Property developers are facing a number of challenges amidst a turbulent economic and political landscape. In this Q&A with Secure Trust Bank (STB) Real Estate Finance's Relationship Director, David Burke, and Julian King, Managing Director of independent property development finance specialist, BlueHorizon, discuss these challenges, and give their take on what makes a successful property development deal.
David, Julian, thanks for taking the time to do this interview. Can you give a bit of background on your careers and experiences to date?
David Burke, Relationship Director
David Burke [DB]: I've been in the banking and finance industry for 25 years and have worked for well-known high street banks as a Credit Manager and Relationship Manager, facilitating finance for property development and investment property loans. I've been with STB Real Estate Finance for five years now, based out of our Reading office, and my specialist areas are residential development finance, and purpose-built student accommodation (PBSA).
Julian King [JK]: I started my property career working for an estate based in Knightsbridge, after graduating from university with a degree in real estate management. Keen to pursue my interests in development I joined a family-owned private development company as a Land Manager, tasked with building the company's development pipeline. This gave me great exposure to land, construction, leasing, planning and sales across multi residential and commercial uses.
More recently, I worked for a debt advisory firm based in Mayfair, where I was a director in their structured finance team. I took my development experience and focused on building relationships across the real estate funding market to support SME developers with their funding structures. In 2023, I decided to set up BlueHorizon and focus on a 'partnership'-led approach, working closely with quality developers and lenders in support of their corporate strategy in delivering housing led schemes. I also support the acquisition of planning-led projects through the living sectors.
Julian King, Managing Director, BlueHorizon
How did you both meet, and what led to you working together?
DB: We met in 2021 when Julian was seeking a property development loan for his client to build eight exclusive homes for a scheme in North London while he was at his last company, and that deal was a great success, with STB eventually facilitating a £2.9 million loan. We followed that up quite quickly with another property funding deal for a PBSA in Nottingham, in which STB loaned £3.7m for that scheme. Our latest deal was just last year for a commercial investment finance deal on offices near Guildford, with a £1.8 million loan secured.
JK: Working with people that you know and trust is crucial in the process of securing the right financing for the right project. It's just as important to be able to trust the bank or fund and its processes in the build up to completions and subsequent drawdowns. Trust is built over time by working as a team to overcome any challenges that a project will undoubtedly present. David and his wealth of experience, coupled with a robust partner in STB, makes this possible for the clients we collectively support in financing.
What challenges are you seeing in the real estate property development market at the moment?
JK: Now that costs have stabilised and developers are working through any legacy issues presented by events of the past few years, the main challenges clients are facing revolve around finding the right sites at the right price, as land is yet to adjust to a new cost base. Delays in planning are also affecting this, as the time it takes to consent to projects has pushed out. I think it's fair to say that it's not unusual to expect a 6-12-month delay in planning. This isn't helping the deficit of housing that needs to be built and is only restricting the volume that is being delivered. This can be a challenge when managing both client and lender expectations, but it's a problem that the industry faces as a whole. Working with partners who understand the process, such as David and STB, brings the patience and support required to help our clients manage these processes.
DB: Yes, it's taking an extra year before the first stake is in the ground, and for developers, not only is it costing them more time, money, and stress to manage these planning applications, but market factors are constantly changing and impacting their plans too. Although inflation has slowed and in fact hit the Bank of England's target for the first time in three years, the exponential rise in the cost of materials is one that developers certainly wouldn't have expected when they began their planning applications. Interest rates have fluctuated because of this too, while contractors that developers work with have also faced their own difficulties, with over a 33% spike in those entering insolvency over the past five years.
Given these challenging circumstances, what is the solution for developers, and how can brokers and banks work together to help developers?
JK: Knowing the issues outside of our control, it's important that we are able to manage the issues within our control. For many developers, this means having the ability to believe and trust in the relationships that support their businesses. This goes from the acquisition team, delivery team, sales team and finance team, all of which I work closely with within my role in structuring the appropriate finance for each project. If developers know the finance and support from advisors and banks are there, they can focus on what they do best in finding the project, knowing that it is achievable once secured. Being able to price and deliver in today's world instead of yesterday's is vital to getting the projects to meet viability. Having the comfort of trusted relationships means that when a project is ready to go, time can be made up for in the process to completion. This enables developers to get in the ground faster and ultimately get to selling a product much quicker.
DB: Yes, I agree with Julian's main sentiments there. As always, it is about care and due diligence. For developers, we want them to know that we'll be there at the end of the road, with stable, competitive residential development finance available, backed by years of expertise and knowledge in real estate property development and investment.
And finally, what would you say to developers looking at new schemes and proposals, to give them the best chance of success?
JK: When under pressure, it's always easy to chase deals and make forced decisions. I often see this in deals that are presented where a developer may have increased the gross development value (GDV), underestimated the build price, or reduced their margin just to pay an overinflated land price, none of which ends well in any part of the process. It's better to not write business than to write bad business. The market we are currently in is tough, and it needs patience at every part of the process. Stick to what you know, keep it simple and trust in the team and partnerships around you. When you do find the deal that works, they will be there to support you through to completion and beyond.
DB: Good judgement is the key, and that is something that experience gives you. If it doesn't feel right, then it's wise to take a step back and not be afraid to walk away. Good collaboration, as mentioned by Julian earlier, is also something that is coming through more and more. It is of course in the best interests of everybody that a scheme succeeds, so banks like us, and partners like BlueHorizon have a role to play here as well in providing some of that judgement and advice.
Find out more about about Secure Trust Bank Real Estate Finance.
For more about BlueHorizon, visit their LinkedIn page.