Development Finance - The Year Ahead

After the usual re-adjustment to working life following the break, hopefully by now everyone has “warmed up” and has seen a positively vibrant start to 2015. 
 
It has been very pleasing in these first few weeks to hear from a good number of developer clients who haven’t been particularly active in the last couple of years, checking in to see what the availability of finance is going to be like in 2015. 

My simple answer has been “probably better than ever”. 

We still have industry personnel commenting that development finance is under-represented, but I would suggest that it truly isn’t! I guess their opinion comes from feedback and interaction with non-specialist intermediaries & general industry commentary, and if development finance is not something you deal in on a daily basis, then perhaps it’s an understandable misconception. 

A bit of desktop research would present a whole host of lenders, but of course the trick is always knowing who is actually doing what (and doing it well!). 
 
United Trust Bank recently did a survey which concluded that 88% of brokers were struggling to find development finance. That’s a really interesting (and satisfying!) figure for me as it highlights that the vast majority of commercial finance brokers are not specialising in the field. Less competition for those that do! 

I suspect that the number of lenders offering development finance now has caused even more confusion for the non-specialist, and maybe that is where the struggle is. But, if the options an internet search presents are overwhelming and difficult to make sense of, you’d go and seek the assistance of a specialist broker wouldn’t you? I certainly would.  
 
There is no difficulty in placing a viable development finance proposal. The problem usually comes with either the clients’ expectation on pricing being out of sync with the market rates, or an underlying issue with the applicant (usually adverse credit history plus a lack of relevant development experience) or scheme, which can stop an application dead in its tracks. 
 
It is obviously slightly more testing to place less than “vanilla” proposals, and that is where the real skill is. We have recently successfully found funding for homes for 2 new clients who have been looking for development finance some time!
 
In one case, the applicant had been searching for no less than 2 years for finance to enable him to purchase & convert a Barn with a “complicated” title. He was so confident in the project that he had the tenacity to keep trying and eventually it paid off.  On the face of it, there was a “poor” credit history, but the lender took the time to understand the adverse and was satisfied that the historical problems were not truly of the developers making. 
The developer had a considerable deposit and the lender was comfortable enough to provide 80% of project costs. 
 
Another case involved the development of a sizeable Student Accommodation block which wasn’t in a Russell Group University city, and therefore turned most lenders off due to location alone. The client was an experienced developer, but this was their first foray into Student builds. They had owned the property for 3 years, and thankfully the existing clearing bank was patient enough to give them time to find a solution. We had to act quickly to ensure the build was completed for the September 2016 in-take, so in a matter of 4 weeks, the chosen lender provided 90% of costs to unlock the development. 
 
Flexibility & reliability from lenders still remain key components when developers are considering the options. Pricing is always up there on the list of priorities, and whilst clients build their profile with the hope/ intention of working their way back to high street lending, having got there, some quickly jump back to the second tier specialist lenders who can make decisions in a much quicker timeframe, albeit at a higher cost of money. 
 
As always, it is about service and results. If you can tick both of these boxes, then you can build a strong foundation (excuse the pun) for developing (excuse the pun) long-lasting & positive (weak pun) relationships.