SFI spoke to Atelier Capital Partners about the challenges of building a new business in 2020, and the future of the market as we move towards a 'new normal'.
Spotlight: Jessica Bird spoke to Graham Emmett and Martin Gilsenan at Atelier Capital Partners, about the challenges of building a new business in 2020, and the future of the market as we move towards a 'new normal'
On its first official day in business on 4 January 2020, following a pilot phase in the second half of 2019, institutionally-backed development and bridging lender Atelier Capital Partners (ACP) already had £25m in loan commitments.
In January 2021, ACP reached its £100m lending milestone. This followed its strongest ever quarter, with £35m lent in the last three months of 2020.
According to Graham Emmett, chief investment officer, and Martin Gilsenan, director of origination, far from causing chaos, 2020 in fact helped the business forge ahead with its original trajectory.
Emmett says: “Are we where we expected to be? Yes, I think we are.
“When COVID-19 hit and lockdown arrived, we looked at where we were heading and made some changes to the business model, and in some ways COVID has speeded up our business plan.”
Growing market scale
Originally doing a smallest loan of £75,000, the business now sees its lower limit as being £750,000, as of May and June 2020. It also updated its average loan size, which was originally anticipated to be between £1m and £2m at this point but is in fact closer to £3m or £4m.
In Q4 2020, ACP provided its largest loans yet, at £10m, £7m and £6m; Emmett expects the average to sit in the region of £3m to £5m as the portfolio expands further in 2021.
He adds: “We’re on budget, on plan, and whilst it was disruptive, [the pandemic] sped up our original business plan to move to the bigger loans.”
Part of this growth has been fuelled simply by the move from being a new player in the market, where a lot of brokers were “just trying us out” according to Emmett, through to garnering established relationships based on reciprocity and trust, once those brokers dipping a toe in the water grew in confidence about how the business operates.
He also adds that moving into larger loan sizes is closely linked with the type of borrowers, reflecting the business’ goals in terms of who it works with.
Emmett says: “Part of the reason we’ve moved to the larger loan quantum is that we are able to deal with people who have a track record. Good or bad, they’ve been through the cycle.
“I credit people who have taken a few knocks as a positive, that track record is just as important as having every deal they’ve done be a success.”
He goes on to add that loan size has not been the only marker of the business’ growth over the year, saying: “The trajectory included standing on our own two feet – so being resourced internally through the best people.”
To this end, ACP has recruited an additional 11 people during the last year.
Emmett says: “The aim of 2020 was to grow our assets under management [AUM] to around £100m – so the trajectory seems to be going pretty well – and recruit people to manage that initial growth, as well as to create, from a mix of people and assets, a ‘best in class’ institutional platform.
“The reason to do that was to attract institutional capital into the sector. Those were the pillars of 2020.”
Stepping into the breach
According to Gilsenan, who himself joined the business during 2020, a driving force behind ACP’s success was the decision to continue providing support rather than retrenching when the crisis hit.
He explains: “Atelier stepped into the breach, and that in turn inspired confidence from introducers and developers that an institutional funder was prepared to back them in those uncertain times.
“We’ve built on that trust and its helped us reach that first milestone of £100m lent. That was a pivotal moment for the business.”
However, it was not as simple as continuing with business as usual. ACP, like any business, had to consider how best to approach an unprecedented situation.
“COVID really meant the business had to reset and respond,” says Gilsenan.
“The decision to continue lending, and the responsibility that comes with that, brought out the best in everybody. There was an opportunity for Atelier to engage with new introducers and customers.”
For Gilsenan, one of the issues with how many lenders dealt with the events of 2020 centred around claiming to continue lending, while this was not true in reality – which he refers to as “virtual lending.”
“Atelier took that responsibility seriously, were comfortable within the parameters that they’d set themselves, and delivered time and time again,” he adds.
“That stood us in good stead and helped generate the momentum that’s taken us to where we are now.”
Emmett adds: “Rather than panic, we were clear about what we were going to do.
“The first decision we made was that we were not withdrawing from the market. There would always be market opportunity.”
In fact, what ACP reasoned was that rather than a time for retrenching, this crisis could provide ample opportunity to build, grow and cement its standing in the market in a short timeframe.
Emmett says: “I’ve seen that time and time again over the years, some of the best deals are done when the market is most volatile. You’ve just got to be nimble, fleet of foot and understand what you’re doing.
“In a funny sort of way that makes decision-making a lot easier, because rather than operating towards a strategic model, you became more opportunistic in your approach. We used our instinct and experience, and we were much more opportunistic than working to a strategic business plan.”
This is not to say it was simply business as usual; ACP had to tweak its credit appetite and adjust leverage levels down. Importantly though, Emmett notes, the lender did not use this opportunity to push up its pricing and take advantage of its position in a contracted market.
ACP also had to make various operational changes, along with the rest of the market, to account for fundamental barriers to traditional models. For example, it introduced the use of drones to gather footage from building sites which, due to lockdown and social distancing restrictions, were not available for in-person visits.
“We had to use nimble alternatives to keep SMEs building,” says Emmett. “You had to apply common sense and experience, and that’s what we did.”
ACP’s ability to adapt and willingness to remain stalwart during difficult times will hopefully form the basis of a strong reputation and fruitful relationships in the long-term.
Gilsenan says: “You can judge a relationship in difficult times. Some of our relationships were formed in those difficult times, and that brings with it an innate trust. You would like to think those will just cement and progress and we become a lender of first choice.
“The response to COVID-19 meant that Atelier no longer had to find a space in the market. The fact that it was lending, and lending within parameters that were clearly communicated, that was its space. It became a player very quickly by virtue of its consistency, message and delivery.
“That was quite liberating for the business.”
Emmett adds: “The important point is certainty of delivery, you can’t emphasize that enough. The internal decision-making matrix that we had developed allowed us to speak to borrowers with the confidence that transactions put to the credit committee were going to be delivered.
“I’ve always operated a policy that a fast ‘no’ is paramount, and an educated ‘yes’ proves we know what we’re doing.”
Values and culture
For most businesses, one of the more nuanced challenges of 2020 has been the difficulty of maintaining a company culture – either internal or external – while grappling with remote working, high stress, reduced workforce numbers and the pressing concerns of crisis management. For ACP, this was an even greater hurdle, considering it lacked the benefit of an already long-established structure and set of values that simply needed to be adapted to the ‘new normal’.
The lender was faced with the task of building a company culture from scratch, at a time where employees were scattered and dealing with their own stresses. During this time, the business also entered a period of growth, shifting its recruitment strategies to Teams and Zoom, all while trying to maintain the approach of attracting and hiring ‘best in class’ candidates.
Underpinning all of this are a set of core values which Emmett and Gilsenan see as creating strong foundations for the business.
Emmett says: “We’re trying to recruit the best in class, and we’re trying to empower people to play in their positions to their strengths. If you can do that, and people aren’t afraid to make the odd mistake, you create the right culture of entrepreneurialism.
“With the right backgrounds, the right experiences and the right empowerment of the team, you can create the right goals and values around the business.”
Emmett says: “In our recruitment and the way we run our business, we are very focused on ensuring our ethics, moral compass and diversity is right.
“I know these are all hip buzzwords, but empowerment and integrity are really key to the culture of the business.”
Emmett says: “It’s a transparent process and underwrite, with access to me as the ultimate decision-maker. I go to site, I meet as many borrowers as I can at the beginning and at the end, because my experience over 30 years of being a lender and a borrower is that sometimes you need to be able to pick up the phone and speak to the decision-makers.”
Gilsenan agrees: “The transparency of decision-making is absolutely critical, and that accessibility that Graham provides is something that is personally appreciated.”
Certainty of delivery – and of funding lines – is something that has come under threat throughout the specialist and mainstream markets in 2020, and this is therefore a value that ACP sees as increasingly important.
To this end, ACP aims to continue building a platform that will remain institutionally funded and provide that much-needed certainty to borrowers.
- Reciprocity and trust
Gilsenan says: “Atelier is completely committed to the real estate market in the UK, and we work incredibly hard, are very focused and are long-term relationship people.
“With that, we expect a great deal from our introducers and customers. We expect a reciprocal commitment to transparency and personal integrity. That’s not underpinned by saying ‘yes’ all the time, it’s about the mutual respect and understanding that you can’t do every deal, but the relationship is predicated on an understanding of where we sit, as well as an understanding of our introducers’ and developers’ strengths.
“We can only lend on sites and schemes we like and to people that we like, so that reciprocity is absolutely critical.”
Emmett and Gilsenan both emphasise the importance of running these core values throughout the employee experience. For example, in daily team catch-ups, the focus is on fun, effective communication, and a team spirit in which everyone has a voice.
Gilsenan explains: “The key values that stand out for me are team spirit and a team ethic. If you recruit best in class, it’s important that everybody has a voice and feels they can make a difference. The fact that that’s encouraged at the highest level in the business is self-evident.”
Part of this commitment to giving all employees a voice, and harking back to the values of empowerment and trust, is the acceptance that staff can make mistakes and learn from them. In a recent illustrative example, someone made a mistake, and later gave a presentation to the business about what had happened, which resulted in a change to its systems.
Emmett says: “We’re a new business, there’s no book that tells you how to do it, and we’ve all got experience from different organisations – let’s try and mould these experiences and processes and policies into something that works for us internally and externally.”
Although the ultimate goal is to go back to having some form of physical base where people can work together, lockdown restrictions have opened Emmett’s eyes to the value and benefits of home working, and why flexibility will be key even when returning to ‘normal’.
He says: “I thought it would never work, now I’m the biggest subscriber. Looking ahead, we are looking for a permanent home, but also we know we work well at home. So, there isn’t a reason why people should be in the office five days a week, and we can embrace that because we’ve experienced it.”
The external experience
Gilsenan explains that the fluid and collaborative approach that has been created by focusing on these values does away with territorialism – no one person owns a relationship, and there is a culture of trust among colleagues that ensures clients and brokers speak to the right people at the right time.
He says: “From my perspective, origination can only ever be part of the process. I don’t own a relationship, and I encourage long-term relationships of mine that I’ve got confidence in to forge new relationships with colleagues who I also trust.
"I’m very pleased to introduce top brokers and their clients to Graham and the credit team, not just because they’re a safe pair of hands, but because I know the experience will be a good one.”
By recruiting what Emmett refers to as “classically trained people with entrepreneurial flare,” the firm aims to continue building something that, in terms of operating processes, behaves like a regulated vehicle, but that is unique in its agility and flexibility.
Gilsenan adds: “From a credit perspective, what stands out about the team is they all have that classical training, but they’re there to assess the risk, not tick a box.
"They’re there to look behind the obvious – both in good ways and negative ways – about the case, look beyond the veneer, get underneath it, and really, that’s real underwriting.”
ESG and urban regeneration
One of the ways in which the values of the business manifest themselves is in its commitment to redeploying institutional money for a higher purpose, and to environmental, social and corporate governance (ESG) matters.
This is as much about choosing who to work with as it is what schemes to work on, and underwriting challenging environmental projects can be a particular hurdle.
A recent example saw ACP deal with a technically challenging project involving the redevelopment of a petrol filling station, which had sat redundant in a village in Hertfordshire for approximately two decades, due to the complexity of removing the tanks.
Emmett says: “Part of that environmental agenda is about how we manage the underwrite and risk of what might be a very challenging environmental problem on the site. It’s down to us to support those developers who feel they can make a difference in the social environment.”
The solution lay in an agreement with the developer that he would take on the initial costs, and then be reimbursed via the facility as the development progressed. The result is that six finished houses are under offer, and the middle of the village has been revitalized.
Emmett says: “We’re not going to solve the problem on our own, but where we play – which is in that £1m to £7m space – we’re going to be doing our best for urban regeneration in the smaller town and village areas where buildings have passed their use.
“There are developers with bright ideas, and we hope to back some of them because of the flexible capital that backs us.”
While the process has been occurring for some time, COVID-19 has accelerated the deterioration of the high street as we know it. Lenders such as Atelier may well be at the forefront of turning this change into something productive.
Gilsenan says: “There’s been a huge debate for years about the future of the high street, and we’re hugely aware of our responsibility to back the right schemes that support and enhance local communities. That’s central to everything we do.
“ESG is integral to [growth], because it’s a part of the culture and a mindset of the business. There’s no ESG department, it’s a way of working.”
Emmett adds: “We want to see that we provide real homes for real people – that’s the higher purpose. We take institutional money and place it with SME investors and make it work for SME developers to create this product, which is real homes for real people.”
The digital revolution that has occurred over the course of 2020 has highlighted the importance of getting the right information quickly, and of creating smooth processes to facilitate the nuanced work done by human decision-makers.
To this end, ACP rolled out a digital platform internally that aims to manage risk and scale, and is about to extend the roll-out externally as part of the approach of improving customer service.
Emmett says: “In terms of managing risk and scale, it’s all about having numbers at your fingertips and being able to process information in an efficient and productive way.
“We’re not really a fintech, but technology is a big vein that will run through the business as it goes forward.”
The two portals the lender is about to implement focus on the borrower, for direct business, and the broker, for broker-led business. The aim is to ensure consistency across all applications, and to minimize the need to ask additional questions.
This focus on technology feeds into ACP’s aim to provide a quick, well informed ‘no’ if it is needed, rather than allowing a case to progress. It is also about using technology as an enabler and support, rather than a replacement for the integral work done by individual underwriters.
Emmett says: “It’s all about being able to manage the risk efficiently. You can get to an educated decision about going to the next stage and have fewer deals fall over, which means you can scale faster. It means you make better decisions quicker, based on consistent knowledge. It’s making the technology work for us to improve the experience.”
Gilsenan adds that this technological evolution took place with brokers and clients front of mind: “We’ve undertaken a feasibility study, and we want the tech to work as an enabler and supporter of high touch relationships.
“It’s important to be speaking to brokers about what they would like to see in a broker portal, what’s important to them.
“We’re not making assumptions. We’re making sure that it enhances their experience and supports that relationship, not as an alternative, but as an enabler.”
Moving into the ‘new normal’
Gilsenan is optimistic that specialist finance, which has increasingly taken main stage as high street lenders struggled during 2020, will only grow in prominence in 2021.
He says: “Despite the fragility of the economy, which we are alive to, there are reasons to be optimistic that our sector will grow this year. We expect the market for alternative lenders like us will become increasingly the first choice for introducers and their clients.
“The market will grow, and we’ve got ambitious but realistic growth plans as well. The challenge will be getting the right trade-off between risk and price. Were confident about doing that and the relationships we’ve forged. There are plenty of reasons to be optimistic.”
There are a considerable number of market trends, from the vaccination programme through the newly extended stamp duty holiday, that will shape the property sector going forward. For ACP, it is about following and supporting the market – and the best brokers and borrowers – in negotiating these trends.
This might mean dialling up or down its appetite for certain property types – such as apartments in large blocks, versus properties with more outdoor space and facilities to work from home.
Emmett says: “It’s about looking to work with developers who are providing a product the market wants. You’ve got to be cognizant of where the demand is.
“You have to have your eyes on all [the trends]. But as we move back to a new normal, our opportunistic approach – which is being watered down at the moment – is moving towards a more strategic business plan again.
"We are slowly beginning to pivot again towards what is the new normal, where should we be focusing, and following those borrowers and brokers who we think are going the same direction as us.”
Gilsenan thinks that long-term changes to things like permitted development (PD), and a seismic shift in the world of retail, for example, will permanently shape demand. Meanwhile, Emmett adds that this change to the high street is also indicative of a shift in terms of our needs as individuals, and how we view elements such as work-life balance and working flexibility, which is going to be a particular focus for ACP as it evolves and grows in 2021 and beyond.
He says: “The next phase of our growth has to be fuelled by flexibility. It’s all about that life-work balance. You do get more out of your staff if you show you trust them, give them the ability to be flexible, and build an ecosystem that allows for it.”
As for the business’ direction for the future, Gilsenan notes that ACP is seeing an increasing number of opportunities with larger operators which specialize in mixed-use commercial and residential sites, as well as the classic SME developers that form its core client base.
He says: “SMEs reflect what we do – they are nimble and responsive, and deserve all the praise for responding in the way they have in the current crisis. They are looking to invest and have confidence in the market, and are able to be nimble and responsive as we are. They are no doubt a core market for us, though we are seeing opportunities with larger operators as our loan quantum increases.”
“As we’re growing we’re seeking diversity in our portfolio, we don’t want to be one dimensional in our lending,” adds Gilsenan. “Just as we are growing and want a mixed portfolio regionally and demographically, that’s naturally going to be reflected in the customer, and what our borrower looks like, and will reflect the mix of products that we seek to fund as well.”
Ultimately, the aim is to bring sophistication alongside its growth, which ACP argues will come with the combination of being managed and set up like a regulated bank – and thereby attracting the strongest capital – whilst maintaining a flexible, nimble and entrepreneurial spirit.
Want more deep dive features? Read the previous in the Spotlight series here.