In an interview with Development Finance Today, Paul Green, head of development finance at Hodge Bank (pictured above), talks about the reception to the new offering and the biggest challenges the development market faces this year.
What has the uptake on the new product been like, so far?
Despite the increasing number of finance providers in the development marketplace — a large part of which is occupied by niche players, such as Hodge — commentators continue to report a UK housing requirement of 250,000-300,000 annually, to meet the growth in demand.
The enhancement to our core development product is in response to this. We can now cater for loans upwards of £500,000, which is in line with client feedback. This complements our existing offering, aligns us with our peers, and provides a great opportunity to service some smaller, yet experienced, developers who utilise the managed contract procurement route.
I’m really pleased to say that the reaction has been positive so far, with £70m of enquiries received within five days of launch.
What spurred on the decision to remove some of the security requirements for experienced developers?
It’s important to note it’s not a removal of the security package per se — we’re looking to provide a process and documentation structure that is more aligned to developers’ expectations for deals up to £2m.
While we’ll still utilise bespoke documentation and structures for our larger schemes, we recognise the value of standardised documents and simple, swift, cost-efficient processes which are appropriately tailored for the smaller deal space.
We also know how frustrating it can be waiting for a decision, which is why we aim to provide an agreement in principle within 48 hours of receiving a completed application form. We’ll also be arranging work-in-progress payments within five days of surveyor valuations.
In terms of process improvement, it’s early doors. We expect tweaks to be made along the way as we receive feedback from our customers. But, overall, I’d certainly say the process is better for clients.
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The specialist finance industry is facing a talent shortage. Has your location hindered or helped your ability to recruit?
We consider our Cardiff base geographically ‘neutral’ and we’ve definitely not been hindered by being based in south Wales.
We’ve established a senior relationship manager team of proven, experienced, real estate debt funders — the majority of whom have traditional high street bank backgrounds. Living in south Wales offers a great work-life balance; we’re close to the coast and beautiful Welsh countryside, yet our team have the opportunity to gain national exposure to projects.
Our due diligence is undertaken in Cardiff by our in-house portfolio team, which comprises home-grown support managers.
The commercial lending team is currently on a recruitment drive for an additional five members of the relationship team, including a relationship manager and two relationship support managers, to bolster resource. This will not only cater for a greater volume of transactions anticipated in our five-year strategy, but also equip the next generation with the skills to become real estate finance practitioners.
What do you think will be biggest challenges for the development market this year?
The biggest challenge is, perhaps, overcoming low confidence. We can’t ignore the impact of Brexit and ongoing political uncertainty in the development market. Housebuilders face uncertainty in future housing demand and prices and, as a result, there appears be a reluctance to commit to longer-term projects.
Likewise, a lack of skilled labour is driving wage growth and the associated increase in construction costs. Commercial speculative development remains scarce, not helped by the inherent weaknesses in the retail and leisure sector. Conversely, these issues are likely to present opportunities for experienced developers.
What one thing would you like to change about the property development industry?
Having attended a number of roundtable discussions with experienced developers in and around south Wales and the West, the planning process is often raised as a big hurdle to overcome. Points of contention include: length of process, procedure for determining housing numbers, developer contributions, CIL and section 106 agreements.
While there’s an understanding that the planning departments are not immune from budgetary constraints of local authorities, unless the process is simplified and becomes more efficient, housing delivery rates are unlikely to increase.
How did you get into the industry?
I fell into it, if the truth be told. Following a spell with the asset management team within General Accident Property services, I joined Chartered Trust PLC (an institution also founded by Sir Julian Hodge).
In 2001, I joined Hodge Bank, where I’ve undertaken the various roles of underwriting supervisor (for its retail division) internal auditor, credit risk manager for the commercial real estate lending team, relationship manager, and now head of development finance.
If you weren’t in the banking industry what would you be doing?
If I wasn’t in the banking industry, I suspect I would have pursued a more ‘hands-on’ career within the construction industry. I might have been a joiner — maybe it’s in my blood as the family business traded in timber and, from a young age, I could be found ‘measuring twice, cutting once'.