In the first and second episodes of a four-part series analysing some of the key challenges faced by emerging property developers and how lenders can help solve those challenges, Blend Network CEO Yann Murciano discussed the challenges of building a property power team and the challenge of simplifying and streamlining overly time-consuming processes. In the third episode of this already-popular series, Yann tackles the elephant in the room: funding. How should emerging property developers approach the funding maze?
Lack of funding is a challenge for smaller and emerging developers
According to a report titled ‘Reversing the decline of small housebuilders: reinvigorating entrepreneurialism and building more homes’ published by the Home Builders Federation[i], availability and terms of financing for residential development has become extremely difficult for small housebuilding companies over the past decade or so. The report explains that lenders have drastically changed their attitudes to the sector since the Global Financial Crisis. As a result, since the 1980s a structural decline has taken place which has seen the number of smaller developers shrink from more than 12,000 in 1988, when nearly 4 in 10 homes were completed by SMEs, to around 2,500 companies responsible for just 12% of new builds today. So, there’s no question that funding, or rather the lack of it, is a challenge for many SME property developers since traditional lenders mostly excited the market over a decade ago.
How can lenders help emerging and SME developers approach the funding maze
The good news is that the last few years have seen the emergence of small specialist lenders that have filled the gap left by traditional lenders who no longer had any appetite to fund development finance deals. These nimble highly specialist lenders present several advantages for those emerging and SME property developers who cannot access finance from traditional lenders. First, these specialist lenders tend to be nimble and agile organisations, often run and staffed by entrepreneur-minded teams who to a large extent mirror the entrepreneurial mindset of the emerging property developers they are trying to serve. Second, they are more flexible lenders that often are not bound by the tight lending criteria of traditional lenders.
This is mostly due to the more flexible source of capital at these specialist lenders. Whereby traditional lenders’ source of capital is often institutional funding or deposits (in the case of banks), many of these specialist lenders have more flexible capital such as family office funding. This is indeed the case for us at Blend Network – you may have seen our recent announcement of £120m of committed capital from family offices to deploy in the market. The implication of this flexible source of capital is that we are able to take more discretion when deciding to lend on a deal rather than being tightly bound by strict lending criteria. Third, in an industry where time is money, these nimble and agile specialist lenders are able to move fast and respond to ever-changing market needs and indeed to their clients’ needs. We have often heard of developers complaining that lenders have taken months to assess their deals only to reject their deals at a last minute in credit committees. These are experiences that are minimised at specialist lenders like us at Blend Network where different members of the lending team will be involved in the conversation from the start, therefore minimising the risk of a deal being rejected by the credit committee at the eleventh hour.
At Blend Network, we are building an exclusive by-invitation-only property network where our developers can access information, obtain data and research, build contacts, unlock funding but also tell us about how we can make their life easy and simplify processes for them. If you are a developer and would like to join the waiting list for our exclusive property network, email us at email@example.com and ask to be added to the waiting list.
[i] Source: Reversing the decline of small housebuilders, available at https://bit.ly/3xabuZa