Pluto Finance, the residential development lender, today launched a new £250 million (approx. €294 million) business which will provide much-needed finance for housing developments in London and the south east of England.
The move represents a significant injection of capital into a sector, which has been starved of traditional bank finance in recent years.
The new vehicle will provide developers with a single loan of up to 90% of the cost of the development. The loans will be in the form of stretched senior development finance, combining senior and mezzanine debt. They will, therefore, provide significantly more capital to developers than traditional senior debt providers, enabling developers to kick start new projects and also to spread their equity across a greater number of schemes.
Pluto Finance’s new business aims to lend £250 million over five years. It has secured initial equity commitments of £100 million (approx. €117 million) from institutional investors, including Clearbell Property Partners II LP. When developments have been completed, recycling of the capital will enable Pluto Finance to lend up to £250 million over time. Loan sizes will be £10m to £30m per project.
The first loan has already been made for a scheme next to the Thameslink station in Iverson Road, West Hampstead, north London. The £12.1 million (approx. €14.2 million) loan will fund the development of 36 units, comprising 33 flats and three townhouses. Construction will start in August and completion is expected in November 2014.
The stretched senior product is in addition to the existing mezzanine funding, which Pluto Finance offers to residential developers. In the last two years, Pluto Finance has funded projects with a gross development value of more than £200 million (approx. €235.2 million). The mezzanine product will continue to be available for projects with total costs of less than £10m.
Chris Philp, CEO of Pluto Finance, the residential development finance arm of Pluto Capital, said: “The launch of this new business is highly opportune. Developers continue to find it difficult to source adequate funding for their schemes. Yet, the number of planning approvals for new homes has jumped over the last year in the wake of the National Planning Policy Framework.
“We are helping to fill the gap left by the large number of banks that have withdrawn from the residential property development finance market in the last five years”.
Manish Chande, senior partner at Clearbell Capital LLP, commented: "In the face of relentless demand for quality new build homes in many parts of the south east, access to funding remains the key sticking point for developers, even for some of the most established and successful firms. This new offering will provide more capital than is ordinarily available to home-builders, allowing stalled projects to get off the ground and stimulate new developments”.
Figures released last month by the Home Builders Federation showed that there was a 10.5% year-on-year increase in the number of planning approvals for new homes in the UK - 40,633 dwelling permissions were granted in the first quarter of this year, compared with the 36,761 granted in the first quarter of last year. It was the highest quarter one figure recorded for five years, but was still well short of the 55,000 quarterly permissions required on average to meet housing need or the 54,500 that were being granted on average during 2006/07.
According to Government figures, around 100,000 housing units are being built each year but households are forming at the rate of about 200,000 per year.