Many banks, which may have once provided bridge and other gap financings to firms seeking additional capital, are no longer doing so or in such large amounts. In the property investment world, a firm that is trying to fill financing gaps is Maslow Capital, a London-based firm which likes to be described as an asset-backed financial vehicle, providing lending to specific, high-quality real estate deals.

Tourists visiting London often recall a message that blares out of the public address systems on the city’s Tube metro network: “Mind the gap!”

People who work in London’s banking sector do not just have to worry about the gap between the side of a train and the platform edge. As the after-effects of the credit crunch continue, they must also calculate how to fill the financing void created by banks that now shun lending to certain businesses. Many banks, which may have once provided bridge and other gap financings to firms seeking additional capital, are no longer doing so, or in such large amounts. 

In the property investment world, a firm that is trying to fill financing gaps is Maslow Capital, a London-based firm which likes to be described as an asset-backed financial vehicle, providing lending to specific, high-quality real estate deals where conventional funding has proven hard, or too expensive, to obtain. 

Maslow Capital is currently road-showing its credit fund, talking to high net worth individuals, family offices, trusts and select institutions such as pension schemes, both in the UK and abroad. (The roadshow runs until mid-May.) WealthBriefing recently spoke to Mort Mirghavameddin, Maslow’s managing partner who set up the business after a long spell in the banking industry, including 14 years at Investec. 

"We are there to provide seasoned property professionals with financing requirements right across the debt structure, although we concentrate primarily on the current gap between senior debt and equity. This we refer to as senior stretch rather than the traditional Mezzanine which covered lending above 80 per cent loan to value,” he said.

At a time when inflation and wafer-thin interest rates were combining to make cash a highly unrewarding asset, investors are looking for additional, but low-risk, sources of yield, he said. And his business model, he said, was ideally suited to this objective. Maslow targets a net annualised return to investors of 12 per cent, nearly half of which is projected to be delivered by way of bi-annual dividends.

"We are not, in this form of financing, generally taking a 'view' on the market," he said, saying that this form of financing was not predicated on a rising market rather the 'value-add' created by property professionals,” Mr Mirghavameddin said. 

"We are, in some cases, nursing the walking wounded where the traditional banks 'drug cabinets' are lying bare," he said.

Example

Maslow’s marketing literature covers a range of examples, drawn from real-life cases of where a property investment firm required a relatively small additional sum of money, but where the cost of obtaining that sum from a bank would be prohibitive. In one case study, for example, a UK-based property developer with combined debt of £9.6 million and debt arrangements of £9 million, was granted a one-year loan worth £615,000 at around 15 per cent by Maslow with a joint first charge and first priority on this sum upon sale. (The property had an estimated end value of about £13 million). Given that the estimated end value was a conservative one, Maslow took relatively low risk in making the loan, while the borrower was able to plug his funding gap for far less than if he had gone to a bank, Mr Mirghavameddin said. This process was repeated in a number of other examples. 

As part of Maslow’s strategy, it partners with existing distressed lenders who are unable or unwilling to progress existing developments. 

The advantages of such lending, he said, is that the underlying asset class is simple and easy to understand – far removed from some of the more recondite alternative investment ideas that can be seen on the investment circuit. 

Mr Mirghavameddin says the current environment is particularly favourable to his business, even though as he says, the success of this investment model is not tied to taking a view one way or the other on property price trends.

The financing gaps, then, are plenty. As Maslow’s own reports state, recent research from Savills, the property agents, show that there are only 22 active banks willing to undertake loans in excess of £10 million, the majority of which are German lenders with a UK presence.

There are other investment firms and networks aiming to fill gaps left by banks. For example, as previously reported by this publication, “Angel” investor networks such as Angels Den and Beer & Partners provide gap financing, normally via equity holdings. On the debt side, the film industry can often throw up examples of investment firms creating bridge or gap financing to movie-makers who might otherwise struggle to get a loan. One such firm in this sector is Aegis Capital Partners. 

Such is the disenchantment among firms with some banks, that new credit facilities that have come into the market to meet demand will not vanish, William Flatau, the founder of First Funding, told this publication last October. In his case, his firm channels loans from high net worth individuals to firms that need the cash and depending on the level of risk involved in deals, returns can vary from around 6 per cent to 20 per cent or higher.
 
There are, then, plenty of gaps that need to be filled.
 
To reach Mr Mirghavameddin, email mort@maslowcapital.com