Risk management
We understand that a quality fund needs impeccable risk management and our highly experienced team adopts a high-touch policy to every development loan we make. This is how we continue to achieve strong quarterly performance for investors.
Detailed below are some of the risk management tools utilised by our underwriting and real estate team:
Overarching underwriting criteria:
- Borrowers must be adjudged by the BLG team to be experienced as developers of the underlying development type or style, geographical location and the size or mass of the development proposed
- The Borrower must have a financial commitment to the transaction, there must be developer equity subordinated in the capital structure to the Fund’s investment
- The advance level under the loan must be prudent and sensible for the underlying development transaction. This will generally mean that the funding will not exceed 70% of the value of the development
- The Developer must have a viable and profitable development scheme. The interests of the Fund and the Developer must be aligned so all parties are motivated to achieve the best and most profitable development.
General investment process
- The Fund will make Secured Loan investments to experienced residential property developers, advancing up to 70% of the value of the development
- Loans will be secured by first legal charges, or in the case of mezzanine loans a second legal mortgage, over the security property
- Other security in the form of assignment of construction contracts, collateral warranties, corporate & personal guarantees are taken as applicable to the underlying transaction
- The BLG team will commonly visit the development site on several occasions through the development process
- Prior to a loan being drawn the security property will valued by a qualified surveyor, reporting to the Fund
- Regular (usually monthly) project monitoring is conducted by surveyors appointed to report to the Fund
- Geographical focus is concentrated on regions with stronger economic fundamentals & stable house prices. Initial focus is in London & Southern England
- All developments must have planning consent for an acceptable development scheme.
Underwriting & risk management process:
- All development properties are visited by the Business Lending risk team who conduct a due diligence review
- Due diligence will usually comprise (i) a formal valuation of the property and completed development, (ii) cost analysis and (iii) a review of the development programme to gain comfort that the development can be completed on time and budget. (iv) A review of the technical competency of the developer and any contractor and financial stability of these key parties. We will also discuss or review with architects, structural engineer or other professionals as applicable
- Applications are then presented to the Risk Committee after rigorous stress testing specifically on sales analysis. The Risk Committee comprises a highly experienced risk management team
- Successful applications will then be documents and security completed by lawyers acting for the Fund
- Construction monitored by Quantity Surveyor/Building Surveyor or similar. BLG will also regularly visit developments during construction
- Stage payments for the construction are paid against the certification by the monitoring surveyor who will also review compliance with planning, building regulations, health & safety and other site specific relevant features
- Monitoring by the BLG team together with the surveyor will also comprise sales liquidity and sales value reviews on an ongoing basis.
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The investments described are unregulated collective investment schemes as defined by the FSMA. The Schemes have not been authorised or otherwise approved by the FSA and, as unregulated collective investment schemes, cannot be marketed in the UK to the general public.
The Information Memorandums give information relating to the fund, and should be read and understood prior to any investment being made.