Can you still build your commercial property portfolio in 2022?

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    Updated: February 9, 2023 at 10:46 am

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      Traditional lenders are becoming more cautious as they seek to understand the full impact of Covid, but Swoop’s Head of Commercial Mortgages says there are still commercial property deals to be done

      AUTHOR: Stuart Pawelczyk

      Business owners seeking to build their commercial property portfolio may be unsure about how the market will work for them in the immediate future. At Swoop we are increasingly confident in the commercial mortgage market through 2022. There are a few factors that specifically affect the care sector, but there’s a lot more going on in the broader market. 

      Let’s consider the care sector first and how we’ve all had to work differently due to Covid.

      Finance professionals like us, as well as bankers, specialist lenders and valuers have all had to change the way we work. We quickly understood, no matter how difficult it was to lose face-to-face contact, that we could no longer see our clients in their businesses, and we needed to transition to video calls and virtual tours.

      Technology isn’t the only thing that has changed in our market either; traditional banks have reined in their lending, added more covenants and conditions, and have placed more emphasis on ‘bricks and mortar’ values when reviewing applications for finance. The review of financial accounts is more detailed than ever too. Some lenders are looking at pre-Covid numbers only whilst others are focused on a business’s current performance by stripping out the vital government financial assistance that has supported the care sector since the beginning of the pandemic.

      First-time and experienced buyers

      First-time buyers in the care sector continue to face barriers to entry with the ability to demonstrate experience being the greatest challenge for many would-be operators. Traditional lenders like to see evidence that new entrants have some history of success in the sector before they grant a mortgage. Fortunately, there are often options available to those determined to get started, though these lenders are not the usual household or ‘high street’ names. This is where Swoop opens doors for clients using our experience in the care sector with up-to-date knowledge of who is actively lending.

      Existing and established care sector operators will be delighted to have found that values have held up despite predictions that Covid would have an adverse impact and that funding remains available across a wide range of sub-sectors, including residential homes, specialist dementia settings, nursing homes, learning disability units, specialist care facilities, mental health facilities, supported/assisted living properties and children’s support services. The challenge for these operators lies in knowing which lenders remain active and this is where Swoop continues to add value.

      In short, if you can find a care business that you believe presents a good business opportunity, there will almost certainly be ways to finance it, especially if you have a track record in the industry. Covid has brought challenges but the finance industry continues to support the sector; it’s just that the active lenders are no longer the usual suspects.

      More broadly, all of those investing in commercial property regardless of the sector are finding that traditional banks are not seeking new lending opportunities with the same appetite they once did, driving business owners and property investors to seek the support of a knowledgeable and professional broker to help access the finance they require – a service our team at Swoop is pleased to provide.

      Why are traditional banks reducing their support? 

      Traditional banks are taking time to understand the long-term impact of Covid on their existing loan books. Property prices are holding, but the looming threat of interest rate rises has put a question mark over many of the deals presented to them. 

      To secure finance, prospective borrowers must demonstrate they will be able to generate sustainable income, which often requires a complex exercise of stripping out the sizeable government financial support and associated non-recurring costs. These adjustments have to be explained and justified. 

      Further, lenders are slowing down the application process by requiring borrowers to make Covid Impact Statements and there is little standardisation among lenders. This is where a good broker will distinguish themselves from a poor one by understanding the short-term, long-term and ongoing Covid impact across a business both financially and operationally. Moreover, they will understand and communicate how and why these are linked. 

      Swoop’s Commercial Finance Managers have the experience and knowledge to structure a deal so that it is as attractive as possible to potential lenders, support the customer through due diligence and finally to provide access to the widest possible pool of lenders to ensure the most competitive deal possible is secured from the market. 

      Read our latest case study on Commercial Mortgages

      The main takeaway for the coming year is that commercial mortgages are out there but need to be fought for more than ever. Potential borrowers must put together a strong case to lenders and demonstrate that they understand all of the risks as well as the opportunities for profit. In this climate, having a broker on your side in negotiations could be vital, even to the most experienced operators. 

      Stuart Pawelczyk is Head of Commercial Mortgages at Swoop. With a track record of helping business owners and property investors achieve their ambitions. He specialises in the care home sector and brings a deep understanding of the commercial mortgage market to Swoop’s customers. 

      Arrange a meeting with Stuart via Calendly or call 07498 239 501.

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