In an interview with Development Finance Today, Chris Oatway, director at LDNfinance, discussed rising labour costs, utilising the potential of technology to boost profits and the importance of adding value through planning.
There are lots of new brokers entering the market, how do you intend to maintain and grow your business in a competitive space?
Our key is to focus on understanding the depth and complexities within each discipline. This has allowed us to fully appreciate each niche market, building strong relationships with both lenders and clients and always going the extra mile while aiming to add value in each interaction. We focus our energy and hone our knowledge in these areas to ensure we can provide clients with the best outcome.
Building key relationships will also be a focus for us, ensuring we are as efficient as possible when dealing with our existing clients and providing a full service. In the development sector it is not uncommon for us to arrange the pre-planning acquisition finance, the development finance and then a commercial loan — assisting the client from the very start to the end.
What do you think will be the biggest challenges for the development market this year?
Due to the current uncertainty in both the development and wider property markets, this has resulted in a longer sales process. In addition, contractors and developers are battling the constant challenge of rising build costs, exacerbated by the weak pound driving up the cost of imported materials. Labour costs are also expected to continue to rise as contractors report difficulty in recruiting skilled labour and competition between local developers driving salaries to rise.
What changes do you think need to be made in the property development space?
Fully utilising the potential that technology has to offer will be key as the property development space evolves, particularly in areas which can assist to stem the tide of build costs and support sales. Exciting technology has appeared in the market including; modular housing construction methods which reduce build costs and speeding up construction times; virtual reality sale tools for off-plan living options; and simple to use applications for property management, agent tools and smart homes.
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What advice would you give to SME developers right now?
We would recommend developers to go back to basics, performing a detailed financial appraisal to ensure that a full schedule of costs is completed prior to making an offer. Profit is made at acquisition stage; the key is to buy smart and add value through planning. There are plenty of opportunities where land owners are keen to release their sites quickly with a rushed planning application which has not been fully optimised.
To minimise risk, it is important to ensure you have a thorough exit strategy in place and a potential back up plan, such as holding on to the asset once developed and refinancing on to a long-term commercial product.
What areas of the development market do you believe are underserved and why?
There is a plethora of debt options, some fantastic mezzanine finance lenders and more and more equity investors with appetite to deploy funds, meaning that the development market has never been so well served. The only area that we find there are not multiple options in is regulated development loans that require higher leverage or a larger loan than what the self-build lenders are able to offer. Although this represents only a small percentage of our business, we have seen there is less competition in this space.
What is the most interesting case you’ve dealt with?
I recently completed on short-term funding on a large office building in Newcastle which did not have any planning permission. The client secured a planning uplift for 322 units and was looking to flip the site based on the planning uplift. Through my close relationship with clients, I knew this opportunity would be suitable for a specific developer who we put in place to purchase the site. I was then able to arrange finance for the purchase; a true cradle to grave experience. The vendor agreed to defer some of the purchase price so this could effectively go in as equity into the deal, plus we worked a three-phase strategy for construction. The result was that the purchaser could put in less equity and therefore have a sky-high expected return on investment. Both parties were extremely happy with the outcome and this shows the importance of building relationships and really understanding the details in a deal so you can go above a beyond when providing clients with a full service.
If you weren’t a broker, what would you be doing?
I love going to the races, so a jockey would be a great option. As this is seasonal work, I could squeeze in a job as an elf at Christmas as I have all the necessary attributes.