November 2nd, 2022. Tom Lee
Are We Seeing a Rise in Part Completed Developments?
All development projects will have their surprises/problems throughout any build, though this has never been more relevant than in the last few years.
Some examples of this are:
- Brexit affecting labour numbers
- The pandemic
- A lack of sites coming to market, meaning a squeeze on margin
- Contractors going into liquidation
- Energy prices going up
- Issues with the supply and cost of materials
- Delays with local planners
- Lenders being unable to continue the funding of schemes, due to capital or funding lines
The list could go on…
We’ve observed a large increase in the interest of developers and professional contacts alike, both seeking capital solutions for part-completed development projects. This is either a result of projects running into difficulties and requiring restructuring of their funding, or, they were not able to restructure in the first place and so the site is now up for sale.
An article in today’s Financial Times highlights some of the reasons behind this:
“The deteriorating macro environment is clearly taking a toll on the construction industry, with access to credit now being cited as a key challenge for businesses alongside the more familiar issues around building materials and labour.”RICS (article by the Financial Times)
(Source: The Financial Times)
With a slow in growth for the construction industry and those in it struggling to access credit, this will provide more finish and exit opportunities for other developers.
A sustained increase in construction costs is one of the main factors, with under-capitalised developers being forced to refinance and ensure their project doesn’t come to a complete standstill. Things are looking up on the building materials front, with costs starting to stabilise in the last new months, and some even decreasing (source: https://www.data.gov.uk/dataset/75ee36ed-21f7-4d7b-9e7c-f5bf4546145d/monthly-statistics-of-building-materials-and-components).
These are, of course, complex situations, though they do also provide a compelling opportunity for experienced developers to purchase undervalue sites, leading to shorter fruition times – which can mean higher returns and financial rewards.
A scheme in the middle of construction isn’t the most attractive proposition for certain lenders/advisers, and some don’t have the capabilities in the first place. There are more variables, step in rights to review with professionals, linked warranties, and mainly not being present from inception of the project. When buying a site that is part-built, the potential rewards always need to match the risks – this shouldn’t be a problem in the current market, due to demand.
A strong developer with a strong professional team around them will be able to complete due diligence and reduce the problems that may arise. With bridging finance being available to purchase quickly, and in turn simplify complex issues, the deal can then be presented to lenders with a fully structured presentation on our funding proposal.
We understand the combination of different professionals, the appetite of lenders, how to structure deals and report properly, which is why we’ve been so effective for our clients. This includes, but is not limited to, restructuring or purchasing with any mixture of equity, debt or mezzanine they may have.
The current economic climate will create some casualties in the marketplace, but with that new opportunities will present themselves to others.
Article By Tom Lee
November 2nd, 2022
Tom is one of the founding members of the company and has been a part of the Pure Group since 2013 playing an integral part of the business’s growth and direction.
He had over 10 years of experience in the real estate financial sector prior to joining Pure with a major bank. Tom has a wealth of experience providing debt advisory on large, complex deal structures for developers and investors across all asset classes, throughout the UK and parts of Europe.
He has built a strong network across the property and finance sector, which enables him to provide a total package solution to his clients and contacts, with whom he has built long standing relationships.
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