I exit Belfast’s central Donegall Square via Wellington Place and quickly find myself in front of Merchant Square, the gleaming redeveloped office block recently leased to PwC. Continuing onto a narrow lane around the back, I reach the unassuming Wellington Buildings, home to a much smaller business, Belfast Commercial Funding. I’m about to find out how closely connected the two sides of this city-centre block are.

Inside, I’m ushered into an office suite freshly decorated with light natural wood and beautiful art pieces appearing to draw abstract shapes from the maps of rivers. There, I meet Belfast Commercial Funding’s founder Gareth Graham and its head of underwriting Adam Dickson.

They lead the latest alternative lender to put its name out there on the island of Ireland. Until two weeks ago, Belfast Commercial Funding didn’t have a website – in fact, I was originally introduced to Graham through an email address hosted by his family’s historic business, Sean Graham Bookmakers.

Yet the two men have been quietly lending for over five years. To understand where they are coming from, we first need to look at the business that brought them together in the 1990s and into the headlines following the financial crisis – property development.

*****

“My background is three decades of involvement in property development, primarily in Belfast,” says Graham. Dickson adds that, as a chartered accountant, he has worked on the financial side of Graham’s business for 25 of those years.

The focus of this interview is not their property development back story, and they are clear that they can’t discuss it as the result of legal agreements and ongoing legal proceedings. It is, however, on public record that bank debts Graham had contracted in the Republic were part of the Project Eagle portfolio taken over by Nama and controversially sold to the US vulture fund Cerberus in 2014.

Graham fought the transaction tooth and nail, including by alleging irregularities in the sale, which he later retracted as he reached a settlement with Cerberus. The series of transactions remains under investigation, however, including in the Republic by the Nama Commission of Investigation since 2017. Its sole member, retired High Court Judge John Cooke, last month obtained a 13th consecutive extension to continue his examination of the deal.

While Graham did manage to refinance his way out of Cerberus in 2015, none of the funds came from within the island of Ireland. The largest backer of his property development business Oakland Holdings would turn out to be CBRE’s London-based Northern Ireland Investment Fund, which led the financing of the Merchant Square project. 

This is where we pick up the discussion on the origins of Belfast Commercial Funding.

“Where the idea, probably, was presented to us was during our negotiations with Cerberus, when our portfolios were in Cerberus as part of Project Eagle. The conversation came around to how the Northern borrowers get funded to refinance and get out,” Graham says. “If you owed a large, substantial sum of money, then there would be people there to meet the demand, but if you owed a much smaller sum of money, there wouldn’t be. We thought that that was something that was worth looking at.”

“Our first loan was £365,000 and that was all the spare cash that we had.”

Gareth Graham

Around six months later, Graham says he and Dickson were in touch with a house builder in Co Armagh. “The borrower’s loan was being acquired by a fund – a vulture – and he needed to refi. We saw his assets, we saw his plan, he was an experienced operator. And we thought, well, if we’re going to take a risk and try this, then this is as good a sponsor to try it with.” There was no guarantee that it would work, nor that such demand would exist in the long term.

As an experiment, they scraped around for capital and, by the end of 2016, became non-bank lenders. “Our first loan was £365,000 and that was all the spare cash that we had. We may have had about enough to buy groceries for a few weeks,” says Graham. “That was our first dip of our toe into the water.”

As banks stayed away from these types of small deals, the two men soon dipped a lot more. Graham says they re-circulated funds as borrowers repaid and more came knocking on their door: “Lots of people came to us because we had exited from Cerberus and they wanted advice on how to exit. The advice was always the same: Pay them and move on. To pay them, some people needed to raise funds,” he says. 

Graham says there were cases when he and Dickson were willing to lend but had to wait for existing borrowers to free up capital. “We would tell them that: Listen in August, for example, we may be able to facilitate you, if you can go and talk to the firm that bought your loan and negotiate with them to get to August. In many instances, the fund gave them an extra two months. That was a successful outcome.”

Some existing customers came back for more – one of them is now on his fourth loan, Graham says. By 2019, he adds that the need was clearly established: “We decided that this isn’t a one-year blip, this is a problem. We need to see can we fill that gap in the market. The problem you had was that there is like a Northern Ireland hurdle with international funders. We knocked on so many doors and we wore out so much shoe leather trying to raise funds that we thought we’d have to do this ourselves.”

To turn lending into a business, they needed more money. They looked out the window at the nearly-complete 230,000 sq ft Merchant Square redevelopment, where PwC UK had just signed a 20-year lease to locate 2,500 staff in the building, making it its largest office outside London.

Merchant Square in Belfast city centre. Photo: Thomas Hubert

“There are very few buildings on the island of Ireland that would compete with the level of sophistication of Merchant Square,” says Graham. “They insisted on BREEAM Excellent, which is a very high bar to achieve in terms of sustainability. We managed to get to that requirement by basically taking the building back to its skeletal shell concrete frame.”

According to CBRE, Merchant Square represented a £70 million investment. With a blue-chip single tenant, it was worth a lot more than that. Exactly one year ago, Graham’s  Oakland Holdings sold the property to the Saudi investment fund Albilad Capital for £87 million.

“We used the capital from that transaction, which was the largest office transaction in the history of Northern Ireland, to float Belfast Commercial Funding,” says Graham. “It’s transformed our business, to transform other people’s businesses.” 

Last October, Belfast Commercial Funding was established as a standalone company with a 90 per cent stake owned by Graham’s Oakland Holdings and a 10 per cent shareholding for Dickson. It has just poached Danske Bank’s property chief in Northern Ireland, Ciaran McLaughlin, as its head of business development. Graham says Belfast Commercial Funding has now made 50 loans worth 30 million in combined pounds and euro, and has another 12 million agreed and going through legals.

Graham says all business to date has come from word-of-mouth and referrals between colleagues and professional advisors. “The market profile has literally just been switched on with the website two weeks ago. We are generating inquiries on a daily basis from that,” he adds.

According to Graham, 70 to 75 per cent of Belfast Commercial Funding’s current lending is in Northern Ireland, with the rest in the Republic and a first deal just secured in England. “We know from our existing borrowers that there’s as much of a need from businesses in the Republic of Ireland as there is in Northern Ireland. We think that that’s probably the sub-five million euro markets,” he says.

From an initial capital base entirely in sterling, the lender has been building up a currency reserve to grow its business south of the border. “I think that it’ll probably end up flipping the other way around and maybe being 60 to 65 per cent euro and 35 to 40 per cent sterling – but it’ll still be managed in Belfast,” Graham says.

As a non-bank entity, he and Dickson say they don’t take deposits and they are not a collective investment scheme raising funds from investors either. This means that working across the two jurisdictions does not burden them with regulatory requirements. There is simply additional compliance with the Central Credit Register in the Republic.

Who are BCF’s borrowers?

Belfast Commercial Funding offers secured loans of £200,000 to £5 million across four segments: bridging or refinance, property development, agriculture and SMEs. 

“We provide bridging finance to people who need to bridge an investment asset, to refurbish it or to make it investment-grade to either sell it, or hold on to it and that then becomes bankable,” says Dickson “We offer a flexible approach to house builders to allow them to recirculate their own money to get on to the next batch of houses to be built.” 

Bridging currently accounts for 40 per cent of the firm’s loans and pure property development for another 20 per cent, says Graham. In the SME sector, he adds that Belfast Commercial Funding often steps in “where a business needs to acquire larger premises to expand and can’t raise the funds from a high-street bank but it may be able to do at a later date, and they want to acquire the premises to get on with it.”

“The bit we probably like best is the farming diversification. We enjoy it,” he says. Many of the firm’s agri loans are in the broad hospitality area, from wellness to tourism and accommodation. “I come from a farming background, I grew up on a farm,” adds Dickson “Farming has become harder and having diversification that supports it is important.”

Dickson says that Belfast Commercial Funding charges monthly interest rates starting from 0.8 per cent. While he expects some projects to remain in this range, he adds that the firm’s ambition is to offer cheaper rates in lower-risk situations as it broadens its portfolio in the future.

To this day, thanks to the “huge injection of capital” from the sale of Merchant Square, Graham says Belfast Commercial Funding has been self-funded. He expects this to continue for the time being as Oakland Holdings has another sale in the pipeline – a 175-room aparthotel due for completion next February across the street. “That building will be sold to an investor on the capital will be deployed into the lending business. It’s a plan that we’ve had from 2016-2017,” he says.

By using their own money, Graham and Dickson have enjoyed absolute freedom in their lending. “If a borrower wants to come meet Adam and myself, they come in and we sit down. We have a pot of tea and we talk through what their plans are and what they want to do,” Graham says.

One key advantage is that it leads to quick decisions. “The credit committee is Adam and I, so if somebody’s sitting in a meeting with us and they tell us what they need, we can look at each other and say, yeah, we’ll do it,” Graham says. “If it’s something we don’t want to do, we’ll also say, sorry, it’s not for us,” he adds. “People tend to appreciate us saying no quickly. If we can do it, we’ll do it and if we can’t, we can’t. And we won’t waste people’s time.”

Such flexibility extends over the lifetime of the loan, says Dickson. “If there’s a few bumps in the road, we have proved that generally, we will stick with it, we’ll find a solution to it… That’s where we see our experience, having been in property development for a long time, is helping people find those solutions.” 

“If we take on institutional investment at some stage, it’ll be to stick to our model.”

Adam Dickson

The two associates clearly enjoy this freedom and this means they are not rushing into potential deals to raise external capital and grow their business faster. “We are getting approaches from international institutions who would like to talk to us about what we’re doing,” says Graham. “We’ll always talk to investors but the key for us is that self-funding enables us to be really, really flexible.”

Dickson adds: “If we take on institutional investment at some stage, it’ll be to stick to our model – that is, we offer a range of investment across the board, whether it’s agriculture, farm diversification…”

Then his explanation strays outside the strictly financial. “I want the economy to thrive so that my kids want to live here. I have a four-year-old and a six-year-old and that’s what I’m looking for,” Dickson says. Lending to local businesses and property developers goes beyond providing jobs and homes for local people, he adds: “It’s sticky profits, it’s being reinvested, it’s staying here, and that’s what attracts me to it.”

Further reading

Ronan Horgan’s Capitalflow has advanced €550m to Irish SMEs. And this is just for starters

Anglo veteran Tiarnan O’Mahoney is back, raising a new €200m SME lending fund