Mark Hawthorn’s business, best known for its presence in the ground rents market, has gone public with its Landmark Development Services arm, which will look to plug a funding gap for residential development in towns and city suburbs, initially in the North West.
LDS will contractually underwrite entire housing schemes pre-construction, removing developers’ and lenders’ fears around future pricing and demand. The developer is then free to market and sell its units on the open market, with sales offering a profit share for both parties.
At the end of the construction and marketing process LDS will acquire any unsold units, allowing the developer and its lender a clean exit.
Hawthorn told Place North West: “This is effectively us turning an insurance product into a property deal. Because of the ground rents business, we talk to developers all day long, and over the last 12 months we’ve been having low-key conversations and doing testing. Over seven months we’ve negotiated on a few schemes and now it’s time to talk about it.
“We’ll buy at a discount, but then leave the developer to retail the stock – we’re de-risking it and leaving the upside on the table,“ said Hawthorn, who believes lenders are still averse to lending on speculative housing.
He said: “Everybody says they’ll lend, but behind closed doors it can be a different story – they believe speculative residential is still high-risk. If we’re involved, the worst-case scenario is they sell to us. There is a huge gap – people for several years have been having to use secondary lending, which is expensive money. Most of the cost of using us is negated.”
LDS has taken a conscious decision to avoid city centre markets. The funding is coming from Landmark’s own reserves, plus investment from several weighty backers.
Hawthorn said: “We’ve got quite a big balance sheet and some very big investors beside us for when we need to call on them. We’ve been around 17 years and people trust us. In due course, this will be a cash-hungry business, with a nine to 18-month gap between our investments and the returns, so we could burn through cash quickly, which is when the big boys will come in.”
The business could eventually outstrip Landmark’s ground rents operation, which is set to produce £50m this year. No specific targets have been set, but the group is gearing up on the HR side, with a high-level business development manager sought, to work alongside others dedicating time to LDS, including Hawthorn and group finance director Andrew Savage, who joined in February, bringing with him 15 years split between Wainhomes and Wimpey.
Hawthorn concluded: “Our research clearly shows there is around £1bn of qualifying stock per year in the North West alone. We believe our offering will change the way many developers are able to both fund development and sell their sites.”