Firma Partners, In Their Own Words

I think they’ve enjoyed a flexible approach. A lot of people use the words ‘flexible’ and ‘boutique-y’ and say these types of things, but we really are. As a business, we don’t have a single line of communication in terms of a BDM team or an origination team – in fact, we’re almost like one big family. I think borrowers enjoy the fact that if there are any issues, they can pick up the phone to anyone in the relevant department, be it from a QS point of view, underwriting, or otherwise. A lot of our borrowers end up feeling so comfortable that some of them will pop in once or twice a week, even work from our office and take a room. I think they really enjoy that. And when it comes to development funding, every single month there’s another drawdown, so the relationship needs to be maintained with every department, rather than one person making decisions. I think they enjoy that too.

I think they’ve enjoyed the experience of knowing exactly what’s going on at any given time. We communicate even when we have, or haven’t, got something to say. And there’s also the fact that decisions are made in-house – there are no external credit committees or anything like that.

The deals most suited to Firma are the ones with more complexity that require more flexibility, and that could be for a number of reasons. It could be because the asset is a development asset and is transitional, so we need to carefully investigate and analyse the lease-up risk, the delivery risk, the execution risk, and the planning and building regulation risk. There are also deals with a more complex capital structure – not just more leverage, but needing more flexibility on key heads of terms around milestones and covenants. And it could be because the borrower needs to move very quickly, in which case we’re very engaged and responsive and try to deliver a solution quickly for them. So I think speed of execution and flexibility are important aspects of the work that we do.

We also tend to take the view that we should work with borrowers through difficulties. Lots of lenders don’t seem to do that, but we take the view that they’re our partners and we want to support them if they enter into any challenging situations. Our borrowers always have direct access to decision-makers within the business, which is important to them. And there’s a tremendous amount of expertise within our team, which we feel allows us to assist them through certain elements of due diligence – we can take views on certain aspects where some of our peer lenders perhaps can’t.

Firma differentiates itself first through the sector, or part of the market, we work in – whole loans, quite large, starting from £20 million with no upper limit, on really complex, institutional-quality deals. We’re an institutional business in terms of quality and what we work on, but we’re very entrepreneurial and commercial in how we think, structure and respond to opportunities, where more traditional lenders might be too rigid or restricted to fully act. We also take slightly higher leverage than more traditional lenders, which means we can do deals they might pass up on. And I think something else that sets us apart is that our decision-makers are involved really early on in a transaction – there aren’t layers and layers of credit committees that borrowers have to get through to get an answer or pricing on a loan.

At the moment, as a business, we do debt – large, complex debt in the UK, so stretched whole loans up to 70-75% loan-to-value or loan-to-GDV. We’re actively moving into the smaller loan space too, with bridging lending from £1 million to £10-15 million, which we haven’t done previously. In addition, I think it would be highly complementary to partner with developers at an equity or JV level as well, so we’re working hard on being able to do that too. I suppose the challenge is that as we’re growing, and growing pretty quickly – we’ve moved offices three times in the last year and a half – is keeping that boutique, family feel for borrowers while also growing. That will be the challenge, and something we look forward to.

I think there are probably three main reasons investors like investing with Firma. The first is, obviously, that the management team has a fantastic track record, having invested over three and a half billion in loans in the UK market over the last 10 to 15 years, and investors take a lot of confidence from the team’s expertise investing through different market cycles. The second is that all investors have direct look-through to the underlying loans in our core strategy, which gives them a huge amount of transparency over the loans they’re invested in. The third builds on that transparency: our investor reporting is monthly or quarterly, depending on the loan, with ad hoc reporting as specific milestones are met in the project, and our investor relations team is always available to answer investor questions. I think all three elements really give investors confidence when they invest with Firma.

During the construction loan, investors get an experienced view from me. There are the IMS’s monthly progress reports and the advice given in those reports. However, I also have the experience and knowledge to review those reports myself and give feedback from an experienced perspective.

Making the best use of external advisors starts with engaging them early. This means giving them a clear brief on the scope of the project. For example, with valuers, we’d give a clear mandate as to the basis of value and how we view the underwrite, so their report can mirror that. With other advisors, we’ll give an outline of the key things we’re looking out for – that way, they can produce a concise report focused on the key credit risks we’re interested in, as opposed to a 200-page document that nobody will read.

In terms of structuring, we’ll obviously take into account loan-to-cost and loan-to-value. When I say loan-to-cost, we’re anticipating a meaningful cash equity element being put into the deal by the sponsors – that said, we can take a view on notional equity where there’s been potential planning uplift, for example. We look at the track record of the professional team, particularly the main contractor, and the borrower’s experience and the projects they’ve successfully entered into and completed. We’re also quite interested to understand, from the borrower’s track record, whether they’ve ever hit challenging times, what they actually did in those circumstances, and how they got themselves out of difficulty.

We’re also going to look at supply and demand metrics – what’s coming on stream in the particular locality in future. And if the plan is to sell the units in a particular scheme, we’ll be looking at the debt yield and debt service cover ratio once they’ve hit practical completion.

For me, the most valuable thing I bring to the table is the knowledge and experience I’ve gained over the years – having attended monthly progress meetings on site, interacted with the developer’s professional team, and gleaned information that perhaps wasn’t forthcoming during those meetings.

Strong loan management includes continuous covenant monitoring, tracking progress against milestones and conditions subsequent, and most importantly, keeping a continuous open dialogue with borrowers. At Firma, we aim to have a collaborative, solution-driven approach to our loans, as we’re very interested in the success of our borrowers.

I think it’s important to first recognise that as a team, and a management team – and certainly for myself, I’ve lent since 2008. We’ve gone through the global financial crisis, Brexit, COVID, huge interest rate rises recently, inflation, and various wars we’re seeing at the moment. As a business, we’ve managed to navigate all of these different environments and still managed to return investors their full money, their full returns, and never lost any capital or return on a deal during any of these crises.

We lend specifically where strong fundamentals exist. When we look at our borrowers, we try to look at similar attributes – borrowers with a long-standing track record who have also gone through difficult times and managed to return equity to their investors, and obviously to their banks as well. I think the best way to get to know somebody is to see how they’ve navigated those times, what their attitude has been to risk, and what they’ve had to do to make things right when things have been very difficult for them.

Typically, when we look at transitional assets and development assets, we always see the projects taking a bit longer in duration, and sometimes there’s some cost creep. But what we really focus on is the assumptions around exit pricing – that can have a huge impact on the viability of the project. We see a lot of discrepancy between what the borrower is hoping to achieve and what we think is realistically achievable in the marketplace, and we also differentiate between the number in a valuation and what’s actually deliverable in the market, based on the liquidity that’s out there.

So borrowers tend to approach us when they’re actually ready. A lot of borrowers aren’t in a position to progress, so ours tend to arrive armed with all the information – a deep knowledge of the micro-environment they’re entering into, having conducted sensitivity analysis and stress testing, anticipating all the documents we’d need, and with a well-thought-through strategy and plan, particularly around construction and the exit of the loan.