London-based residential lender Pluto Finance has launched a new £250 million (€294 million; $392 million) business to provide financing for housing developments in London and the south east of England. According to the firm, the initiative is part of a plan to inject a substantial amount of capital into a sector that “has been starved of traditional bank finance in recent years.”
The new vehicle will provide developers with a single loan of up to 90 percent 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 provide significantly more capital to developers than traditional senior debt providers, enabling these developers to kick-start new projects and to spread their equity across a greater number of schemes.
Pluto Finance’s new business aims to lend up to £250 million over the next five years. It has secured initial equity commitments of £100 million from institutional investors, including Clearbell Property Partners II, a UK real estate fund managed by Clearbell Capital. 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 between £10 million and £30 million per project.
The first loan already has been made for a scheme next to the Thameslink station on Iverson Road in West Hampstead, north London. The £12.1 million loan will fund the development of 36 units, comprising 33 multifamily units 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 that Pluto Finance offers to residential developers. Over the last two years, Pluto Finance has funded projects with a gross development value of more than £200 million. The mezzanine product will continue to be available for projects with total costs of less than £10 million.
Chris Philp, chief executive officer of Pluto Finance, the residential 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 We are helping to fill the gap left by the large number of banks that have withdrawn from the residential property development finance market in the last five years.”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, added: “In the face of relentless demand for quality new 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 homebuilders, allowing stalled projects to get off the ground and stimulate new developments.”
Figures released last month by the Home Builders Federation, which represents the homebuilding industry in England and Wales, showed that there was a 10.5 percent year-on-year increase in the number of planning approvals for new homes in the UK. In the first quarter of this year, 40,633 dwelling permissions were granted, 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 it still was well below the 55,000 quarterly permissions required on average to meet housing needs or the 54,500 that were being granted on average during 2006 and 2007. According to UK 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.
Established in 2004 by Philp and Justin Faiz, Pluto Capital operates in the UK and Europe. In the UK, the company provides residential development finance for developers through Pluto Finance. In Europe, the company manages a development fund, Pluto Developments, which is active across a range of sectors, including city center residential and coastal holiday homes to retail and commercial projects.