As with any finance, it is feasible for borrowers to 'cut out the middleman', so to speak, by applying directly to a lender. The question remains, why do so many property developers choose to go via a broker route? The answer is as simple as what you have concocted in your mind. As Christopher May, Head of Navian UK, will later explain, a skilled broker provides real benefits at every process stage. Not only do property developers use brokers, but they are increasingly more inclined to do so. Let's address the obvious; developers do 'developments' that are clear. In the process, they have to wear many hats in their challenging industry.
As important as the finance element is essential to the project's development, they often outsource that part of the process. Finding development funding is a task that they are grateful to delegate to a third party. That makes perfect sense; compare it to the popularity of companies outsourcing their IT infrastructure and projects. Outsourcing allows a business the time and resources necessary to focus on other aspects of the company.
Development finance options
Besides, it is no longer as easy as going to your established High Street lender. Firstly, development finance may not be a financial option they want to provide, and where they do, they have very selective policies. So, although you may be an excellent developer with a long track record with the bank, if the development itself doesn't meet their criteria, you may not get the indicative terms you desperately need.
High Street lenders that are active are very conservative and risk-averse. Although developments sometimes are risky propositions, there is no shock and horror here; things do go wrong, coupled with the fact that it takes highly skilled staff to manage the appraisal and underwriting involved. With the need for additional capital provision, the risk aspects, and the need for specialist staff and training, it is not surprising that High Street lenders are not keen to do development lending when they can use their lending capacity in easier and more profitable ways.
The truth of the matter is that this market is difficult to navigate. The long-established lenders are known in the industry and easy to find. However, others might be more recent entrants to the market, are less visible, and often prefer to deal through intermediaries such as brokers. They do this because developers going directly to them tend to cause them much additional work in filtering out deals that do not meet their criteria and also in presenting cases.
Christopher May Head of UK - Navian Group (pictured above) had his say on this by adding, "the relationship between lenders and financial brokers is one of a symbiotic nature. A broker brings borrowers and development finance lenders together by acting as an intermediary between the two. They both rely on each other not only for business but also work together to help keep the market alive and vibrant. Regarding responsible lending, lenders often rely on financial brokers to accurately detail the development of the financial proposal, accompanied by all the key requirements a lender may need to issue indicative terms. While the lender is responsible for the lending aspects, an intermediary such as us will often help the client provide the necessary documentation to seal the deal."
Why Proverest?
We have touched on the various development finance options available to property developers. Still, more critically, over the years, we have become accustomed to a red-hot housing market, with booming demand and soaring property prices. The growing popularity of property development is a catalyst that continues to raise our profile and reputation in the property industry.
May added, "clients often contact us to enquire about the financial option, joint venture (JV) development finance. Some of our clients are ready to apply for this option but don't know which lender to turn to, while others want more information about this type of option. So whether you're a first-time investor who wants to know more about JV development finance or an experienced developer ready to apply, here at Proverest, we have access to private funding that can lend you 100% financing for your project on a joint venture basis. This means you can profit from development without risking a single penny of your own money."
May explains more, "brokers who specialise in development finance know the market explicitly. Just like us, they have researched and met the lenders, know their criteria, and have experience handling a variety of development scenarios. But, like most things in life, not all cases are similar. We do not just know the lender's criteria but also what they deliver and how good they are to work with".
"Here is the thing, the key to getting development finance indicative terms is in the presentation. All lenders have detailed information requirements and do not have enough time to do the work for clients as they used to. So, they need to be presented with a proposition that not only provides them with all the information that their underwriters need, in the right format but also compellingly portrays the deal. When they have several deals piled up on the desk and can only handle two or three, it makes sense that your deal needs to look like the one that will put a smile on their face.”
"In truth, developers find the 'post-sanction' work often overwhelming; providing additional information, working with conveyancers, and chasing lenders all take up valuable time. However, a good broker will source the deal for you and provide a `cradle to the grave` service that allows them peace of mind.
By the team at Proverest, Published December 1, 2022
