Do development lenders understand construction?

All development lenders worth their salt should have a profound understanding of various construction techniques.

The face of construction is ever changing and we regularly see new methods being adopted and as lenders, we need to think carefully about how to fund these in an appropriate way. 

An appreciation for property is essential to both bridging and development, but this is really where the similarities end. A great example of where some bridging lenders have fallen over is when it comes to an appreciation of specialist construction methods. Admittedly, talking about modular construction and SIPS isn’t the sexiest of subjects, but they could go a long way in helping to provide a lot of housing in a very short space of time.

There needs to be a better standard across the industry of how various building methods work and I think there is plenty of room for improvement here. I am personally a big fan of modular housing and the progression in this sector over the last few years has been vast. If you look at construction in other major economies – such as USA and Germany – a lot of construction is based on a pre-fabricated system. They invariably allow for quicker construction times, which offers great financial benefits to the developer. Often a superstructure can be erected within days. The problem for lenders is that a lot of the costs of the construction are front-loaded, however, a good development lender would be able to put a structure in place for the developer that allows the project to run smoothly.

Supply chains seem to have slowed since the Brexit vote and this is severely hampering the rate that we are able to build houses. The cost of building materials is predicted to rise dramatically over the next few years, following our rather painful exit from the EU. Worryingly, this seems to be widely ignored by the government, which I can’t understand given that housing is such a prominent topic these days.

Modular housing could well be the answer here. We have come a long way from some of the pre-fabricated solutions that we saws during the 1990s. Today we are, of course, in a very different age where we now have a plethora of various modular housing products. Each one I see seems to be even more superior to the last. The house is constructed in a third of the time as a brick-and-block structure. Usually, the house arrives on site in sections and is pieced together almost like a giant puzzle, something that has caused headaches for lenders that haven’t necessarily comprehended how to fund such buildings.

At Regentsmead, we see a range of construction techniques to varying degrees of quality. This is one of the reasons why we love a good site visit as there is no substitute for being on the ground and looking at what you are lending on. I always take note of the quality of work undertaken, but ultimately it is the role of ourselves as development lenders to assist our clients in producing the best-possible product.

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