The Changing Nature of Being a Property Developer

Posted by Otium Partners on 3rd September 2024 -

With some time away recently, although never far from the inbox, I've had space to reflect on some business issues and in particular, the changing nature of being a Property Developer.

 

Some recent long-drawn-out completions got me thinking about how the finance world has changed, particularly in the last couple of years with increased interest rates and costs, stagnating house prices and a slower selling environment which have undoubtedly led to slightly more rigorous lender underwriting and due diligence, coupled with valuation and legal pressures. These factors all lead to increased frustration for the property developer/investor.

 

A recent post from Brickflow CEO Ian Humphreys made the great point that the biggest mistake most property investors make is thinking they're in the property development game when they are actually in the property finance game.

 

Being an expert "on the tools" is no longer enough. Yes, all lenders want to see a (varying) degree of track record and experience so that when the inevitable challenges arise on a project, the developer/investor is capable of working their way through these. However, something more fundamental is at play these days.

 

Having a strong grip of financials, technicals, planning, legals and administration is absolutely vital now to being a successful property entrepreneur. 

 

Lenders are looking for borrowers who have all the required information to hand, or can get it. Borrowers who are fully au fait with process and paperwork and particularly the increasing streamlining use of technology.

 

Borrowers who have a strong handle on their appraisals, the drivers of material changes on a projects' funding and ultimately return on capital employed.

 

The days of "what's the rate and fee?" being the borrower's first/main question are fast disappearing in the rear-view mirror.

 

Yes, all costs controls are important, but the savvy developer/investor going forward is surrounding themselves with experienced experts who can navigate through the financial requirements of deal structuring and delivery, much as they surround themselves (hopefully) with expert planning consultants, QSs, architects, solicitors, builders etc etc.

 

We funding experts understand the changing financing markets, the trends and stress points and wider lender requirements. We understand the way valuers work and how important it is that the lender's and borrower's solicitors work together in a collaborative and focussed manner, rather than winding up and point scoring.

 

If I had a pound for every time the borrower said the lender's solicitor is asking ridiculous questions and the lender fed back that the borrower's solicitor was holding up matters, well, I'd have quite a few extra pounds in my pocket!

 

So, I'm on something of a mission now to educate my clients, old and new. It's not like the good old days (whatever/whenever they were) and times are changing.

 

We need to communicate and manage expectations on all sides, from start to finish. My role now isn't just a finder of (the cheapest) finance but that of Project Manager - corralling, cajoling and communicating to ultimately get what every party wants - the deal over the line.

 

I'd love to hear the views of others in the marketplace.

 

Jeff Durant

Managing Director