Tips to help property developers survive and thrive during Covid - part 2. Includes: talk to lenders, grow networks and do some good.
Whilst speculation has gone into overdrive surrounding how Boris Johnson will ease the UK’s Coronavirus lockdown on Sunday, it’s clear it won’t be business as usual on Monday morning. And social distancing in some form, particularly in the workplace, is likely to be in place at least until the end of the year.
As a senior government figure commented to the BBC, everything will look pretty different on the other side: “Work will be different, shopping with be different, transport will be different – we need to create a whole different way of how society can work.”
This of course includes the property development and development finance industries, so it’s essential to set ourselves up for success during the long transitional journey back to ‘normality’, and post-pandemic.
“Work will be different, shopping with be different, transport will be different – we need to create a whole different way of how society can work.”
In the previous blog, we shared the first of our ideas on how property developers can emerge from the crisis on top.
This week, we share three more practical ways to strengthen your prospects going forward.
Talk to your lender
If you’re part way through a development, there are steps you can take to safeguard your scheme. If you’re lucky enough to have contractors still on site, resources could become an issue. Your supply chain may break down but there’s no reason for your property finance to go the same way, if you act now.
Development lenders are generally smallish companies or smaller departments within larger institutions. They operate with more autonomy than the retail mortgage departments and the bigger commercial lending teams. Sometimes their hands are tied by decisions further up the chain, but they are human too. If they have any sway over decision-making for your particular project, they’ll be more likely to fight your corner if you’ve built a strong relationship.
We suggest:
- Call your lender now and talk openly and honestly (if you haven’t already)
- Ask yourself what would happen to your project in the following scenarios;
- If your builders are off site for 3 months (or more)?
- If your end prices drop by 5%, 10% or 15%?
- How much extra time will you need to complete your site?
- How much extra money will you need to complete your site?
- What are the long-term implications for your site sale; e.g. are you building a hotel?
- What is the impact on any retail or food element if you’re developing a mixed-use scheme?
While it’s too early to truly know how loan pricing and structures will be affected, Lenders will undoubtedly reassess their appetite for risk. They are of course aware of the effects the pandemic is already having on the property development market, so it’s essential to confront issues upfront. They’ll respect you more for it. After all, we are all in this together.
Grow your network
The majority of development deals have more than one stakeholder, so the wider your network, the larger your scope for seeking out the best sites and opportunities. With the majority of people working from home, we’ve all got more time on our hands for networking (and would probably enjoy the chance to chat with someone outside of our lockdown zone!) so take advantage and pick up the phone.
A large network is beneficial as it’s rare for someone to have all the skills needed to bring a development project to fruition. Most developers also need to share the equity risk. Use the quieter period to research the elements of the development process where you’re weaker.
If finance is an Achilles heel, have a read of our "Easy Guide to Development Finance", where we explain the development finance process in words you don’t need to google. Similarly, if you’re a construction specialist, take the time to make contact with experts in planning or sales. The more rounded you become, the more appealing you are to a lender, and you’ll be able to assess sites from a broader perspective, giving yourself a competitive advantage.
Seek out opportunity
Just as Coronavirus is affecting every aspect of our lives and forcing us to reassess, it’s likely that lenders will refocus their loan portfolios. Some may be more cautious and reduce LTVs or pass on marginal deals altogether. As a result, developers may find it more difficult to secure a loan solo, so we expect to see more Joint Ventures to help plug the equity gap.
Another outcome is likely to be an increased need for quick sales, or more distressed sites coming to market. Because of the slowdown, site owners with Bridging Loans could see their loans expire before their development loans can complete, so might be forced to sell or develop.
Many of these people are planners, not developers. They bought the site with no intention of developing it. Their plan was to secure the planning and sell it on. They may now be forced to build a site without the equity or skills to do it, so they’ll need help. Quickly.
One of the most unfortunate by-products of this downturn will be that some lenders will go pop. All lenders on the Brickflow platform are well-established and well-capitalised, so we don’t expect any surprises, but unfortunately it’s inevitable that others won’t weather the storm (remember Lendy?).
If these lenders do disappear and the current owners are unable to buy the sites back, part-built sites will appear on the market. It’s a massive shame for the owners, who will lose out through no fault of their own, but it happens in every downturn and is a stark warning to any developer to make sure you choose your lender wisely.
In all of these scenarios, by having a large network you’re more likely to hear about opportunities. Speak to agents, site managers, quantity surveyors; anyone involved in property development. The more people you know, the more likely you are to find the best deals.
With a concerted effort from all areas of our industry, we can survive these turbulent times. And if we’re smart, perhaps we can emerge even stronger on the other side.
Do some good
If Covid-19 has given us anything, both personally and professionally, it’s the time for a bit of reflection and the empathy to show a lot more compassion. From giving leeway to colleagues with kids to home-school and entertain, to company-wide initiatives that directly support the fight against Coronavirus, there’s much our industry can, and already is doing, to give back to our people and the wider community.
Many property companies have already joined the C-19 Business Pledge to encourage businesses to help tackle the Coronavirus pandemic by supporting employees, customers, and communities. The directors of Countryside Properties, for example, are taking a 20% pay cut to contribute £1 million to support local charities, groups and food banks. And Barratt Developments have directly helped the NHS by donating £100,000 to NHS Charities, 5,000 facemasks to the NHS and around 400 defibrillators to ambulance services.
If you’re not in a financial position to directly support Covid-19 causes with funds or resources, perhaps you have disused premises that could be converted instead. If you’re a Landlord with vacant premises, could you offer them up for medical facilities? This article includes some great suggestions on how to help from Knight Frank’s planning partner, Chris Benham, along with details on submitting a planning application.
If you’re not a huge corporation and you don’t have the time or resources to introduce or support large-scale initiatives, there’s also a lot you can do on a smaller scale. Offering internships or a mentorship programme are low-cost and easy to get off the ground. Even during lockdown, you could spend a couple of Zoom sessions sharing your knowledge and expertise with an aspiring property developer or broker.
At Brickflow we’ve taken on an intern to both help us through this challenging time, and to help develop his skills as he starts his career in the property industry. Louis Saliot has joined us to assist with business development and social media, and it’s a real bonus to have a Generation Z team member to help influence our social strategy.
Louis says, “From crisis comes opportunity, and I’m really excited to join such a young, dynamic company like Brickflow, particularly during such an uncertain time. If more companies in the property field use this time to consider an internship programme, I think it would be a win-win for both young professionals like me, and the industry as a whole.”
With a concerted effort from all areas of our industry, we can survive these turbulent times. And if we’re smart, perhaps we can emerge even stronger on the other side.
The Brickflow team is working from home too, so if you’d like to chat to us more about this blog, Brickflow or development finance in general, please give us a call on 0203 488 1674.
