Brick by Brick

Peer to peer: the new breed of lender transforming development finance

In this episode…

Last year, less than half of Commercial Real Estate lending was from the big UK banks.  Challenger Banks & Non-bank lenders are filling the space left behind by the traditional lenders and peer to peer is taking a large piece of the pie.  We meet Mike Bristow, CEO & Co-Founder for peer to peer lender CrowdProperty, who explains why development finance can be run on much smaller margins, and how streamlining and cost efficiencies ultimately mean better returns for borrowers.  Whichever way you look at it, the next five to 10 years will be a fascinating space to watch.

 

Full transcript of episode here

Ian:                  Hi all and welcome to Brick by Brick the podcast of the property development industry. My name is Ian Humphreys and I am a co-founder of Brickflow and one of your hosts. Each week we will be speaking to experts and stakeholders from across the property development sector. We will share ideas and advice on how to get ahead of the game as a developer. As well as trends and insights from across the sector. The series is designed for all experience levels, whether you’re just starting out on your property development journey or you are an industry veteran. We will handpick topics with universal appeal so that we can all continue to learn. We would also love you to share the podcast with your development industry network. Our mission through Brickflow and the podcast is to make development finance better. Every year somewhere between a third and a half of all SME property developers sight the lack of finance as the main reason they don’t build more. Its only through raising awareness of the problems that developers face that we will improve. The more people that hear this, the more the industry will pay attention and the better it will become for all of us. So please share as far and wide as you can. We also really want you to join the conversation if you have any suggestions for future topics or guests or thoughts on any of the podcasts, we would love to hear from you. Get in touch through LinkedIn or Facebook or email us at podcast@brickflow.com. I hope you enjoy the show.

 

1:34 Ian:           This week, I’m delighted to welcome Mike Bristow, CEO and co-founder of CrowdProperty. For those that don’t know CrowdProperty are a peer to peer, specialist development finance lender. Founded in 2014, and they’re very much on an upward trajectory. The main reason I wanted to get Mike on the show is for him to talk about the p2p space and part of it has to play in the future of property lending. As we’ve highlighted before on the show, non-bank lenders have filled the space that has been left by traditional lenders retreating from the specialist finance market. And p2p is a key contributor to that non-bank market. The p2p model offers fantastic returns to investors, at a time when returns are hard to come by. And the offers SME housebuilders, an outlet for schemes which might not be attractive enough to bank lenders. It works for both sides, but there is a careful balance of risk and reward. And I’m interested to find out from Mike and CrowdProperty, how they strike that balance. So welcome, Mike.

 

2:38 Mike:        Thank you Ian, great to be here.

 

2:39 Ian:           Good to see you, okay. So we like to start every show with understanding the journey that you’ve been on to date. Your career, how you got into property. Do you love what you do? Thats what gets you up in the morning? That’s what we want to know.

 

2:53 Mike:        Definitely, I’ll wind back in a second first and foremost. Yeah, absolutely love it. I have a huge passion for it and it drives me and us as a team immensely. I think that’s fundamental to building great businesses. So many years ago, too many years ago, I graduated with a master’s in mechanical engineering so a very quant heavy degree. Went into management consultancy, specifically in strategy space, so advising major corporate and private equity funds on strategy for their businesses and buyouts and M&A and things. And I did an MBA at London Business School, which is an incredible experience, incredible network, you pick up there and then started piecing together a few different dots. And I’d been investing in property since 2002. And, and it was pretty easy back then. Buy something, rent it out, refinance it and buy some more. So over the years, I’ve grown a pretty big portfolio and quite across quite a different set of strategies as well. Levels of refurb development, target tenant markets, geographies, etc. And sort of started piecing together the corporate mentality, the strategy mentality, the investment mentality with and then technology insight, thinking, well, look, technology has a massive, far greater part to play in the world’s largest asset class. So I started to look at that quite seriously and back in I think before prop and tech had been put together. Being called property technology or other things and I started investing in prop tech businesses. And fast forward now and invested in 20 plus prop tech startups, many of whom have really caught traction and really flown. And I sit on the Investment Committee of Europe’s most active venture capital fund, called pi labs. So literally live and breathe that sort of Prop tech emergence and the brilliant businesses that are coming out of UK and European prop tech. And also looked at in 2014, we found it actually 2013. We started lending in 2014. We found the crowd property, and I’ll talk about a bit more about the wide later, but we’ve been Bringing, I’m basically bringing together a load of that corporate mentality private equity mentality, VC mentality into growing a brilliant business of crowd property. And to bring us right up to speed we’ve, lent not far off 100 million pounds, we funded the development of a thousand homes worth over 100 and 70 million, 60 million spend in the economy. And that traction only happens if you put the customer at the heart of the proposition. And that’s the business we’ve built. And we’ve got a team of 32, brilliant team, super talented multi-dimensional team, everything’s in house in the business, the culture and control and that brings us up to now I guess. But crucially, those numbers are only the start. We are looking at orders of magnitude greater.

 

6:06 Ian:           Yeah. It’s an amazing story. And thank you for sharing. For those that don’t know CrowdProperty, you obviously touched on it there. But how would you explain the business and the model? Give it give us your elevator pitch?

 

6:30 Mike:        Yeah. So, ah, it’s not a 30 second elevator pitch, it never is with me. We’ve founded CrowdProperty as property investors and developers ourselves, the co-founding team have been decades through multiple cycles, have stuck hundreds of spades in ground and said funding for SME property developers is a pain in the ass. It wasn’t fit for purpose. And, and it was so far away from putting the customer centre to the proposition. Forget the peer to peer bit. Okay, we’re a development lender. So for the sake we are a marketplace but you’ve got to compete and be the best at each side of the market. So let’s talk about the property side, the borrowing side. And so we set about, we said, right? Well, we’re going to take out the banks and the non-bank lenders, and we’re going to build a better lender. And we’re going to go out and we’re going to build the best lender in the market for SME property professionals doing quality property projects. And that’s, that’s what we’ve built. So we really intimately understand that the needs the pains, etc, of SME property professionals, going about their business, what they’re looking for, from their lender, what they’re looking for in terms of a partner throughout their property journey, and the growth of their business. And so we built entirely around that. And there’s a couple of elements to that, a huge amount of technology that’s involved in it and that’s for efficiency, both external to the business but also internally within business. And then a huge amount of expertise, but real-life expertise, we have been in the shoes of SME property developers doing exactly what they’re doing. That gives us not only underwriting advantage in that, in that we really, really understand the challenges the etc in terms of choosing the loan. But we also add value and support throughout. And, that means, the right outcome, is that that project gets delivered and exits. Okay, that’s not rocket science, but you work together on that. It’s powerful. Okay. So for example, I use this analogy. I don’t know why, but, nobody ever phones. I don’t know, Lloyds Bank and said, I’ve got this problem on site. Do you know what’s was going on? The reality is if you managed to speak to a human, then it’s an administrator. And, and if you actually managed to speak to someone who was an expert in the field, then you’re more likely to hear rustling for first charge security papers then a unhelpful response. Whereas our borrowers phone us up and say, hey, what do you think about this? Don’t worry, I’ve seen it scores of times before, here we go. Just do this. Or Yeah, you know what, that’s a challenge. We’ll be on site. Let’s crack it together. So our proposition is very much property financed by property people and with the customer at the heart, and, you know, that is the entire genesis of the business, build the best lender and incorporating that as a partner for the lifetime of that property development. business. And yeah, just deliver for the customer and their needs.

 

10:10 Ian:         I think that’s definitely the best way of coming at it in this space because there are lenders, and I call it lending by spreadsheet. They know the analytics, they know the stats, but they don’t have that real-life experiences that you’ve just talked about. And it is a huge difference in this space.

 

10:32 Mike:      The reality is, yeah, you can have the most complex spreadsheet models and platform analytics data and market data, etc. We’ve got all of that. Yeah, that’s the easy bit. Actually, the complex bits are, the best projects in the world can be stuffed up by human. And one of the worst projects could probably be delivered by a brilliant human. So really, it’s about close personal relationships as well as all the data analytics. We work very very closely with people to understand their motivations and ambitions initially, but also working with them to support throughout.

 

11:08 Ian:         I agree with all that. We had a question this week from, a lady follows us on LinkedIn. And she asked when would I use the development lender and when would I use a bridging lender? And gave her a response on that. But I think what really resonated is kind of what you just talked about there is that specialism, if you’re doing anything that is development, not refurb, that can be done by bridging lenders. Absolutely. But, if it’s ground up or at, a sizable PD game, you absolutely want to be using a development lender. Not bridging lender that says they do development finance was kind of the message back.

 

12:05 Mike:      Where we evolved to is that, yes, we are a development lender, the way we describe ourselves is if you’ve got a project whatever that project is, and you need short term funding requirement, but before your exit it’s either sell or refinance and keep and add to the portfolio and yield. Anything short term will do. So, anything from development finance, ground up through to, refurb, HMO conversion, joint ventures. We do this slightly cross definitions, but modular we funded many modular things, we’ve dedicated products for that for joint ventures, for auction finance, for bridging etc. And often what you find is, you’re absolutely right bridging and development is kind of like it’s a spectrum of greys. Really at short term funding. But you’re right, the place where that deep expertise is absolutely paramount is when you’re, when you’re building something or knocking something down and building it, so many people underestimate the complexities around whether it’s, a critical path or utility connections or drainage solutions or, the implications of, working with listed buildings, etc.

 

13:23 Ian:         I think if you get into a situation, something’s gonna go wrong. It always does. And I think as again, as you’ve touched on, at that point, you want a lender that is going to be patient and is going to have seen that problem before, help you overcome it and not, panic, pull the trigger. That’s what you get from the specialist development lender.

 

13:46 Mike:      So one of my co-founders, chuck wood, Andrew Hall is 35 years rits qualified. He’s built millions of square foot in residential, commercial. He’s seen many ups and downs in the markets. He, put hundreds of spades in the ground. He’s grumpy as hell. Often what you need is a good dose of pessimism to say, actually, we have this thing called, property entrepreneurs optimism, okay? It’s when someone comes to us and say, hey, I’ll be in and out in 12 months. And, in some cases in the market, well look, lenders will say, Great, Happy Days, 12 months, you’ll never be and we’ll put you on too late interest rates when you’re late, and we’ll say let’s call it 16 or 18 months, and if you pay back early, great, you’re not paying for that. So, it’s totally different attitudes that says, again that customer centric, but partnership attitude that doesn’t say, look, we win by making the most money out of a single loan. No, we all win together by working together and making that more efficient and better each time we work together and we and we continue to grow and grow and flourish.

 

15:04 Ian:         Yeah. No, I agree with all of that. What kind of CEO are you and what’s the part that you most enjoy about your job?

 

15:07 Mike:      So I tried to take last week off and my team didn’t really think I took any time off.

 

15:10 Ian:         So on your emails.

 

15:12 Mike:      I live and breathe this. I am immensely passionate about what we’re doing. I’m a total perfectionist in how we go about things and what with our customers serve our customers best and manage our data. Our data and our tech is I sort of our crown jewels in our business and we make sure we take a world leading attitude to that. I’m also a deeply competitive individual, not in the bad sense not in the, evil sense, but in the, look I like to do things best. And we go about with an attitude and our business of doing things, the best we possibly can, both internally and externally. So what comes with that is, quite, you know, I do get stuck in. My natural background is long term thinking for corporates and private equity funds. So we take a very, very strategic approach to the market and, building our market presence. So, we’ve got an incredible roadmap of development that is very, very excited that will challenge us that will deliver incredible value to the market.

 

17:00 Ian:         So you’re six years in, but you’re only at the start.

 

17:04 Mike:      Yeah. Basically, what we’ve done is we’ve gone about and it’s really important that you go through stages in a business, you get initial traction, you prove you can, you know, go through full loan cycles, you prove you can recover. We’ve got a perfect track record. And now what we effectively have is, I’ve talked about, I can now say we’ve built the best lender in the market, in my view, ok im bias but it’s a brilliant service to exactly our target market. And where we now are at and this, technically we are classified as a peer to peer lender. And this is really, really interesting because, I said, don’t worry where our capital comes from because we have perfectly reliable capital. And effectively over the years now we’ve built up diverse sources of capital, which includes retail, high net worth, ultra-high net worth funds and institution. So diverse sources of capital, diverse types of capital and many, many sources within each of those types. Okay. And why because we always knew the reliability of capital was paramount. And that is what we proved that entirely through lockdown. So we have set our own funding records through lockdown. We’ve been pretty much the only lender in the market lending through lockdown. And, one of the reasons is because we have a diverse source of capital, many lenders out there have a single source of wholesale capital where, because of the because the linkage into equity market volatility, I think that, those wholesale sources are happy to pause. And that can be disruptive for the lender can be hugely disruptive for the borrowers particularly. So what we’ve perfectly proven now through toughest times that we are a very, very reliable source of funds. And that diversity of Capital is increasing on a monthly level as we’re bringing on new sources. And that brings, a really powerful lending market.

 

19: 26 Ian:        Yeah, just from our side, there were lenders, as you say, had to pause. And there are lenders that are still paused. And it does kind of, does make you wonder, what’s going on behind the scenes? Like, is this something? Are they going to come back into the market? People that have come in perhaps not as aggressively, so to have a lender that basically made no changes whatsoever. I can’t off the top of my head, I can only think of a couple of which you’re one. It really is quite a feather in the cap as it were.

 

20:01 Mike:      Yeah, and that’s when that’s when you prove yourself. Yeah. It’s times like this when, actually, it’s really important to remember the correct questions during this time, because in the good times, you still need to be asking your lender, right. What’s your source of capital? How reliable is it? It’s crucial because, as we know, pandemic could happen at any point. So, understanding that. And that tries right through because what we’ve seen is not only off of being reneged upon, but we’ve also seen drawdowns refuse not for the support of the project because of the source of capital. And that is destructive. And we’ve refinanced people out that are in that situation. We’ve done it a number of times through this market. So, the point here is that it’s often this is one of our perceptions where we’re trying to shift myths here is that people are deeming peer to peer lending or sometimes called crowdfunding. That’s more the equity side, the death, peer to peer lending sector, as a different sector. It’s not. What it is, we’re a development lender, okay. And we compete with other development lenders. We’ve got to be the best development lender, not the best peer to peer lending platform, the best development lender. And then we’ve got to offer our investors our diverse sorts of investors, the best products in terms of risk and reward. A balance, okay. And if we’re best on that side and best on that side you put those together, it works. So talk about peer to peer lending is a single business.

 

21:55 Ian:         All lenders are peer to peer, right?

 

21:57 Mike:      Well, yeah. This is exactly the point. So, ultimately, what happened? Such an insightful comment. All capital okay is owned by a person, whether it shares in a company or whatever, okay, they’ll come back down to a person. And it’s just the path that that money takes to go from the person all the way through to the person that’s going to add value at the end of the chain using that money, and then meander back through. And so what you see is, traditionally I mean. So my mother is a lender on our, platform, and I’m scared of both of them. And, so traditionally, my mother might have said, right, I need to allocate some funds, okay, I’m going to go and see an IFA that IFA might say, put some money into this generalist fund, that generalist fund might say, I’m looking for some property exposure, so I’ll put the money into a property fund. And that fund might, we’ll find a broker and that broker will find some development deals, suddenly, you know, my mother’s getting 1%. Its her money. But it’s the market economy. So, there’s a cost and the people are making profit out of it, and they’re adding value, otherwise they wouldn’t exist. But we said, well, let’s scrap that. Let’s do it directly. And, that enables us to offer a better deal for the borrower. And a better deal for the, investor. And the way we describe that the way we think about our business is the most efficient matching of supply and the demand of capital that delivers value through out.

 

23:54 Ian:         Yeah, I agree with that. The margin, the bit in the middle between investor and borrower is totally dictated by how long you’ve been doing it, which is completely incorrect. Your ability to pick a deal isn’t necessarily any better or worse than, any bank. They can take money at half a percent or less and lend it out at six. Whereas your I don’t know what your metrics are, but then presumably you haven’t got five and a half percent spread between the investor and Borrower.

 

24:30 Mike:      Exactly, so we deliver better value both sides of the equation. Why? Well we haven’t got a big retail branch network. We haven’t got legacy systems. Yeah, and we’ve got brilliant tech platform that takes out a load of the efficiency of it. We don’t have big city centre offices, we don’t have huge staff basis. We don’t have regulatory cost of capital, and all of that. All of that gets delivered back to our customers, either borrowers or lender side.

 

24:54 Ian:         Yeah, it’s, definitely a huge value add and especially on the investor side, and you’re delivering the same thing as their bank can, but giving them infant testicle better percentages on their on them.

 

25:10 Mike:      I’m just going to caveat that slightly I know it was sort of talking more property side and borrower side, but just going to caveat that because it’s important to do so because we are an FCA regulated. That, investing with ground property, the capital is at risk, and it’s not protected. So it’s different for banks savings accounts.

 

25:58 Ian:         We’ll put up a we’ll put up a subtitle for that.

 

25: 59 Mike:     Yeah, but also the, the really interesting thing is that we can access the same tax benefits. So we have an ISA. So the CrowdProperty ISA, enables 8%, returns tax free, and also pension lending, so SAS pension lending and SIPP pension lending. But you’re right, there’s a lot of value there on the investor side and then the load of the value of the borrower side is all about delivering speed, ease and certainty of capital, that then enables those people, that the borrowers, the developers, not only to strike better deals because they can move quicker than anyone else competing for that site. And we’ve had people very early on, and I put proof of funds across very early on. Also, in our research and ourselves, we know that an SME developer might spend a third of their time looking for more sites a third of their time executing on current sites, and a third of their time faffing around with funding. So if we, compress that, they grow their property businesses quicker, that is the outcome, and therefore, as we build more houses as a country, we spend more in the economy and hey, we need to do that right now. So if we, if we compress that they grow their property businesses quicker, that is the outcome, and therefore, therefore, as we build more houses as a country, we spend more in the economy and hey, we need to do that right now.

 

26:52 Ian:         Yeah. We’re 100% aligned on that point, because, our whole reason for being is, that if the funding is more efficient, it’s cheaper to deliver. And if funding’s cheaper, then more houses get built, if more houses get built, that’s better for everyone. As you said, the economy benefits, and every person across the country benefits because they have more choice in housing, they’re better housing. So it’s important that, you guys are successful and, hopefully are sort of platform idea is successful as well, because there has a better social benefit than just making developers richer.

 

27:35 Mike:      Yeah, exactly. It’s really important. Developers haven’t got the greatest name in general public, because of the perception of, Porsches and Landrovers, and things. But right now, its such a strategically important sector, and I’ve checked some data briefly since it. It’s no secret that we need to be building about 300,000 homes a year. And we’re not anywhere near that for decades. And remarkably, we seem to always build 200,000 homes not 300,000.

 

28:09 Ian:         Last year was the most we’ve built in 11 years, I think it was 177,000. We built more I think just before a crash so we almost build up and then the economy crashes and we get further behind on that shortage.

 

28:29 Mike:      Which is the reverse of Keynesian economics, which means that the peaks are peakier and the trough to troughier, I’m not sure if peak here and trough here are technical terms or not, but we’ll run with it. But if you look back at 2008, we built 200,000 homes. It depends on England UK scope, but broadly 200,000 homes and 30% of those, 60,000 homes were delivered by small builders. Those supplying less than 100 units into the, market each year. Wind forward nine years. Sure enough, we built 200,000 homes ago, but only 10% 20,000 homes delivered by small builders. And so, as a good strategy consultant myself, I’d look at that market and say, well don’t touch it. It’s a tanking market. It looks like a nightmare, or there’s a major barrier. And we know 42% of SME developers from our survey, which one of the largest ever surveys in the market, 42% said the biggest barrier meet building more homes is sources of funding. And the problem, the real problem is not only are we therefore not moving forward enough or building enough or spending enough in the economy. The real problem is that the slack there the balance to the 200,000 made up by large builders. And the challenge with large builders is that they play a really important role. But large sites by definition are scarce and more and more of them are getting built out. There is almost infinite small parcels of land, small plots of land etc, to build out. That is why that segment is so vital to housing supply in this country.

 

30:31 Ian:         We don’t all want to live in the same house do we?

 

30:34 Mike:      No, no. And, the crucial bit now is, it is Keynesian economics. It’s we need to invest now. Boris came out and said build build build. Its a spectrum of everything. It’s from HS2 down to, just more affordable homes. We’ve got to build because it’s so productive, that money goes straight into the economy in terms of labour, material, services, etc. It’s vital and so unlocking enabling, getting more capital easier into the SME sector is exactly our purpose and why it’s so fundamentally important.

 

31:16 Ian:         And it tends to stay in the economy as well it’s genuinely quite circular into the UK market, pretty much anything else you look at a lot of it is owned by realistically is owned by people overseas so it kind of disappears. Whereas actually, a lot especially, in the SME space, it’s all going to be UK money so it stays in the economy which is which is much better for us. But okay, cool. So just talking about, obviously we touched on, peer to peer and things that. What, as a marketplace is obviously evolved hugely. I mean, it was a conservative government last time around that promoted it and said there was something that was needed after the crash. But how are attitudes different to when you started six years ago to where they are today? And you know, is it generally more accepted? How do people talk about it with you?

 

32:13 Mike:     I think very aware of the sector. For many, many years, I used to work with one of the founders of a funding circle. Zopa started in 2005, saying let’s match people to people with money. It was visionaries. The first peer to peer lender globally. And funding circle came in soon after the GFC when SME capital dried up and brilliant, brilliant insight, on that business. Those businesses have both lent 5 billion plus. But then there was the proliferation of platform. And, I think there are 56 directly regulated peer to peer lending platforms in the UK. And now there are some others under indirect regulation, which is just not a great structure in my view. But what we’ll see now, one of the biggest criticisms of the overall sector hasn’t been really challenged through economic downturns. This, has really challenged the sector and broadly it falls into three buckets. Consumer lenders like Zopa who will do loans to people, SME business lenders like funding circle, and property lenders like CrowdPropety. They’re the three dominant sector. And consumer very much ramped up first. Then SME and now property as well, but, stuff only catches on, if it provides a better deal, and whether that is in economic terms or in service terms, which is indirectly. It only catches on if that is true, and it’s better economically than the alternative. And that’s why it’s in such hybrid. And we talked about the economics the structural advantage. So it is going to grow enormously, there are not many sectors, I can’t think of a sector in the world that’s as big that is growing as fast as let’s put it that way, but for good economic reasons. Now, the challenge you get with a market that is, I would say it has matured it’s still in very high growth. Is that you get a big spectrum of player. And if there were there will be a serious filtering out of the wheat from the chaff over the coming year, two years as we face the real knock on effects economically. Everyone has to be wary of that, and everyone has to be careful about and everyone has to understand who they’re borrowing from or the platform they’re investing in. And that’s natural, but, look, it’s economically advantaged the UK and the US lead the world. The UK in peer to peer as well as wider FinTech. It’s a world leader, we should be bloody proud of the business, that the FinTech sector is building and be fully supportive of it because they are, exportable internationally. Funding circle is a good example is expanded internationally. And, there are many, many huge success stories are coming out of the UK.  And, FinTech is, the important bit is, is that it’s not sort of whispering fin and then shouting tech. It’s fin and tech. Okay. And what I said earlier, which was using technology for efficiency, and expertise for effective, that’s your tech in your fin. And you need both. It’s very, easy for, I’ve seen platforms out there, just say, hey, look, I’ve got a whiz bang platform. It’s great. Okay. And look, you’re, in the lending space, you’re only a lender if you get your money back. Just about how efficiently you match the supply the demand capital, it’s getting the money back as well, then we’ve got to know what you’re doing. And therefore, traditional financial expertise and asset class expertise is absolutely paramount.

 

36:54 Ian:        I think that’s the resistance I get, especially, with the banks and other institutional sources of capital, I’ve actually worked with lenders before on funding lines for businesses that started in the peer to peer space. And I think a lot of the wholesale money that underpin some lenders is quite dubious of peer to peer for reputational reasons, I think, which is fair as well, because, they don’t want to be on the front page of the paper if that lender goes on there. And, Mr. And Mrs. Smith lost their pension. So yeah, and I think for a lot of those lenders, the wholesale lenders I’m talking about, they see the next economic downturn as a real sort of barometer of who’s who, whoever’s still standing, that they’re the ones that, we come back going forward. And I think that will be a real test of the model. I mean, how, do you see that see that playing out? There was a lender obviously last year that went under the Lendy and people may have heard about, and that obviously takes the sector as a whole, are there things that you know, the regulatory real things that could be done to kind of protect that stop that happening again, but also how do you feel the market will shape up if we do, in fact go into a downturn or you know, go into a bit of a recession, you know, what will happen to the market as a whole.

 

38:22 Mike:     So firstly, there is stronger regulation now in place and there’s a lot of learning by the FCA out of the lending situation, and also better questions are being asked of all platforms. So for example, our conversion rate is very, very low. We’re picky. We’re a quality first lender. And there were some other platforms out there that aren’t quality. Last results lenders. And the problem there was that. The last resort lender, investors didn’t ask why am I getting 13%? There saying great, im getting 13%. But if they’re getting 13%, then the borrower is probably paying 18 19%. So we should be asking, well why is the borrower paying 18 or 19%? Surely they can borrow money cheaper elsewhere? And that’s the definition of the lender, of last resort.

 

39:37 Ian:        And you expect to get your money back to you if you’re lending 18%.

 

39:40 Mike:     You know, there were lots of issues with various businesses that haven’t succeeded. And it’s all about the people who are doing this properly and, this is part of a maturing of the market. The problem here, is that, if it’s a donut shop selling donuts and three have opened up and its the survival of the fittest, the worst thing that, the consumers lose out on is maybe the unique flavour of the worst donut shop, it’s like, but in this case, it’s money. This is people’s money. And, that’s very, very important. So, understanding the dynamics of the rates and what is because of efficiency. Is that reliable because the expertise what’s the security underpinning it? And wait a minute why is the borrower paying that, understanding those economics is quite a complex argument not all platforms are transparent about, revealing that information, we show all of that on our statistics page. So, the maturing sector means that you will see fallouts and you know, just sort of hope that it doesn’t affect too many people. The FCA, have teeth at the moment and they are biting, which is great to see. Because in our view, there is a spectrum of operating practices in the market. And in our view, quite a lot of that is not acceptable. I guess you can refer back to my perfectionistic traits, we talked about before, in terms of how we approach that.

 

41:39 Ian:        So the sector as a whole going into a downturn, you touch on there that you feel that some might not shape up too well, but do you see some consolidation. And, you said there’s 56 regulated at the moment. Now, how many we’re going to have in a couple of years of more or less?

 

41:59 Mike:     Well, I spoke to someone recently, I won’t even allude to, for who thinks they’ll be 12. I don’t think it’ll be that bad, as extreme as that. It’s very easy to be scaremongering. It’s really important to remember broadly, an investor investing on a peer to peer lending platform has a loan contract with that borrower. And now the FCA have required wind down plan. So, look, if the platform goes under, you don’t lose your money like that. There’s a lockdown procedure of that arrangement with the borrower. So, I shouldn’t, scare monger everyone out of the sector, that there are stronger provisions in place, but, the reality is that may compromise the integrity of the loan, the partnership, the loan and the recovery of that loan. So you need to look and understand the business that you’re backing. So what will happen, will there be consolidation? Maybe, maybe not, that’s been talked about that for years in the sector. The reality is, the cream rises to the top, the best of the best win, people that are proving themselves right now through the tough times. And the people who’ve just built better businesses. It comes back to the whole thing, the stability of businesses about the fundamental of the proposition and the business. And if the fundamentals of proposition are concentrating on deep seated pains that have been sold brilliant, then that business has a very strong likelihood of being successful, large and ever-growing business.

 

43:56 Ian:        Like a metaphor for property development, strong foundations.

 

44:01 Mike:     Perfect. It’s so important, because the other thing is that, some platforms are under resourced as well to be able to really do everything in the rigour that’s required. But look, the principal as I say, the principal the sector is delivering a better deal, both economically and service wise and, and that’s what we think very, very hard on.

 

44:30 Ian:        Okay, great. So moving on slightly. Obviously we we’ve just come out of lockdown. And we’re slowly coming back to whatever the new normal Coronavirus, you talked about how you didn’t really affect your business in terms of you were still able to lend as you normally would. But I’m talking more really about the industry, but also kind of wider society, I guess, as well, but more specific to the property sector. Now, what do you think the outcomes are going to be of this sort of lockdown period that we’ve just had, how will it affect, our businesses in the development sector perhaps, but also how will we build and, and society as a whole going forward?

 

45:14 Mike:     So, there will be enduring demands for residential real estate. Okay. Now, prices will fluctuate based on supply and demand fundamentals. But there is strong underpinning demand question is ability to pay. I believe that the residential real estate market, the way I look at the current position is, should we expect something like, 08 09 or not. And I break that down into two ways. Number one, is there a price correction that’s been waiting to happen, which a shock cause and when you actually run the real house price index rather than the nominal house price index indices, right, so IE inflation adjusted, were well below 2007 values right now. And, and we saw a 10 to 12 year bull run in real property prices, leading to a 07 08 but then have had a debt market shock and shut down the debt market. So, I don’t I don’t See a correction waiting to happen on the on the inflation adjusted data? Again, this is averages, there’ll be pockets that challenge. Then you look at what’s the outlook for ongoing supply and demand. We’re not building enough we’ll build less this year. But in 08 09 What happened was the lots of people suddenly needed to sell. And then the banks started repossessing and started to sell. And there was no debt market and nobody could buy and 19% falls later 83 months to recover. You know, that’s problematic. Seriously problematic. I think in this market the best. You sort of look at how property market commentators forecast change a good indicator and I think Savells have been quite good actually, quite consistent with their expectations on house prices down 5 to 10%. This year, we’ll catch up in four years, to five year’s time, back to where they expected to be. And that hasn’t shifted. And I think that’s, quite a sensible forecast. I think that, where we’ll see the challenge is obviously the uncertainty of unemployment and how that affects individual segments of demographics and geography. So from an opportunistic perspective for property developers and property investors. Will there be deals of the century? This year? No. There will be good deals to buy. I think there’ll be a lot of people looking for them. Okay. And, part of the reason why is, is that in any market there are people that need to sell but some people who will think about selling maybe have to defer that sale for six months and the debt market will recover much quicker, back to 95% high street residential mortgages aren’t, that’s the benchmark when that’s back the debt markets are in a good place. So we won’t see the extremity of increased supply and reduce demand that we saw in it 08 09. There’s always deals to find developers out there really be opportunistic and my perspective, I think it’s never been more important to have, the team around you that can act damn quick. Someone selling in this market. They can’t afford to wait the six months for the debt market to come back. And therefore having the team the legal team, especially the lender around it says, you can move faster then any one else. We provide speed and certainty for that vendor. That built our business around providing speed ease and service. That’s sort of the resi outlook. Commercial I think is a horror story, on many levels apart from warehousing and grocery. And even office. It’s going to be fascinating to see in a year’s time. How does foot fall and foot traffic, compare around, say, the City of London, to where it was, you know, in November 2019, it will be worlds apart. I I’m not a believer and our business is not a believer at all that we will not have an office going forwards. Culture and human interaction and innovation that comes from passing conversations are core absolutely core to the brilliance of our team. And so, I don’t sign up for the you know, Twitter never having an office again. This may suit some businesses but for me. I’m sat at home, my desk at home. I could be working for Company A or Company B, I don’t really care. They don’t really have an identity, that loses what humans need and cry. But there will be significantly less office space per worker going forwards as flexibility, has been booted in. And then lots of other sectors, I wont start rambling on about those as well. But this is the end of the beginning right now and there’s a lot to play out here. And what I am absolutely certain of is that a lot of the stimulus that will come from the government both policy, but also capital will be underpinning build build build. It will be a huge opportunity for property developments. And in my view, especially in the SME side.

 

52:18 Ian:        The changes, recent changes in planning policy FA that as well right, National housebuilders PLC’s are not interested in adding another couple of stories to existing buildings. That’s the SME space. So, absolutely agree. I think we have a very supportive government, which is crucial. And it’s just interesting on your point on house prices and I definitely agree that the difference’s this time around is there is actually still lending available, to say prices can only fall so far because people can still borrow. That’s the fundamental difference between this time and last time. So there is a bottom, a much shallower drop.

 

53:03 Mike:     And a quicker return.

 

53:05 Ian:        Yeah, agreed, but what was quite interesting, especially on our platform is what we’re seeing at the moment is a lot of the search data. You’ve kind of got this juxtaposition of pricing. So what I mean by that is, so people are factoring In dropping GDV in there, end values, and then they’re increasing their bill costs and maybe they’re built term to make allowances for, the uncertainty around COVID but what is happening is, is that you’ve got the land prices are still the same as they were because the sellers, almost berried their heads in the sand and still want the same price they wanted six months ago. So you’ve got pre COVID land prices, but you’ve got post COVID build and post COVID GDV. So you kind of got this land price up here build costs has gone up and GDVs come down and what we’re seeing is, that deals is difficult to make some deals. Marginal deals, perhaps 20% or high teens, percentage of profit margins, and now low teens and so it’s gonna take a while for that to be true. But go back to your point of thing, q4 this year to q2 next year when the government drip of money has been turned off. And perhaps lenders have been patient in the moment because, the government have set the tone, they will perhaps be a bit more pushy with borrowers and, you might start seeing some opportunities come to the market.

 

54:42 Mike:     Exactly. Residual land value is hypersensitive to GDP movements and you’ve got to believe that landowners are going to factor that in, or they’ll need to wait, that’s the reality.

 

54:58 Ian:        I think we will see more overages and deferred land payments, things like that. I think, that’s a legitimate way of trying to negotiate with the seller at the moment. So if I get 800 a four or 500 a foot, I will pay you that price, but I’ll do it at the end if only get 450 the land is not worth what you think it is.

 

55:25 Mike:     Exactly and also, good old fundamental landowner JV. We fund quite a lot of that because, again, we’re property people. So, we’ve done all of these deal structures, we understand. And, we love working with people on complex smart deals, we don’t scratch our heads, learn less and charge more when we engage and think well, actually, that’s a really smart property structure. So I’m not actively engaged.

 

56:03 Ian:        Yeah, I think there’s a million different ways to structure deals. And I think the non bank sector specifically, is just much more adept at dealing with, that complexity. Okay, moving on, as you know, we are Brickflow. We’re very much introducing more technology into the, sector as a whole. We believe the industry is horribly inefficient, as I’ve touched on and is probably the last sector to be on touched by technology in the whole, I mean, you’re really hot on your technology compared to perhaps other players but, what are your views on technology in the sector as a whole? Where, are the quick wins? Where do you see it going? And perhaps if you’re, you’re in the PI advisory hat on, your VCing, you’re at the forefront of prop tech development, what excites you?

 

57:21 Mike:     Yeah. I mean, I firstly it reminds me, it was a couple of years ago, and I was presenting in front of a roomful literally, like a couple of hundred, quite old school real estate, people. And I put up a slide, which was the conclusion from a McKinsey study, comparing technology adoption across sectors and alike and they must be three years ago and it likens property and its adoption of technology to basic manufacturing and agriculture. I mean, that slide did not go down well in that room put it that way. I didn’t really think through the audience but it certainly gave me a bit of a boot up the ass. But look, it’s huge potential. My view is it’s one of the largest asset classes, physical asset class utilisation is a massive thing, efficiency is a massive thing. There’s huge potential. Now, where we’re prop tech has shifted from, five years ago. I saw hundreds of pitch deck saying oh, I can help estate agencies, convert some more leads or whatever. Yeah, literally hundreds of micro solutions. From kids that had no idea that the estate agency, market really just wants to crack on not have to manage another system and use another system and learn another system and, pay for another system and etc etc. Through to some quiet, some really powerful disruptive businesses. My first investment in the sector of the business will hHubble, which is an office marketplace is incredible tech, they’re great. Through to business called Ask Porter, which is basically AI block management’s and management of tenants issues and building maintenance issues. And that was Google Europe’s first sorry, Google assistance, First investment in Europe. That’s how much they rated AI technology. You know, it’s real AI. Not just, something.ai in the web address. Where is it going? Well, it will basically follow the inefficiency, follow the resource intensive and sensitivity. And that is, construction is an obvious space there. Right from design, workflow management, health, safety, the software sides, right through to robotics and there’s gonna be enormous potential there but the robotic side is, quite way out there. Well that will happen in the module in the modular factories, modular has a huge part of plays, evolution sector its not just huge for tech, then data analytics, valuation models, they’ll get better. Our view on all of that is we’ve got incredible data in tech and analytics and we’ve got a huge sample size of projects in the UK now billions and billions of pounds worth of application. And we can use that very valuably, but you still need a human to observe architectural integrity or condition or things like that especially around residential, so humans will always be involved and we think about is serving the best tech data analytics in front of experts human brains to make ultimate decision type. Where else?

 

1:01:18 Ian:     Are we all going to live in printed houses in 20 years?

 

1:01:29 Mike: Maybe 3d printed on the moon. It’s could create buildings on the moon. The 3d printing Moondust. There’s s pretty good pitch deck on that. What else? Quite a lot around Asset Management analytics. Utilisation in large commercial spaces, optimization about utilisation, management of utilities, aircon, lighting, smart sensors throughout everything, to optimise.

 

1:02:08 Ian:     Firstly, how do you feel about that? How comfortable are you with sensors and everything around the house?

 

1:02:16 Mike:  Well I’m more sensitive largely around commercial buildings. I mean, I took I took the step of getting a Facebook portal TV to keep linked up with my mother during lockdown, she wants to see her grandkids, my brother who works in risk management’s of Bank of America Merrill Lynch, so there’s no way I’m having one of those in my house. So, it will be personal choice. I’m quite, relatively relaxed about that. And, crucially, I haven’t got up to about 100 likes on Facebook that I’ve given out which, I think is the threshold, that means that Facebook knows you better than your other half.

 

1:03:14 Ian:     Oh, really? I’ve never actually been on Facebook, so don’t know much about it.

 

1:03:23 Mike:  Prop tech will have a huge part to play and the big players come into the sector now, making big statements. Very recently, Microsoft making big plays in the sector, Google, also.

 

1:03:35 Ian:     Google building a town in Canada. You know, that kind of thing?

 

1:03:40 Mike:  Yeah. The whole smart building smart City thing, that’s been mooted for a long time. And the challenge there is right. How do you start? I should remember a few years ago I work with Foster’s, the architects firm, as I was advising them on the economics behind the estuary airport so it’s quite a few years ago it’s brilliant because there’s a piece of analytics I did that went to a commons Select Committee where the answer was in the trillions of pounds it was the potential GDP opened up with extra air capacity in this country. I was working with one of the partners there and he’s a real visionary and fosters have this amazing place in Battersea that looks over the river on chain walk in Chelsea. Yeah. And he sort of said come through in the four story window. Look, look over there. What do you see along chain walk all you saw? Were white vans delivering stuff. And this was five years ago. So no more six years ago, seven years ago. Okay, so be even more extreme now. What we need is an airport like conveyor system under every road. Okay? Yes, brilliant, brilliant. You’re right. It’s impossible. So, but the principle, that the visionary points around what needs to move what doesn’t need to move etc. and then actually it’s a good example of where if you started from scratch in the city you could build something absolutely incredible.

 

1:05:33 Ian:     If you built Milton Keynes again today it would look slightly different.

 

1:05:37 Mike:  Fewer roundabouts.

 

1:05:40 Ian:     Yeah. Okay, last question. Will P2P replace banks?

 

1:05:45 Mike:  Okay, in strategy, I’m going to try and answer this without being so biased. In business strategy, if you have structural cost advantage versus your competitors, you will win. And that’s because you’re either going to profit more, or you’re able to invest more in your proposition or you’re able to undercut prices, etc, etc, etc, you have greater power, if there is greater economic efficiency, structural cost upon. That P2P has over the financial services, on that p2p will grow enormously on a global level. Was that unbiased enough?

 

1:06:33 Ian:     That was unbiased to me and you can see why anyone would think it. I think that, we’re going to that place and, there’s a lot of steps on the way and essentially, banks need to get more efficient, at what they’re doing, and these sort of big towers and, huge cost over overheads that they have and, the sort of wood panelled rooms, to have the best clients there. And these things shouldn’t be footed by, the man on the street. So, yeah, I completely buy into it.

 

1:07:13 Mike:  Yeah, I’m sorry to say to developers out there that crowd property doesn’t have a client dining suite.

 

1:07:17 Ian:     Okay, well, great. Thanks, really good insight, really good to catch up. And we’ve run out of time today. So a big thank you to Mike Bristow of CrowdProperty. Thank you.

 

1:07:19 Mike:  Thank you very much for having me. It’s been great chat.

 

1:07:21 Ian:     Good to catch up. So that concludes the show for today. I hope you enjoyed it.

 

Outro:             Thanks so much for listening to this episode of Brick by Brick, the podcast for the property development industry. Speaking to Mike is always good fun, as he’s hugely charismatic and really passionate about his business and what they’re trying to do at crowd property. I think the biggest learn from today was that change is coming. No longer can the industry remain in the holding pattern that he’s been in for the last couple of decades. Borrowers want more from their lenders and quicker turnaround times. But investors want more as well. How can it be that I get 0.5% from the mainstream bank on my savings, and then seven or 8% from where I can crowd property when ultimately my savings could be used to fund similar schemes and similar borrowers. Crowd property and other businesses like them are showing that development finance can be run on much smaller margins than has been the case historically. And it’s this streamlining and cost efficiencies that ultimately mean they can compete with much bigger and more established lenders. Whichever way you look at it, the next five to 10 years in this space is going to be fascinating. Anyway, we’ll be back again soon with another episode alongside other industry insiders, sharing their own property journeys, as well as their tips and tricks to help you get ahead in the property development industry. If you’ve enjoyed the show, we’d really appreciate it if you could leave us a review and share the podcast with your property industry peers. And remember to get in touch about this topic or any future topic by emailing us at podcast@brickflow.com. Until next time, take care.