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Cover story – Octane Capital: Fuelling innovation


As Octane Capital launches to market this month, the self-branded ‘third-generation’ bridging lender has no products to speak of. But the former Dragonfly trio behind the specialist firm believe their unusual proposition is one the market has long cried out for

A brightly lit co-working space full of hot-desking creatives is not the typical location for a bridging lender’s headquarters, but that is precisely why Jonathan Samuels and his team have chosen this spot to set up shop as they begin their new venture, Octane Capital.

The unusual venue, overlooking the hustle and bustle of London’s Camden Lock market, reflects chief executive Samuels’ ambition to establish an offering that is unexpected in specialist lending yet one that he feels the sector – from clients to brokers and packagers – is crying out for.

At first, Octane will focus primarily on bridging and specialist buy-to-let commercial and residential lending, with the firm’s unique selling point being that it is a lender without products – a blank canvas on which bespoke, tailor-made loans will be written.

Eternal appeal

Samuels’ name is well known in the mortgage arena. He founded Dragonfly Property Finance – recently rebranded as Octopus Property – in 2009 as part of what he calls “the second generation of bridging lenders”, before leaving in late 2015 with no intention of returning to the finance market.

However, Samuels says – as many others have before him – “there’s just something about the industry”, and he’s been drawn back to the same specialist space with a new proposition, having enticed former Dragonfly colleagues Mark Posniak and Matt Smith to join him at the helm as managing director and director of risk respectively.

“I actually left Dragonfly to set up a new company providing vehicle finance to Uber drivers,” Samuels tells me when we meet in the quirky open-plan office space that is his current base.

“But the truth is, I couldn’t get as excited about that as I could about property. I have it in my blood. I would meet up with Pos [Mark Posniak] and he’d talk about what was going on in the market, because he was still in it. I’d get excited and it got me thinking that I missed the deals, the brokers, the people, the properties, the complexity and everything about it.

“It was through a conversation with a potential funder for my other business that my attention began to turn more fully to creating what became Octane. I had a talk with our ultimate funder and they were keen to do something in the market and asked if I’d be interested in going back into it. They really like the property finance sector.

“That was around the summer of last year. When I was away with my family, I spent a lot of time setting up a plan and the funder was really keen to do a joint venture.”

‘Something different’

That funder was investment management firm Pamplona Capital Management, which has a seat on the Octane board. Once the funding had been secured, Samuels approached Posniak and Smith – who were both still at Octopus – to invite them to join the enterprise.

“We liked working with Jonathan,” says Posniak. “The business that we knew was Dragonfly and when that started becoming Octopus the feel of the business changed as well.

“I enjoyed it but there was a lure of being a shareholder in a new business, working with people you trust and know. I’ve worked with Jon for seven years and I think there’s an opportunity for us to do something different in this space and create our own identity.”

The “something different” is what Samuels calls a mix of the ingenuity of the ‘first generation’ of bridging lending with the professionalism of the second.

“The way I look at it is there are different generations of bridging. The first was pre-financial crisis and was very entrepreneurial, bespoke lending but was also cowboy-ish: rates incredibly high, fees all over the place. It had good stuff but was also unprofessional,” he says.

“Then you had the second generation of bridging, which I think Dragonfly was part of. We upped the level of professionalism, which, hopefully, people will agree with. We started to lower our rates. Generally, a big book would have been about £60m pre-crisis, but we were writing hundreds of millions of pounds. We completed more than £2bn of lending in my time.”

But Samuels believes things have changed since then, citing a “race to the bottom” between lenders as they try to achieve the lowest rate.

“What’s driving this is that a lot of lending is vanilla now,” he says. “And if you can fit in the box you can get a low rate but if you don’t the rate will dramatically increase.

“For second-generation lending, LTV equals rate. But that is so one-dimensional in terms of what risk is all about. It should be based on who the individual is; what the property is. Yes, LTV is important, but there are so many other aspects to lending than how high you’re gearing against the property.”

‘Third-generation’ lending

Samuels continues: “We are calling this ‘third-generation lending’. We’re not going to have an LTV band at this or that rate; it’s totally bespoke.

“It could be 70 per cent LTV but we’ll price it lower than 60 per cent. We’ll structure the deal in the best way for the client, the broker and ourselves.”

Posniak says the firm has done its research among the specialist broker and packager community with the feedback suggesting that a new approach to lending is needed.

“They’re all crying out for the same thing,” he says.

“They’re not interested in what your lowest price will be. They want someone to be outside the box, to have an alternative solution to structure deals to put in front of clients, and to be able to say: ‘This is my client: he doesn’t fit all these vanilla lending operations right now, which are all offering the same deals.

“They need someone with a holistic approach, who can say: ‘Let’s see if we can make a deal work for all three parties and have all interests aligned.’

“Everybody is incredibly excited and hungry to do stuff like this. When we say to them ‘There is no product sheet or product guide. We have an appetite to do all different forms of lending to good borrowers and those with complexities,’ they love it.

“The message will be: ‘Open up a new page of your book. That’s our product guide.’”

Samuels adds: “People like it because the only thing differentiating other lenders at the moment is 0.5 per cent a month. We’re doing away with that.

“We’ll let everyone else do vanilla box-fitting lending, but that’s not our lending. Due to our new risk-priced model, we will not be offering set products with set rates. We’re basically launching without a product sheet.”

Solid foundations

In addition to Posniak and Smith, Samuels has recruited other figures who have worked for years in the specialist lending space. These include  sales director Tom Clark – previously head of bridging at Wellesley and senior development manager at Shawbrook Bank – and head of finance Robert Graham – formerly finance manager at Dragonfly. Recruitment is continuing in development, credit and sales roles but the team will remain quite small while the business finds it feet.

“We have a great foundation to build from,” says Posniak. “We need to ensure that we can deliver, and to have people who know what they’re doing.”

Samuels adds: “We’ve not hired a huge amount of people, but have very good people.”

This approach of laying a small but solid foundation before branching out will be applied also to Octane’s products.

“We have plans for how to scale the business but we want to walk before we run,” says Posniak.

“We’re going to do things properly, focusing first on short-term lending, some buy-to-let lending that’s outside the box – both resi and commercial –  and refurbishment loans.

“We’re going to start with that because we don’t want to promise the world and not deliver. Rome wasn’t built in a day and certainty will be what we live and die by.

“We built a business and reputation on that basis before, and plan to do so again.”

The Octane team believe that now is as good a time as any to enter the market despite the suffering in the buy-to-let sector following a plethora of tax hikes and new affordability rules.

“We like to go against the grain; we think there’s an opportunity there for smart lending,” says Posniak.

“You look at each deal on its merits. It doesn’t mean reckless lending; it means trying to understand complexities and find a solution. That’s what our credit guys are so good at: no transaction is ever completely straightforward.”

Bespoke proc fees

Samuels, Smith and Posniak agree that brokers will be crucial to the new firm’s success. As such, they plan a similarly bespoke approach to proc fees.

“Brokers are core to the business,” says Samuels. “It’s not lip service because we’ve done so much work with brokers before. The first port of call was to ask them what they needed and what was missing from their toolkit.

“We are not transactional lenders, we’re relationship lenders, and that’s why we believe our reputation will encourage brokers to work with us. Our proc fee will depend on each deal. It’s not set in stone; it depends on the work required. I believe we are fair.”

The firm has adopted a ‘surfing’ theme for its branding, which it says is because it aims to replicate the energy and optimism of the sport, and the chance to have fun.

“It makes doing something complicated look simple,” says Samuels.

“We don’t know what’s around the corner, but  we don’t have sales targets. We want to grow but setting figures as targets can be a dangerous game and create the pre-crisis mentality of smashing as much through as possible.

“If we can replicate the success we had at Dragonfly, I’d be really happy.”

Octane is launching into the market this month. Rival lenders are sure to watch with interest how the product-less proposition is received.

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