon emissions by 2050. We’ve already made real strides in this area in recent years but will be doing more in 2021 as we seek to further minimise our impact and encourage greater household savings for our buyers. This includes a move to electric boilers, the roll-out of more electric car-charging points to meet the rising demand for electric vehicles and internally we are heavily focused on reducing construction waste and are also testing a variety of low carbon technologies to enable more sustainable solutions.”

Russell Jowett ACIB Partner Sophell.

Source: Housebuilder

What happens to the office?

“Offices are the biggest subsector of real estate, and people that own offices only have to look at their retail assets to see how changes in the way people use a physical asset can destroy its value.“

Offices are going through one of the most profound changes in how they are used in generations, and the real estate industry is telling itself everything is going to be all right. 

That’s not surprising given the statistic referred to above.

There is a theory that fewer people will come into the office, but they’ll want more space, so demand will be about the same. People might not come into city centres, but they will still want to work outside the home, so suburban offices will boom. Good technology and flexibility in offices will stimulate demand. 

Sounds good so far……

While there is some truth in this, what do the ultimate consumers of real estate, the companies that lease space and their staff, think of the new world? 

The answers, provided by those making real estate decisions at some of the world’s biggest companies, might not make comfortable reading for those who are long on offices, especially if those offices aren’t the best of the best. 

Personally I follow Mike Phillips at Bisnow, who held a “digital office summit” last week

Much of this article is the output from that conference and is a very interesting insight into the future for office space.

“In terms of demand, I would be shocked if people as an average keep the same amount of space, looking at what we’ve seen as we’ve moved to a hybrid model over the past few years,” Telefónica Estates and Development Manager Chris Early said. The company employs 120,000 people around the world. 

“You’ve got a massively strong pincer movement,” he added, coming from an increased desire of staff to not be in the office all day, every day, and the financial pressures on companies and the savings that can be made in reducing space. Early said before the pandemic, desk utilisation rates were on average 50% in both public and private sector companies. “That’s rubbish, and won’t be tolerated anymore”. 

“I think that pincer is far too strong, and there has to be a reduction in office footprint overall. I think we are deluded if we think there won’t be. There are still people banging the drum for, it will all go back to normal, but I don’t think that’s realistic. And I don’t think it would be responsible to do so from an environmental perspective.”

A strong opinion from Chris and difficult to disagree.

In terms of the location of demand, a lot has been written about companies moving to a hub-and-spoke model, with a central headquarters, possibly of reduced size, along with smaller offices in suburban locations, closer to the homes of employees. 

Makes sense…..read on…..

This is the solution that flexible office operators are particularly interested in; IWGUK Chief Executive Richard Morris pointed out that companies would be unlikely to take permanent suburban offices, but could take flexible space to be used when needed.

But this is not going to work for all companies, the summit’s audience heard, especially larger companies with strict regulatory or compliance issues to take into account.  

“For the type of organisation we are, a financial institution, I’m not really sure whether the idea of the hub-and-spoke will play itself out in reality,” Morgan Stanley Global Head of Corporate Services Ekene Ezulike said. “But I get how for certain industries that would work." 

So it looks like there will be a strong element of horses for courses.

“What I don’t know works is if the spoke model is where a lone ranger or a couple of lone rangers get together near where they live to come together and work."

For a big corporate it is always going to be the case where the centre is where people come together to collaborate, he said, and then if people ultimately don’t need to do that for a particular day or week then they use the technology to access the centre and make video calls or find other ways of collaborating. 

More from Morgan Stanley:

“For us I don’t see the spoke being that relevant,” he said. “Having said that, certain suburban locations, campuses that we have in locations around the world, the desire to work there has gone up sharply, but what we’re thinking of is moving certain teams there, rather than one or two people from different functions.”

Ezulike outlined how the company is looking to tap into that current real estate buzzword, flexibility, but that does not necessarily mean leasing lots of flexible office space. Technology provides people the ability to work remotely, and then the HQ itself needs to be flexible. 

“Flexibility means the underlying infrastructure within a building, so you have space that is reconfigurable, because the workforce of today and how it works today could be very different to that of the future — we don’t know exactly how, but you need flexibility of design so you can change where you need to. And finally it’s about flexibility in your lease arrangements so that you can flex up and down depending on how the organization changes and reshapes itself.”

In terms of technology, companies are using new tools to work out whether some of the design principles that have become fashionable in recent years, such as agile working and collaboration spaces, are what people actually want.  

“We are definitely looking at how we utilise technology throughout our business,  and right now we look at office booking being the priority,” Transferwise Office Expansions Project Manager Geraldine Jardeleza said. The tech company has 14 offices across the world.

“That is being able to book in to come into the office, being able to contact trace if there are any cases.” 

Second right now is how are employees beginning to use space post-COVID. Now that companies have built this office of the future, how will employees use it? 

“It’s not just about tracking desks anymore,” she said. “We’ve created these agile and collaboration spaces, it’s understanding how employees are actually utilising these spaces. They may have said they want them, but do they actually use them?”

Having a really good tool or technology or software that provides a great dashboard and analytics allows the workplace team to make data-driven decisions, she added.

The big takeaway from the session is that in future, people won’t have to come into the office — you have to make them want to.

“Market dislocations come and go, just look at 9/11 or SARS,” Ezulike said. “I think what you’ll find with human nature is that normality will return, but maybe with quirks.” 

Whereas before some managers or leaders in organisations wanted to have everyone within eyesight of their office, we will see the trend continuing of people spending one or two days a week from home, he said.

“Things that emphasise or reinforce the human experience will be so important. When you want people to come in and collaborate in work, you have to differentiate the workplace standard. It needs to be different and curated and people need to feel it is a better destination than working from home.”

In summary:

This all makes perfect sense and at Sophell. we anticipate seeing the development of a different type of workspace and in different locations dependant upon the requirements of each business.

As we know, a lot of people have really enjoyed working from home, however, a lot have found it extremely challenging.

Development opportunities to create flexible, imaginative and safe workspace will come to the fore, and we anticipate being very busy providing funding for this very real change in direction.

Russell Jowett. Tuesday 8th December.

The Marriage of Debt and Equity.

In the world of funding, the world that we at Sophell. live in, one marriage has blossomed and become more sustainable and that is the marriage of debt and equity.

As we stumble across the finishing line of 2020 our eyes fixed on the hope of a positive start to 2021, what have we learnt? What has Covid-19 taught us and what has changed as a result?

Well, a great many things have changed for sure. I have made the odd comment in the past few months about how “working from home” may have placed a strain on relationships as people adapt to the new way of living and working. Hopefully this is not the case.

In the World of funding, the World that we at Sophell. live in, one marriage has blossomed and become more sustainable and that is the marriage of debt and equity.

Historically development funding in the UK was a bit like buying a house, you saved and saved every spare penny and then you got a mortgage for 90% or more and off you went, onto the property ladder never to look back.

It was similar for developers, put in as little equity as possible and then the “Bank” funded the rest.

With the withdrawal in large part of the “High Street Banks” from the market of the ordinary people eg SME developers/housebuilders and also more general businesses a void has been left which many new players (funders) have come into fill, with a huge degree of success in the main.

Everything was going well and whilst structuring debt for development projects became a little more complex the market was recovering or maybe even had recovered from the 2008 crash.

Then came Covid-19…

Funders don’t like uncertainty, it makes them nervous, it makes them withdraw, it makes them say “no” or “yes” with so many caveats that it may well have been “no!!”

This is where the marriage of debt and equity has emerged and is growing and will be here to stay.

How can we say that with such certainty?

Well “Banks” are in the market to lend money, they make money by lending money, it is what they are supposed to do. However, as they and other funders become more nervous about getting the money back (you only make money if you get it back again!), the gap between what is required, to fund say a development project, and what is available in the market, has widened, and widened quite considerably.

To the point, to use the buying a house analogy, that no matter how hard you saved up you may not make that deposit to get that mortgage.

To understand the attraction of structuring deals using the marriage of debt and equity you have to understand the difference. Unlike poles attract……..

Please understand these are generalisations but they make the point. Lenders (debt) tend to be cautious, very nervous of any form of risk and therefore very conservative in their assessments and their available leverage (debt).

Equity providers (investors) whilst conscious of all those things, are looking for a return on their cash, no good just sat there it needs to work and work on the right deals. They are entrepreneurial in spirit and tend to have a different view of the same thing.

So, you are a developer, you need £10M for your scheme and you can make £4M profit after all costs. Let’s say you can raise £8M from your own equity and the funders senior debt/development loan, how/where do you find the £2M required to unlock the £4M out of your scheme.

At Sophell. we know the answer…

Senior & Retirement living sectors are booming!

Senior living investment is forecast to hit £1.5bn this year!

Whilst personally the above is not close to my heart, ok I am in Cyprus but I am definitely not retiring, at Sophell. we have a strong interest and some strong knowledge and contacts in this sector.

It is a fact that Senior living investment is forecast to hit £1.5bn this year - a bumper year of in one of the most difficult years the planet has had to endure.

So what is happening???

According to new research by Knight Frank, despite the record institutional investment, the delivery of senior housing falls short of its international peers.

The UK’s penetration rate in the market stands at just 0.82% compared with 5% in Australia, 5.5% in New Zealand and 6% in the US.

Researchers estimate at least 400,000 more units must be delivered in the UK to catch up.

Sound familiar?

Despite the strenuous efforts of Covid-19 we are, as a population finding ways to live a lot longer and as much of our lives “retired” as working (present company excepted!!)

Tom Scaife, head of senior housing at Knight Frank, says the growing attraction of the market is driven by capital seeking “diversification”.

He said: “There is now a clear and extensive range of tenures and offerings available, providing a variety of services and amenities to suit a range of needs, demographics and price points. The investment case remains an extremely compelling one, with the market being driven by demographic changes, seniors’ property wealth, and a weight of capital seeking diversification.

“With so much activity taking place in the senior living sector this year, it’s no wonder we’ve witnessed a bumper year for investment.”

So there you have it!

We will see an acceleration over the next 5 years with supply growing by 10% in that time, but it is still not enough.

Michael Voges, executive director of ARCO, added: “This year our members have reported a sharp increase in demand for retirement communities – particularly in the mid-market. This trend only accelerated during the coronavirus crisis as more older people have sought good quality housing, support, the security of access to care if they need it, and to be closer to their community.

“We are seeing increasing interest in our sector across the board – politically, from new operators entering the market, from investors and from older people’s advocates. We are confident that if the government implements much-needed reforms we will see very significant increases in supply in the coming years.”

So to all property developers out there clearly there is a compelling argument to become involved in this sector, the demand is there, so the investors are there. We can assist with your development funding and provide the exit so you can move on and build the next ones!!

PD Schemes - we need more of these!

I don’t know how much of my life have I uttered the words “we are waiting for planning”, I probably don’t want to know!

As many of you will have by now worked out the planning system in the UK has been a great source of frustration, even rising to anger, for me during my career.

I don’t know how much of my life have I uttered the words “we are waiting for planning”, I probably don’t want to know!!

We are assured that the Planning reforms are on their way and that this will transform the development landscape in the UK and address the ongoing housing shortage.

The advent of the Permitted Development Rights (generally known as “PD”) scheme in 2013 sought to speed up the process and enabled, in the commercial property world, the conversion of existing commercial, office buildings into residential units without the need for a full Planning Application.

The process to rubber-stamp these schemes takes 6 weeks…..yes 6 weeks….not 6 years!!

Everyone wins with these schemes, the developer, the housing shortage, the occupier, the investor, the funder…….and even Sophell. We all love fast turnover deals.

At Sophell. one of our clients had such a scheme in York, 8 months from site acquisition, development of the 24 units and sale, job done, profit earned, units complete….move onto the next one!

As Covid-19 has changed the landscape of people’s working habits, the subject of some of our previous blogs, then more PD schemes should become available where redundant offices can produce fantastic living space, especially in older buildings with high internal ceilings etc.

Government Introduces New Permitted Development Rights

PD was further reformed in September of this year and below is the more technical detail of this for those that are interested:

As the independent review into residential properties built under existing permitted development rights is published, the government has introduced three new statutory instruments (coming into effect in September 2020) further amending both permitted development rights and the use class system, to 'deliver much-needed new homes and revitalise town centres'.

1. Demolition of buildings and construction of new homes

A new Class ZA Permitted Development Right has been introduced, for the demolition of the buildings listed below and replacement by either a single purpose-built detached block of flats, or a purpose-built detached house.

• A single purpose-built detached block of flats, and

• Any single detached building established for:

  • Office use within Class B1(a);

  • Research and development within Class B1(b); or

  • Industrial process within Class B1(c).

There are a number of restrictions on this right and of particular note, where the above

Class ZA development will not apply, are the following:

• If the old building was constructed after 31 December 1989;

• If the building is listed;

• If the footprint of the building exceeds 1,000 square meters; and

• Unless the old building has been vacant for at least 6 months immediately prior to the application for prior approval.

Any developer must apply to the local planning authority for prior approval with an extensive range of factors open for consideration including the design of the building, its external appearance, impact on the neighbouring amenity and notably, the provision of adequate natural light in all habitable rooms of each new house/flat.

Once they have done that then developers should contact www.sophell.com as we have a very slick process in funding these schemes.

More Planning reforms please!!!

Russell.

russell@sophell.com

What effect will Covid-19 have on the UK PBSA sector?

The UK purpose-built student accommodation sector (PBSA) has grown by a net increase of 2.6% in 2020, with more than 25,000 new beds coming to the UK market.

With the onset of the C-19 Pandemic many were concerned about the resilience of the Purpose Built Student Accommodation ‘PBSA’ market, but it would seem these concerns were unfounded and we at Sophell. can confirm this in terms of the opportunities currently under review.

According to recent research, the number of private PBSA beds on offer has now surpassed university-supplied accommodation for the first time, despite challenging economic and social conditions.

Its resilience is buoyed by the continued demand for student accommodation across the UK. Data from UCAS showed a record-breaking 40% of 18-year-olds in the UK submitted an application to study at UK universities this year.

The appeal of UK universities to international students outside of the EU also isn’t abating, resulting in an 8.8% rise in acceptances compared to 2019.

However, student demand has been skewed towards higher tariff Higher Education Institutions (HEIs) – yearly acceptances up 12.1% compared to 2010 versus 1.3% for medium and 0.3% for lower tariff institutions – resulting in a disparity between the best and worst-performing institutions.

Funders have generally been attracted to the Russell (no relation!) Group league tables of best performing universities when assessing the attractiveness of PBSA schemes.

StuRents estimates that approximately 48,000 students in Sheffield require accommodation in 2020, whilst fewer than 30,000 PBSA beds are on offer. However, the market has reported growth in PBSA between 2017 and 2020 of almost 7,500 beds – far outstripping growth in demand and resulting in ‘deterioration’ of the supply and demand fundamentals.

Conversely, demand for student beds in Leeds increased more than 5,000 over the same period, while the supply of PBSA increased by around 3,100, presenting much more favourable fundamentals for investors.

Those are just two examples from cities close to our roots.

The research also revealed that, despite investment into the sector, houses in multiple occupation (HMOs) still dominate the student accommodation market – equating to at least 55% of all beds – with average advertised rents increasing by 3.5% to £101 per person per week in 2020. In the PBSA sector, rents rose by 2.1% to £175 per person per week.

This research is credited to StuRents, whose Head of research commented:

“The HMO (Houses of Multiple Occupancy) market has been largely insulated from the pandemic due to its early lettings cycle, whilst UK PBSA has faced challenges due to travel restrictions and the uncertain conditions facing students due to Covid-19.”

“However, as shown by the last recession, demand is likely to remain strong as students look to invest more and more in their education when faced with a difficult jobs market. Yet, with demand greater for higher tariff institutions, we are seeing a widening multi-tiered market and thus investors’ interests are still being piqued by the very best locations at renowned institutions.”

He adds: “Nevertheless, the suitability of an investment should not hinge on broad market analysis or institutional reputation alone, with sophisticated investors starting to realise they must evaluate the granular, local conditions to ensure an appropriate product fit, rather than relying on national trends.”

At Sophell. We are in broad agreement with these thoughts and it doesn’t seem quite logical that at a time of job uncertainty, students are going to invest in further education in the hope that this rides out the storm of C-19 and other issues.

That said, Investors in PBSA will nervously await the figures for the number of students our universities will welcome to their campuses this autumn. 

The narrative is that, in the face of continuous travel restrictions, uncertainty over future lockdowns and the prospect of a year of online-only lectures, the PBSA sector faces dwindling tenant numbers, thus declining rental income and returns on investment. 

While recent musings about the fate of the sector would have you believe PBSA has slipped to the bottom of the class, this is far from the case. PBSA is and will remain an A* investment. 

The strong, long-term drivers of the sector are widely accepted and need little rehearsing. 

The number of students attending university has increased by nearly 120,000 since 2012/13, according to research from JLL.

The result has been demand far outstripping new beds entering the market — for every new PBSA bed, JLL say that there are 1.4 new full-time students. Coupled with a limited supply pipeline in prime university cities and towns, investors have received a stable, cyclical-resilient income stream, and enjoyed yield compression as PBSA asset values have been inflated. 

However, the hot question at present is whether the coming academic year will be so damaging that many PBSA investors will have their long-term viability undermined, with question marks hanging over the ability of borrowers to meet debt servicing costs as their own income streams diminish.

Although international students only make up 20% of UK university intake, they are the main market for PBSA, given the additional amenities and convenience PBSA typically offers in their new home-from-home. So, their potential absence is a worry. 

Yet, in its most recent update on its live cycle data, data from UCAS, the central operator for applications to UK universities, showed that there were no red flags for international students withdrawing or deferring. 

Most universities are implementing a ‘bubble’ policy for the academic year, which will treat a student’s household (in the case of PBSA, their floor) as their bubble. These are the people whom they will be expected to eat, socialise and study with predominantly, with a majority of lectures online, library capacity heavily reduced, and campus social areas restricted. 

The result is a need for a space that is far more than simply where students go to sleep and heat up the odd ready meal. 

That is where PBSA comes into its own, with the majority of developments up and down the country offering unrivalled amenities.

PBSA Is an interesting one at the moment but on closer inspection it would seem the opportunities outweigh the threats.

Any PBSA developers requiring funding please reach out to Sophell……

Russell Jowett

russell@sophell.com

More Power to the Northern Powerhouse elbow!

Covid-19 triggers a re-balance in the UK Commercial office markets with call for 50,000 civil servants to move North.

As life post the pandemic (I don’t know about you but I get bored of typing Covid-19!) starts to unfold and we all work out what we are going to do with our lives, where we are going to work, where we are going to live, here is very positive potential development for the Northern Powerhouse.

 This link https://www.thebusinessdesk.com/yorkshire/news/2064936-gove-welcomes-reports-call-for-almost-50000-civil-servants-to-come-north

leads you to an interesting article published by The Business Desk, one of the best online daily news reporting mediums for the last 15 years.

 Michael Gove is a clear supporter of this case to re-locate these workers and we do of course already have in Leeds a significant HMRC presence with the development on Whitehall Road.

 The article goes on to say:

 “Minister for the Cabinet Office, Michael Gove, has welcomed a new report which makes the case for relocating as many as 49,500 civil servants from Whitehall to various locations across the North of England in a move which could put rocket boosters under the government’s levelling-up agenda.

 The research published today by the Northern Policy Foundation (NPF), whose board members include a number of Northern Conservative MPs, analyses the current structure of the Civil Service and suggests the creation of 11 clusters across the North of England where departments and agencies could be relocated, estimating such a move could have an economic impact of nearly £3 billion a year.”

 At Sophell. we are also in favour of such an initiative which will provide a welcome boost, not to mention a good news story, for the economy of the Northern Powerhouse which will also have a positive knock on effect for housing and the property market in general.

This would also hopefully see the beginning of a re-balancing of the UK and moving away a few steps from the London centricity that has dominated our economy in living memory.

 It will also provide a platform for the Northern Powerhouse to showcase the benefits of working and living in less densely populated and more rural environments.

Meetings in the office will still continue but the online conferencing is here to stay. Against that backdrop we are sure that living in a bigger house and with an easier commute will be very tempting for all concerned when eyeing a move “up North!!”

Thanks for reading our blog today!

Russell 07921 502910

russell@sophell.com

Open for business?

Who is and who isn’t open for business?

We are now almost 8 months into the brave new World of C-19 and heading towards a second lock down, albeit bit by bit.

 In our experience at Sophell, the mainstream funders and challenger banks have struggled to decide upon a strategy. It’s a bit like 2008/9 in the sense that trying to work out who is “open for business” and who is not, it can be difficult.

 There are funders who claim they are business as usual and yet the majority of their staff are furloughed!

 One funder released the following stats this week:

 Since the beginning of lockdown they have had:

•  £3.5 billion of enquiries

• £1 billion of terms issued (28% of enquiries)

• £77M of credit approvals (2% of enquiries and 8% of terms issued)

• £28M of drawdowns (0.8% of enquiries)

 These were being presented as a positive but the numbers tell their own story.

 Covid has slowed everything down for sure but it has also made risk takers/funders nervous about how long it will last, this causes uncertainty and what was a “yes” has become a “no” in many situations.

 When engaging with a Bank/funder/investor and they utter the immortal words “yes, of course we are open for business…..for the right deal” Ask them 2 things:

1. What is the right deal?

2. What was the last deal you completed and when?

 The flip side of all this uncertainty is that it is also generating many opportunities, so how do you take advantage of these in such a difficult funding environment.

 The simple answer would be to engage Sophell. And whilst that would be a very good start this blog is about the market as we see it currently.

 There is some good news, but you do have to know where to look, who to talk to, how to present the case for your project and how to deal with objections and hurdles to get to the desired result.

 Funders/Investors ARE open for business “for the right deal” however their approach is more conservative (which is far better than furloughing the staff!), lower leverage/LTV/LTC ratios and higher pricing are for sure both prevalent but at least the deal can still be done.

 At Sophell we have to work closely with our clients, to understand them, and closely with the funders to ensure we match their requirements. We have to be imaginative, we have to arrange JV’s where often half the deal is better than no deal, there are ways to make deals happen but expectations may need to be lowered to do so.

 We would much rather work with a consistent funder, who keeps the book open than a “jerky” here today gone tomorrow lender which is just far too stressful for most.

 The opportunities are there, driven by the same market that is causing funders and Banks this dilemma of “ do we don’t we”.

 More and more we work with investors and leverage the deal with the Bank. Investors have a different view, they understand risk and are not afraid of it, if the price is right, the deal is right then we will get it funded and make the spectre of Covid just a little more bearable.

Thanks for taking the time to read this today and feel free to call me on 07921 502910 - we are always open for business.

Russell Jowett.

How we see the current UK market?

Following general feedback from our previous interview with co-founder Russell Jowett, we have posed a few more questions that have been passed on to us by potential clients.

1/. How do the partners see the current market in the UK?

Our perspective is that this is a fascinating time in the market, there are so many imponderables and across all real estate asset classes that just make our role even more vital and for us also enjoyable. You could sum up in one word- “difficult” however there are also a lot of opportunities and we can access these for clients and also provide a delivery solution.

Markets generally fear uncertainty and for certain the combination of Covid, Brexit and the US elections, to name but 3, make this a period where real entrepreneurs of the future will shine or be born. Either way at Sophell. we are in a very strong position to enable and help these clients succeed.

The UK property market, especially housebuilders are fearing a general lockdown because then everything stops and this is so damaging. Having just been on a call with HSBC and one of our clients we can report that this is a fear all housebuilders are currently facing and it really does need some clarity from the Government.

Each market sector or asset class has entirely different and sometimes conflicting dynamics. For example the housing/residential markets still have the benefit of demand far outstripping supply, whereas the retail market has and will see a shift that will change the retain landscape for ever.

We work with the experts in all these sectors, people at the top of their game, and this means we can open doors and structure solutions.

2/. What happens if you fail to agree finance?

As the major part of our remuneration would be a success fee paid on first drawdown of the funding then we would not get paid. The retainer we would keep. There would be a very low chance of this happening because we do not engage and take retainers unless we are highly confident of success. The retainer is to cover our time in the preparation, which is the key part leading up to presenting the deal.

3/. What do your  services cost?

We do not  generally operate on a fee scale basis each client relationship and each deal is different. For larger clients with a number of projects we would generally agree an engagement that involved a period of exclusivity and a small retainer as we do not generally work on a speculative basis. It really is about the amount of time and the complexity, and also the deal size, which goes into us agreeing fees with our clients.

4/. Who are your investors?

For confidentiality reasons we cannot reveal the sources here. In addition this is a broad and deep base of investors in order for us to cover different deal structures. As an example some investors are looking for long term returns with low risk, others for short term returns with a lot higher risk and many other combinations.

The ability to bring investors to the table no matter what the size, shape or length of the deal is one of our significant USP’s because Investors trust our judgement in any given scenario which accelerates the investment decision process.

The same or very similar response is also pertinent to funders although the dynamics of the process are different.

5/. How can you assess the probability of success when you accept an engagement?

We undertake a thorough assessment of the proposal and the client and our market knowledge enables us to assess the success probability before we enter into any formal engagement. We would not enter into such engagement if we did not have a high degree of confidence in its success. We do not waste clients time, we are in the market of saving clients precious time not wasting it.

Financing Industrial Developments

All property asset classes have come under close scrutiny as a result of the pandemic and each has its own impact study ranging from very pessimistic outlook to very optimistic.

 In our previous blog we focused on the residential property market and specifically housebuilders.

This week we are looking at the Industrial/logistics market and including within this out of town business and light industrial parks typically B1, B2 and B8 consents.

The advantages of having a manufacturing capacity with office space and the ability to park outside the door in rural or semi rural locations is clearly also a positive factor for developers.

At Sophell. we are actively involved with a number of clients in this sector particularly new development where we are able to gauge occupier interest and investment appetite for these schemes.

What we are seeing is strong demand and in both camps.

 A recent report by Colliers International revealed:

• Demand for industrial and logistics space in 2019 remained strong with take-up reaching in excess of 30 million sq ft for the year, exceeding the 10-year annual average by 17%, but 14% below the record breaking 2018 figures.

• Rental growth is expected to moderate in 2020, although logistics units located in heavily populated areas will reach above average returns.

• Supply/demand dynamic remains healthy. That said, our records show that 6.6 million sq ft of space is either under construction as of February 2020, or recently completed and available to let.

“At the beginning of the year we were expecting 2020 to be a record year in terms of demand. However, material downside risks associated with the Covid-19 virus may limit the occupational upside. Should the virus run its course in the first half of 2020, we may expect to see a busy second half as occupiers regroup and press ahead with urgent projects”

We are therefore a little bemused at the apparent shortage of funders supporting this market and those that are are very conservative in their approach, pre-lets and pre-sales are a standard requirement and leverage is certainly modest, around the 50% mark dependant upon deal structure and other factors.

Thankfully investors see the value in these schemes as typically they fit the 2-3 year window to provide a strong IRR and from a risk perspective demand can be calculated and generally, once infrastructure and planning risk has been managed, the exit can be clearly identified (building for pre-let/pre-sale) and the risks mitigated. Investment returns can therefore be generated yet with a better than acceptable risk profile.

We can offer developers access to our investor base to compliment the senior debt/mezzanine offering and create a viable and sustainable development scenario. 

At Sophell. we have the ability to fund development deals for industrial sites that seem out of reach when viewed purely against availability of debt. We work closely with our clients, develop and understand the business plan and their motivations and drivers and package the funding accordingly.

Any such developers requiring our assistance can book a call with Russell today.

Are Housebuilders beginnng to bounce back?

A series of trading updates reveal productivity is returning to normal.

If we cast our minds back to the end of 2019, what we all commonly refer to as “pre-Covid” the Housing market in the UK was in good shape. There was the ongoing huge demand driven by the underlying housing shortage and this demand was driving the development of sites fuelled by a funding market that was keen to support this process.

If we describe today as “post-Covid” for want of a better term, then nothing much has changed, indeed it can be argued that the focus of the Government towards the housing sector has sharpened and intensified. This can be seen in the support for social housing, permitted developments and relaxation (or so they say) of the Planning regulations. Three key areas, there are more.

Sophell. Case study

At Sophell we have numerous housebuilding clients and we have chosen one as a case study to show the impact of the Covid period, how that was managed and what the future could hold.

The Construction Industry generally was able to “carry on building” to some degree even post the Covid lockdown as many sites could operate within the Government guidelines and yet still be productive. That lasted for a number of weeks until the following impacted on the ability to keep the sites open:

1/. The supply chain dried up, many building suppliers tried very hard, an example being MKM a York-based company, who maintained deliveries and then collections for as long as they could, this bought the industry a few valuable weeks.

2/. It became increasingly difficult and then not possible to operate sites whilst following safety guidelines so sites simply had to close.

3/. Added to this, at the sales end, many builders were unable to show people around the finished product to generate enquiries and ultimately sales. The larger operators eg Persimmon had a very effective online sales process but in reality, when people are selecting a home they need to see it, touch it and appreciate the environment.

So most housebuilders ended up with a “lockdown” period which lasted between 2-3 months. 

All of the above impacted on and applied to our case study client with whom we were working very closely as a bolt on to their Management team.

So what did we do?

We spent this lockdown working with our client, re-visiting Business Plans, applying for the Government guaranteed CBILS loan and speaking to funders generally about the impact of COVID and how to manage around it.

A brief word here about the CBILS. In the case study example we were successful with our carefully thought out application, our client was able to demonstrate the adverse impact upon cash flow brought about by zero sales, the cash hole that created and the recovery once sites were open again.

A loan was put in place and was of great comfort at a very stressful time. A clear example of the way Sophell. works on an ongoing basis with our clients.

Turning now to “post-Covid”, the question remains are we “post-Covid”? The answer is clearly not as cases are currently rising daily and should this trend continue we could be in National lockdown once again.

Clearly, the Government are trying to prevent this and there will be many innovative measures introduced to temper the impact on the economy as far as possible.

In our view, the construction industry is one where the Government could carve out this sector for special Covid treatment but this would also need to follow through to the supply chain and be very carefully thought through. In essence,

 a building site is a place where social distancing is easier to maintain than many other businesses, so there is hope.

Referencing an article from Construction News:

“Persimmon’s half-year update also showed total revenue for the first six months of 2020 at £1.19bn, which was down by more than half a billion on the previous year (2019: £1.75bn). This was largely due to the reduction in its housing sales, which were a third (33 per cent) lower than the previous year at £1.10bn (2019: £1.65bn). Persimmon completed around 2,500 fewer houses in the period, with a legal completion volume of 4,900 (2019: 7,584).”

“While Persimmon’s update showed that completions were understandably down 35 per cent in H1, pricing remains firm, sales rates continue to improve, build rates have recovered and the cash position has improved.”

Long may this continue!

If we learn the lessons from the past 9 months, the Government gets smarter and looks at the sector sympathetically then we believe that the House building bounce back could be sustainable.

If you think Sophell. might be able to work alongside your business please get in touch - we’d love to hear from you!

How do Sophell. see the current market in the UK?

I caught up with Russell Jowett at Sophell. to ask a couple of questions around the current UK funding market?

How do the partners see the current market in the UK?

Our perspective is that this is a fascinating time in the market, there are so many imponderables and across all real estate asset classes that just make our role even more vital and for us also enjoyable. You could some up in one word- “difficult” however there are also a lot of opportunities and we can access these for clients and also provide a delivery solution.
Markets generally fear uncertainty and for certain the combination of COVID, Brexit and the US elections, to name but 3, make this a period where the real entrepreneurs of the future will shine or be born. Either way at Sophell. we are in a very strong position to enable and help these clients succeed.
Each market sector or asset class has entirely different and sometimes conflicting dynamics. For example, the housing/residential markets still have the benefit of demand far outstripping supply, whereas the retail market has and will see a shift that will change the landscape forever.
We work with the experts in all these sectors, people at the top of their game, and this means we can open doors and structure solutions.

Credit is going to be more difficult to obtain in the current market and for the foreseeable future, how can Sophell. help?

This is at the core of what we provide, solutions. We will use our structuring capabilities coupled with our trusted pool of funders and investors to provide a unique solution, no matter how complex the transaction. Our relationship with our funders and investors is very strong and this enhances the credibility in any transaction as a large part of the DD will have been undertaken by us before presenting the opportunity.If we support a deal structure the chances are very high that the funder and/or investor will also support it.

Why use Sophell.?

Immediately you will feel fully engaged with the founders and partners in the business who will set up a joint call over zoom or any medium of your choice. We will want to understand your background, your current business and what your goals and dreams are for your business. This will enable us to quickly buy into the big picture as this will set the scene for any advice we give and to enable us to ensure we put in place the best possible funding structure for you and your business.

You are immediately connected to the founding partners and their vast experience and knowledge of the market and who will remain fully involved at all times through what we hope will be a long-standing relationship.

You can contact Russell today on 07921 502 910 or email directly at russell@sophell.com

Welcome to Sophell.

Hello

I am delighted to advise you that I have started a new business in debt advisory covering all property sectors and providing the whole capital stack through an amazing network of  Global investors and funders .

Our mission is to provide what we describe as an holistic approach. To become part of your team providing advice on strategy, structuring, agreeing and delivering short, medium and long term goals in addition to sourcing and implementing funding. 

We bring a depth and range of global contacts from investors and funders to professional service providers many of whom are former colleagues upon whom we can call across a whole range of disciplines.

Our clients are at the very centre of everything we do and we spend time getting to know and understand their business, their strategy and their goals before overlaying the skills, knowledge and experience we can bring to see these goals come to fruition.

Our values are completely aligned, work ethic, integrity, honesty and transparency being vitally important to us.

In terms of timing we believe this is the perfect time given the current market conditions and we will be providing regular information opinion and insights into all aspects of the commercial property and funding market.

Please register for these updates and also have a look around to get a greater insight into what we can provide for your business.

We look forward to working with you should the opportunity present itself and in the meantime we wish you all the best in the current climate that we find ourselves in.

Russell Jowett ACIB