Mike Shearn, COO of Ultimate Capital speaks to DFT about needs within development finance sector.
Before starting at Ultimate Capital last year I’d worked at main Board level for large property developers and developed hundreds of new homes. I worked closely with my bank’s Regional Director. He understood my requirements and generally delivered what I wanted, when I needed it. We both understood that the foundation of the lender / developer relationship was about managing risk and having confidence in our partner’s ability to deliver. It was a relationship that worked well and delivered profits for both parties in the good times and bad.
The 2008 crash reset the market and changed the lender / developer relationship. Despite significant improvements in the market over the past 18 months, banks are still not able to respond to the majority of small and medium sized developers’ needs. They are not supporting developers and consequently both are missing opportunities. For example, we are currently working with one developer whom acquired a site back in February with the benefit if an “in principle decision” to lend from a top 5 bank. The developer is a blue chip customer of the bank, only requiring 50% LTC with the site benefitted from full planning consent, it is clean, unencumbered and was ready to start when acquired. Despite all of these boxes being ticked, 7 months later the developer is still waiting for funds. The consequences could have been huge had we not been able to help. Work would have had to have stopped on site if we hadn’t been able to support in the interim and the developer’s return on capital employed – the yardstick for developers post crash – would have plummeted.
Never have the words “talk is cheap. Deeds are precious” been so relevant. Speak to the majority of banks and they will say that they are in the development market: not true. I even heard last week that Clydesdale is making positive noises about lending against land and development. Can this possibly be true given that many lenders are still in the process of helping to refinance existing Clydesdale loans? The reality is that many lenders are still some months or even years away from being willing or able to lend against most development and, if they are, then they are very particular about where they will lend and on what terms.
The best advice I always give developers is to find and work a company like Ultimate where your contact will be engaging, proactive, understanding, supportive and who is empowered to deliver what they want, when they want it. Also always work with a principal lender that has extensive development experience and has the ability to assess sites quickly and understand development appraisals and cash-flows.
Ultimate are one of the leading providers of acquisition and development finance throughout England and Wales. We look at every deal and structure our development lending business so that decisions are made quickly in order to support and assist our customers in their business planning. In many cases our lending managers work in partnership with developers and help find solutions and add value.