It’s not surprising that as traditional lenders are hitting the brakes on funding, the provision of capital has become increasingly more diverse as conventional options dry up.
Now with political instability, the once adorned quality of the British property market is seemingly abandoning its post. Lending in the UK will shift from a purely transactional model to a relationship focused approach as overseas investment will most likely stall for hesitation and typical lenders will become increasingly more tentative to complete deals. It’s in these environments the relationship between lender and developer will really pay out.
In these downturns, access to capital becomes more valuable than any decrease in the price. A competitive market place ceases to be beneficial when typical lender reserve funds grow in cash rather than in bricks and mortar. Combined with an increasing lack of builder appetite for traditional models of debt, and a growing preference for mezzanine finance, means short term finance options become preferred and indeed necessary to filling this void.
Developers who have strong working relationships with lenders can approach such periods with an air of optimism. A track record of delivering on projects, combined with the honest and open approach needed to get deals done, can mean appraisals go the distance when presenting the case for more investment.
The same benefits too exist for lenders. There’s no shortage of projects for lenders to occupy themselves with but meaningful relationships aid the confidence in supply. Furthermore, the recent higher risk of developer default is a big challenge to contend with, and lenders must operate in such periods with a manner of caution but not reluctance. This is where the experience of the lender can be crucial.
When it comes to the deal, development appraisals need to be thorough and well researched with detailed cost breakdowns. However, this can lead to a tick box exercise where good developments can fall victim to stagnant procedure. Reditum Capital’s experience as developers means we understand what it takes to get a project from concept to concrete, and how to handle the possible issues that will come up for our client.
In a market boom, lenders operate with a pessimistic “what can go wrong” attitude, but in times of downturn, the challenges borrowers face in securing finance can be frustrating when the full potential in projects is not realised. No two deals are ever the same and this is why it can make the difference dealing with a lender who has sat on the developer side of the table; who understands the value of the asset and not just the borrower covenant.
The winners in this new market will be the ones that form these bonds. We pride ourselves on building long-term relationships with our valued clients at Reditum Capital because we value the role relationships play in securing deals.
To find out more about our team, contact us to arrange an appointment.