SPECIALIST FINANCE INTRODUCER INTERVIEW
DEVELOPMENT FINANCE
Stargazing in the market Sam Howard managing director, Magnet Capital
A
s I sit working from home with the news on a constant loop, the picture is forming of a dystopian world where from a corporate perspective there will be few thrivers, aside for big tech, and the rest will compete to emerge as survivors. Undoubtedly, the world is facing a crisis like we have not seen for probably 100 years, and the impact on people’s lives has and will continue to be unprecedented in the short-term. Reports suggest there will be a wave of soured UK commercial property loans, owing to the slump in retail property. From the development finance perspective, restrictions on movement, closure of building suppliers, and the effective shut down of the residential property market for sales and rental has and will lead to serious delays. With regards to residential property, I believe this is overly bleak; once a vaccine and suitable drugs have been discovered, the UK’s passion for property will return. However, whilst running a development business from my home office, in between Zoom calls and reviewing drone footage and photographs of our sites, I wanted to take the time do a bit of stargazing to see what changes, for the better or worse, might affect our industry. Clearly I have no crystal ball, but just a deep interest in the development finance industry. An argument that is raging at the moment is whether COVID-19 will lead to a rise of nationalism over and above globalism. Given that the UK imports significant amounts of its building materials, with one-fifth coming from China, should the country be focusing www.mortgageintroducer.com
on ramping up domestic production? Whether it is electrical wiring, softwood timber, or clay tiles, there is an argument that the UK should aim to be fully self-sufficient. My guess is that there will be a significant move to on-shoring capabilities where possible, although of course some countries are better endowed with natural resources than others and we will still import where there is little alternative. We are all starting to use technology more in our day-to-day roles, whether that is valuation software, drones for building inspections, or Zoom sign-up meetings. Therefore, we are shifting in the belief that development finance underwriting can’t be automated and that borrowers need to be met in person and the sites visited. With regards to the surveying profession, whilst physical valuations will still be necessary for the majority of development schemes, we will see a degree of change, with more virtual monitoring inspections taking place. However, this is likely owing to the rise of modular housing that will reduce the need for so many physical monitoring inspections, rather than due to COVID-19. From a lender’s perspective, no matter how much a system can be automated, you still need a human to make decisions and review the due diligence that the computer programmes produce. Face-to-face sign-up meetings with borrowers are still crucial to assessing the risk of a development project.
The outlook is changing
Yes, you are also looking at the valuation information, the site details, cashflow, business plans etc, but ultimately you are backing an individual or individuals. At Magnet Capital, we will be reinstating this, of course adhering to social distancing rules, as soon we can. So, don’t get rid of those meeting rooms just yet. Which leads me on to the question of working from home, one that the industry has struggled with for years. The mantra of management has always been that you need employees in the same physical space to create the optimal working environment. The reality is that with modern technology it is possible to work efficiently and productively without being in close physical proximity. Using Slack, Zoom, Dropbox, Xero, alongside a business’s existing databases, the ability to work remotely is if not seamless, then close to it. Avoiding the daily commute, not being crammed into a hot-desk environment with little natural light, and having the ability to work flexibly is attractive. Now, I am not suggesting that office space is no longer needed, but I think there will be a realisation that big expensive offices might need another look. It is, of course, about having the right systems in place and yes, it is easier with a small team such as Magnet Capital’s who have all worked together for many years, rather than a giant multinational. Nevertheless, the modern office will be reshaped, perhaps with meeting rooms and desks for those who need to be in, rather than paying for a space for hundreds of people. And just a thought – perhaps from a residential development finance perspective, there might be an opportunity for developers to turn the unused office space into flats. It would mean borrowing a well worn but largely derided phrase in the financial markets to say that ‘this time is different’, but I think in some ways it possibly could be. M I MAY 2020
MORTGAGE INTRODUCER
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