At London’s Finance Professional Show panellists discussed some of the key issues around development finance, from the trending projects dominating broker inquiries to the impact of the recent Budget, and much more.
The panel consisted of Lee Merrifield, director of credit at MSP Capital, John O’Donovan, partner at Harold Benjamin, Lee Francis, head of origination at CapitalRise, Leo Del Rosso, senior lending manager at Commercial Acceptances, Roxana Mohammadian-Molina, chief strategy officer at Blend Network and Guy Murray, co-head of short-term finance at West One Loans.
While many on our panel felt that ground-up residential developments – with a movement of first-time buyer and affordable housing activity following the budget and lower interest rates, ideal for experienced developers – would be the biggest factor in broker inquiries going forward, the audience consensus preferred a conversion of commercial properties to residential.
With the impact of the Covid-19 pandemic still having an impact on occupancy rates in quality city centre locations, there is undoubtedly “a strong appetite for conversions”, as Lee said. The major issue potentially holding up this activity, as John pointed out, was the planning permission.
Part of this was down to the Labour government’s plan for housebuilding – 1.5 million new homes in five years and reintroducing local housing targets – which was welcome in some ways but didn’t receive universal acclaim from our panel.
Leo Del Rosso said: “I don’t think these housebuilding targets are achievable, but they are pro-building – which is good for us as lenders.”
A “more grown-up conversation” is needed to ensure that simple planning projects can get off the ground, taking into account wider social, economic and local issues and creating clearer, less muddy legislation. As Roxana said, “We need to see concrete action plans, not just numbers, and support SMEs.”
Meanwhile, another key trend is refurbishment. For many years basements were dominant, but a drop in end-value – as well as a move to mixed-use, owner-occupier property – has led to developers being asked to create airspace and retro fits.
It’s can also be a great opportunity for newer developers to learn about financing without having to dive headfirst into the full market. The panel agreed on a ‘sweet spot’ of 65% as a typical loan-to-GDV LTV against end value.
When first-time developers contact brokers, it’s important for them to have a property or strong professional background, a robust support team around them, and a logical plan makes sense. It’s vital to build relationships if things change the dynamic of an agreed deal. As Lee said: “Get costs right at the outset. It’s about dialogue, open and honest both ways.”
Looking ahead to 2025, our panel were cautiously optimistic for development finance after two or three subdued years, now that interest rates are falling and there’s more certainty in the market.
Lee Francis noted: “We know what we’re working with, there’s capital available and there’s an appetite for lending.”
