In an exclusive piece for The Intermediary, Blend MD David Alcock explains why transparency is not just a trendy buzzword – it is what all developers deserve and must ask for from their lenders.
Unlocking development finance can often be seen as a dark art, especially for the smaller developer.
Even when terms are received from a lender, the journey to the loan completion can be long and winding.
Unfortunately, it’s not uncommon for deals being rejected by lenders at the 11th hour, transactions not completing fast enough, lenders getting cold feet and backing out at the Credit Committee stage.
Understandably, developers get frustrated because in property development, time means money.
The solution? It all comes down to two key words, what we call the two T’s: Transparency and Trust.
Development finance can be difficult for small and medium sized housebuilders to unlock.
A survey of almost 200 SME home builders across England and Wales carried out by the Home Builder’s Federation revealed that access to finance remains one of the key barriers to housing delivery, even though stark regional differences exist.
18% of respondents in the North and 24% of respondents in the Midlands saw development finance as a major obstacle, as compared to just 3% of respondents in the South.
Sadly, many small and medium sized housebuilders see development finance as a challenge that is preventing them from reaching their ambitions for growth and threatening the existence of some.
Others see it as a dark art that’s difficult to untangle due to the lack of transparency across the market, especially those who have relied upon private equity to date or cash flowed their own projects.
Even when a lender has been secured, the journey to the loan completion can be long and winding.
Unfortunately, it’s not uncommon for deals being rejected by lenders at the 11th hour, transactions not completing fast enough, lenders getting cold feet and backing out at the Credit Committee stage.
Understandably, this is all very frustrating for developers who have been working hard for months to source a site, get the planning in place and secure a deal.
Fortunately, there is one thing lenders can do to avoid this pain and misery for the developer and support them instead.
It all comes down to two key words, and it’s what we at Blend call the two T’s of development finance: Transparency and Trust.
Transparency and Trust: the two T’s of development finance
The mini-Budget debacle exacerbated the lack of transparency and trust that developers should be able to secure, as a matter of course, when working with a funding partner.
Far too often developers are mistreated at an early or latter stage of a relationship because of knee jerk reactions to market conditions and a lack of appreciation of the development process itself.
Without wishing to state the obvious, rarely does a development appraisal / cashflow on day one replicate the forecast journey once the last unit is sold, especially in the world of the SME.
So trust and transparency, on both sides of the coin is all important.
This is something we are actively trying to change at Blend. At Blend, transparency and trust, sit at the heart of everything we do.
That’s why, for example, every level of the Blend team is open to our developers from day one.
A relationship is built early on, led by the Lender but spanning the Portfolio Manager through to the CEO and myself.
Old fashioned relationship lending in many ways but delivered in line with today’s demanding expectations, of what we feel, a specialist lender should be able to provide.
The Lending team strive to be on site, meeting face to face, at the earliest opportunity after a development proposal has been received.
Trust and transparency from day one.
That is also why all our Credit Committees are attended by our Head of Portfolio, our CEO and me as MD to back the terms we put out to developers and give them the certainty and transparency they deserve.
Developers need to get the transparency they deserve from lenders
Development funders operate different types of relationship models when it comes to working with developers.
A dominant model in development finance has been that of BDMs whereby effectively a salesperson is the first point of contact between a prospective borrower and the lender, and once a loan is drawn or in due diligence the relationship passes elsewhere in the organisation.
However, there are a few problems with this model for obvious reasons when you consider the amount of communication that takes place between a developer and funder in the early discussion stages.
At Blend a dedicated and experienced lender together with a portfolio manager of equally high calibre is with the developer from cradle to grave, or at least until required!
A lending team who will ensure that our borrowers’ funding proposal is being underwritten from the first telephone call, referral, or site meeting.
This ensures that borrowers will not receive different and contradictory information from start to finish.
I believe developers have the right to work with a finance partner who sees what they see and who speaks the same language.
And that can only come from a lender with deep rooted experience and a nose for what works and what doesn’t.
There’s already enough uncertainty in this market. Developers don’t need more uncertainty from their lender.
David Alcock MRICS is MD at specialist development finance lender Blend.
