Getting creative with property funding in the North West
With the number of cranes adorning the sky lines of Manchester, Liverpool and elsewhere in the North West, there is no doubt that the property and construction sector in the region is thriving.
As fast as the cranes are going up, so too is the pace of change we are seeing across the industry. There’s lots of new, creative and technical advancements being made which are really shaking everything up, and we and our clients need to keep up with it or face being left behind.
Take funding a development for example, traditional bank lending has never returned to the levels it was pre-recession and is generally so risk averse that is often inaccessible for new developers. This provides the next generation of developers with a number of interesting challenges.
A myriad of new lenders have entered the market in recent years, each with a different proposition and attitude to risk. Whether it is a challenger bank, debt fund, crowdfunding platform, family office or wealthy individual the choice can be overwhelming.
If we consider crowdfunding platforms for a moment the potential reach is phenomenal. Any developer should take the time to explore this potential source of funding but this does lead to an interesting dilemma. To a large extent the property sector has historically been driven by relationships which can not easily be achieved within a digital environment. Are we moving towards an age where property becomes much more transactional and faceless? Is there an inevitability that developers are biding their time until the high street banks loosen their purse strings? Can a developer be sustainably successful without the support of one core funding partner? What happens if a development goes wrong? The answer to these questions will present themselves over time but it will certainly be and interesting journey.
Innovation isn’t just technological. Irrespective of the funder, mitigating or eliminating risk will be key when securing finance and will influence the pricing of capital. From a residential development perspective sales risk is obviously very relevant and, for example, Landmark Investments have devised a new concept called Landmark Development Solutions (LDS). The LDS development underwriting option, backed by landmark investments, presents an interesting solution. In essence it removes the major risks of pricing and demand for both lenders and developers. The removal of these risks opens up access to lower cost funding and allows developers to bring forward more sites with less risk as all sales and values are underwritten. This new alternative sales channel has the potential to change the entire risk/reward balance for developers and lenders by removing historic barriers,
Since the crash developers and housebuilders have had to scour much harder for their funding and be more creative in their thinking. Minimising the tax charged on developments can have a significant knock on effect on the next scheme. Incentives such as Research & Development Tax Credits (R&D) can really help. Housebuilders often face some difficult technical challenges on a scheme and R&D is often overlooked.
We feel that developers need to be agile in this new environment in embracing new funding methods and technological advancements without losing sight of the core principles of development that have stood the test of time.
There is a lot of understandable concern about the implications for the construction industry whether or not a deal is reached by 11pm on 29 March.
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