As part of its weekly virtual roundtable series , Medianett’s managing director, Caron Schreuder, along with West One’s head of development and head of sales for bridging and development, Guy Murray and Michael Grant, led an hour-long conversation around the nuances of deciding which lender and wider team to work with to best ensure a property development’s success.
The panel also included Elise Taylor, finance broker at Aureum Finance; Julian King, asset finance adviser at Arc & Co; and Jason Hoad, CEO at Boutique Capital.
The panel were optimistic about overall activity in the sector since the start of 2021, and it was agreed that most lenders are back to pre-pandemic levels of appetite. Guy noted that LTGDVs are typically back up to the 65% mark and pricing is competitive — both fee and margin wise.
Michael has observed more developers seeking to add value to existing sites, and requirements for planning have consequently increased.
It was established that, in addition to working with an experienced specialist broker and the right lender, the measure of a developer’s entire professional team will ultimately dictate how successful a project will turn out.
While Elise believes a good broker should be at the top of a developer’s list — because, on top of arranging finance they can also introduce less experienced investors to the right contacts — she values a top-notch project manager and architect as must-have parts of the process.
“Especially for those at the start of their developer career, a good quality project manager can really assist in supporting the lender in giving you the gearing you’re looking for.”
Julian highlighted that a broker’s experience counts — in terms of their knowledge of the market and the process.
“What if things go wrong? We work very closely with our clients throughout the journey, from the start to finish and into the next one,” he stated, adding that Arc & Co will attend site visits and look at construction methods, to make sure that the lender understands how the developer is operating — all of which facilitates drawdowns.
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“The bit that overlays that is a really good QS that understands the bank and really gets on well with the the team delivering the contribution. That’s the link between bank and borrower drawdown.”
Jason urged developers to be honest when preparing reporting for a lender, and to incorporate the knowledge of local agents, monitoring surveyors and planning consultants, as well as a contractor that is experienced in the type of project being undertaken.
Because West One favours experienced developers, an introduction from a broker with whom the prospective borrower has an existing relationship and track record can assist the finance provider in being more “bullish” in terms of leverage and pricing. “Straightaway, you can rely on the experience of someone having successfully worked with them before,” said Guy.
When discussing the methodology applied to matching a development deal with the right funder, Julian likened it to dating: “you have to put the right people together”.
Breaking it down into steps, he explained that this includes understanding the scheme, product and its price points; how much the land was bought for; and the day-one contribution. Crucially, this information must then be applied in relation to the background of the borrower. “Is it a first- or second-time deal? Do they create hundreds of units a year? Have they done lots of flatted schemes versus housing schemes? Are the capital values high?
“There are lenders for all of those — it’s about identifying the right one for the project and the story and history of the borrower,” Julian added.
For greener developers, Elise’s approach is to get a handle on what transferable experience they may have. She notes that, in some instances, it may be necessary to manage their expectations by recommending a JV, for example, and “encouraging them to grow organically”.
Putting up equity can present more of a “burden” for a first-time developer, impacting the leverage and pricing available to them; being realistic about expectations and assessing the deal structure is critical. “Giving these points some consideration can be the difference between finding a lender and not,” stated Julian.
Michael shared that West One had applied much of its know-how as a bridging lender to its development proposition, including its ability to quickly provide drawdown funds at all stages, an important factor for this type of finance.
Julian notes the importance of the overall cost of capital and surety of funds. “Often, the biggest saver of cost of capital is being able to deliver the project on time and in budget and achieving the sales [as fast as possible].”
The full virtual roundtable can be watched here.