In the first of our month-long series looking back at the start of the global financial crisis in the summer of 2007, Paul Smith, now managing director of Strategic Land Group, reflects on turning from land buyer to seller.
When the financial crisis hit, I was working as land and planning director at the Manchester office of major housebuilder.
We knew how serious it was when every single director from across the country was summoned to an emergency conference. The MD of the company outlined the challenge ahead – what falling house prices and stagnant sales rates would mean for cash flow, profitability and jobs. The presentation included footage from Braveheart – the famous scene with Mel Gibson standing in front of his troops willing them to victory against overwhelming odds. We were in a battle too, the MD explained. We must display strong leadership, roll our sleeves up and get into the fight alongside everyone else across the business. Within weeks, the MD had left and taken a position with another company.
The role of the land director changed hugely. Instead of buying land, I started selling it. There were no buyers for the development sites, but we did manage to offload odd scraps of land, usually through auctions. I spent a lot of time redesigning existing schemes, to make sure the mix of houses was the most efficient one possible, and trying to reduce build costs. We revalued every site, downwards, our contribution to an almost £600m write-down of the value of the company’s land bank.
However bad things got, I knew that we would have to buy land again eventually. Although we kept cutting prices, we kept selling homes, generating cash to help pay off the company’s debt. But that meant our land bank was getting smaller and smaller. If we didn’t re-enter the land market, the business would just wither away. Buying land is a slow process, so I tried to preempt that decision from group by starting to line up new deals. That meant we managed to exchange contracts on our first new site about 18 months after we were told to stop buying.
From that point on, the “crisis” phase was over and it was about recovery and repairing the business.
- To take part in the Place10 series reflecting on the decade since Place North West was first published in August 2007, send your stories and memories to email@example.com headed ‘10’.