LendInvest: Looking beyond ‘desirable’ developments

LendInvest: Looking beyond 'desirable' developments

It's now been four months since LendInvest formally launched its new development finance product.

It’s a crucial, yet criminally underserved, area of the property market. In the various deals we have handled in that time, ranging from hundreds of thousands of pounds to those worth £10m, the frustrations facing the small-scale developer have been obvious: lack of money, money, money.

Late last year, CBRE published a report called ‘Development Finance: Is there capital to fund the cranes?’ which outlined the issue in stark terms. While the overall availability of development finance has increased over the last 12 months, only the most ‘desirable’ schemes are benefitting, with mainstream lenders taking a very selective approach.

As Andrew Antoniades, Director of CBRE Capital Advisors says in the report: “There is still a need for more funding on a wider range of schemes and it is needed from a more diverse group of lenders.”

It’s not news to us that banks and building societies are restricted from doing more, held back by the combination of liquidity regulations, archaic technology and the lingering nightmares of the credit crunch.

But while the traditional high-street lenders of old don’t have the appetite for the truly innovative and exciting development projects, small-scale developers still do.

Nimble lenders that invest in faster, easier tech-enabled processes therefore have a huge opportunity to fill that space and help power the next generation of developers and developments, beyond the most obviously ‘desirable’.

That means looking for opportunities beyond London and the South East. Developments in the capital remain attractive to the masses, but the fact is that that there is still a chronic shortage of housing across the country, not just in London zones 1-6.

To hit the government’s target of one million new homes in England by 2020, we need to be building 200,000 new homes a year. In 2015, just 143,000 homes were completed. We need those new houses in Sheffield and Southampton, not just Surrey Quays and Stockwell.

Back in March, we completed a project in Nottingham with Crosslane Residential Developments, which saw a five-story, 16,000 sq ft office block converted into 23 one and two-bedroom apartments in the city centre.

It’s the largest office-to-residential conversion in Nottingham in many years and 60% of the units were sold before completion. It is a perfect example of the sort of project that is vital in order to tackle the housing shortage, but which the banks may struggle to support.

On the plus side, access to land is improving. The government has spoken strongly about freeing the planning shackles, and just this month announced that up to 10,000 new properties - both residential and commercial - will be developed on sites around railway stations up and down the country in the coming years.

These projects present a great opportunity for the next generation of developers to get some experience under their belts. But the funding challenge remains.

There are plenty of exciting projects that need backing from lenders to either get off the ground or get moving. It’s time that we put our trust into experienced, small-scale developers.

Attributed to Steve Larkin, Director of Development Finance, LendInvest

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