Constructing Opportunity for Asset Based Lenders

Posted: 30 Jul, 2018

Assessing the opportunities and risks for asset-based lenders serving the construction and building materials industry

Written by Neal Weekes, Director, Gordon Brothers

The past ten years have seen overall growth in the UK construction industry. However, that growth story consists of winners and losers across sectors and asset types. Construction loans currently represent only 6.5% of asset-based lending activity, as cited by the Asset Based Finance Association (ABFA). This disconnect between industry performance, the asset intensiveness of construction, and the small penetration of asset-based lending to the industry represents untapped value for investors. But capitalising on that opportunity requires careful consideration of the sources of value, positive and negative.

Understanding the optimal timing for liquidation, the costs required to do so, and other factors that impact performance and recovery values will ensure lenders can succeed. Major drivers of construction asset values include overall market activity; trends within subsectors supported by construction; seasonality; asset specificity; equipment manufacturer preferences; commodity cost exposure; liquidation costs, and the viability of other soft assets that complement hard assets, such as rental streams.

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