I’ve just joined Signature Property Finance in the dual role of Relationship Manager for the Midlands and National Development Manager. The first role is reasonably sale-explanatory, helping brokers and their clients achieve the appropriate bridging and refurbishment loans to progress projects.
The other half of my role is a new one for me and for Signature, which demonstrates the growing importance of development finance (ground up) to the business as the house-building sector takes a twist and focusses on small-scale developments to fill the gap in new housing supply.
Typically the loan amounts are considerably higher for development finance, ranging from £500k to £3.5M and the application process as you might imagine is usually more involved, with a lot of steps needing to be taken before we release the funds.
Pull on wellies and walk the site
Signature has always worked hard to get deals done, finding reasons to lend, rather that turn deals away, which has stood the business in good stead and helped develop a strong reputation in the short-term property finance sector.
The desire to understand every developers vision for their project is what sets Signature apart. It’s not a matter of computer forms and a lot of boxes that need ticks in them, but trying to get a genuine understanding of what a developer is trying to achieve.
Signature has always been happy to walk a development to understand the intended outcome, even when it’s just the conversion of a house into flats, or the increasingly popular conversion of retail property into dwellings, but it’s even more important when we’re talking about a building plot.
These days building pots come in all shapes and sizes, with few fitting the traditional view of a green belt field being converted to hundreds of homes, with shops, a pub, a primary school and all the necessary infrastructure.
As seen recently, with Wolverhampton City Council seeking small-scale housebuilders to fill tiny plots across the city with new social housing, imagination is required as much on the part of the developer as it is on the authority that will ultimately grant planning permission. Or not.
Instinct and experience play a big part
All of which is why we find ourselves on muddy plots, in the gardens of big houses, or surrounded by demolition works, or evidence of the plots former uses, but always looking to the future. We are there to get a measure of the developer and potentially their chosen contractor or project manager.
When we are assessing an application for development finance, we have no buildings to consider as collateral if the deal falls through or our borrower strikes problems. We could be left with the aforementioned muddy plot and little else to show for the first stages of the drawdown.
Experience means we may not be able to quote the build cost of three-bedroomed link terrace homes to the nearest thousand pounds, but we’ll be in the ball park; we’ll gauge whether the developer and their builder are serious players or just dreamers, of whom we meet quite a few.
When a developer explains their plot, what they intend to build, how long it will take and what they expect to sell for, we have instinct to back up the financial checks we’ve undertaken, we have gut-feeling to go with the due diligence. And it all adds to the picture we need to start funding.
Cashflow is a big issue for developers and the wrong choice of contractor, without the necessary house building experience can be terminal for some projects, despite the quick decisions for which Signature is renowned.
The builder or developer has to have the cash reserves to cover the gaps between paying for all the goods and subcontractors, with the staged drawdowns of funding we will insist upon. Contrary to popular belief, we don’t just transfer the £3.5M into a developers account on day one!
We also want to understand the track-record of the developer and the contractor on similar projects. Despite how easy they make it look on the TV, bringing a housing development out of the ground to completion takes a lot of hard work and a good amount of experience.
Of course, the site visits also give our clients the opportunity to gauge us too. We believe in a collaborative approach to development finance and want all our clients to understand we’re all in this together. It makes a big difference to the GDV and the return of our loan at the end.
If there’s an interesting development you or a client is considering and you would benefit from our experience of development finance (ground up), please get in touch, we’ll be glad to get our wellies out and walk the plot with you. Call me on 07511 404102 or email firstname.lastname@example.org and we’ll see if we can get a signature on your next deal.