Qandor. ®
M AG AZINE
ALAN WAXMAN Designing a Belgravia Mews with a 10.5-metre waterfall
PLANNING CHANGES David Kemp explains how you will be affected
TROPOLIS. TM
ISSUE No. 5 | September 2020
IN THIS ISSUE
THE FORMALITIES
04
FOREWORD A letter from our Managing Director, Kevin Taylor
06
TROPOLIS Become part of an exciting new property program
ARCHITECTURE & DESIGN
10 DESIGN REVIEW Jonathan McDowell investigates if it’s a help or hindrance
14 CAN ARCHITECTS BE GOOD DEVELOPERS? Ben Richards explains this conundrum
Cover image featuring Alan Waxman, founder and
18 YOU GET WHAT YOU PAY FOR
award winning design and development company, Landmass London. For more information visit www.landmass.co.uk
ISSUE NO. 5
managing director of multi-
Holding back on your development costs could come back to bite you, according to Linda Rosen
22 OPTIMISE YOUR ENVIRONMENT And improve your wellbeing - Lutron shows us how
26 TECH FENG SHUI Luke Crutcher de-clutters the booming smart home industry
CASE STUDIES
30 HEATON GRANGE Paul Taylor walks us through a conversion of a 37-bedroom former monastery
36 ALPHABET HOUSE How Oliver Lowrie increased GDV from £3m to £9m with good design
PROPERTY OF THE MONTH
42 TAKING IT TO NEW HEIGHTS Landmass London’s re-imagining of this Belgravia Mews includes a 10.5-metre waterfall
86 THE HOUSING MARKET What has the impact of the events of 2020 really been? Gary Walsh investigates
92 SHOULD WE BE BUYING NOW? DEVELOPMENT & CONSTRUCTION
48 CONSTRUCTION IN THE ENGINE ROOM Paul Oberschneider discusses how the country will recover by building
52 OPPORTUNITIES THROUGH 2020/21 An in-depth analysis by Richard Little on the opportunities for developers in the near future
60 SAVE 30% ON YOUR DEVELOPMENT Ash Gorecia tells us how
Mortgage specialist Lee Langley says ‘yes!’
96 CLAIM YOUR R&D NOW Jonathan More tells us how the construction industry is missing out on important R&D tax credits LISTED PROPERTY
100 SENSITIVE DEVELOPMENT Emma Morby looks at how to develop listed properties in a way that preserves them for the future BUSINESS
64 IS NOW THE TIME TO BE A
104 A SUMMER OF DISCONTENT?
DEVELOPER?
Neil Scroxton looks back on some
Jeremy Wormington has a few thoughts on the
lessons learned
matter
68 BUILDING THROUGH COVID Denis Gleeson discusses the importance of the
108 DISCRIMINATION IN RECRUITMENT Rachel Geddes finds ways to stamp it out
show going on SUCCESS IN QANDOR
112 THE DIGITAL MIGRATION PLANNING, INVESTING & TAX
72 BUILD, BUILD, BUILD! Planning expert David Kemp walks us through the changes to planning affecting us all
78 A BETTER FUTURE? Mike Bristow is cautiously optimistic
82 INVESTING IN HMOs? James Tutty has some sound advice
Mark Lloyd explains how Covid has online
CHANGE IS IN THE AIR Qandor Founder Matthew Siddell Managing Director Kevin Taylor Managing Editor Gabrielle Winandy For editorial and advertising enquiries, please email: magazine@qandor.org Visit our website: www.qandor.org Contributors Alan Waxman Ash Gorecia Ben Richards David Kemp Denis Gleeson Emma Morby Gary Walsh James Tutty Jeremy Wormington Jonathan McDowell Jonathan More Lee Langley Linda Rosen Luke Crutcher Mark Lloyd Mike Bristow Neil Scroxton Oliver Lowrie Paul Oberschneider Paul Taylor Rachel Geddes Richard Little QANDOR TEAM Membership Manager Rekha Patel rekha@qandor.org Videographer James Evans james@qandor.org
There’s something about September that already feels different to the first eight months of this year. While I am under no illusion that things are going to miraculously improve overnight, it seems that many people I speak to are feeling more energised and optimistic about the future. Perhaps it’s been the enormous amounts of sunshine we’ve all received over the past couple of months, but it’s encouraging and I welcome the change in sentiment. At Qandor, my team and I haven’t stopped pedalling. If anything, this year has forced us to re-imagine how a members club should operate. Limited options to host events has meant a reliance on video conferencing, something with which the entire world has become familiar. Deeper than that however, we’ve had to put our ears a little closer to the ground, connect with our members that much more and identify new and innovative ways we can offer real value. And I believe ours is a success story. What started in January as a six-issue-per-year summary of our members’ online contributions, Qandor Magazine has evolved into a very bold and defining aspect of the club. It will now be published monthly, which will allow for more time-sensitive content to be published more frequently and give our contributors a louder, more authoritative voice in the industry. We will also soon be launching our ‘On Site With’ YouTube series. James, our in-house videographer is eager to visit members’ sites and document their progress. We’re really interested in hearing directly from our members about what inspires them and what lessons they’ve learned, while enjoying exclusive access to their sites and experiencing first-hand their projects coming to life. We’re also excited to be hosting a few live events and workshops in September. Lightly we’re treading, working only with venues that guarantee the utmost safety of our attendees, but it’s going to be fantastic to see some of our members face-to-face for the first time since January. As we roll down into autumn, my hope is that the change in season brings a revived feeling of optimism for all. Kevin Taylor Managing Director
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PROPERTY EDUCATION
THE TROPOLIS ACCELERATOR PROGRAM.
The Tropolis Accelerator Program is for anyone and everyone who intends to develop property, whether you intend to build a portfolio or to take advantage of the principal residence reliefs and make tax-free gains adding value to your home.
The program gives clients a deep understanding of many aspects of property investing including sourcing deals, legals, funding, refurbishment, property and tenant management, and how to find and work successfully with the right people.
MORE INFORMATION 006 – Qandor – Issue No. 4
What is covered? Our clients are sophisticated, intelligent people and the Tropolis Accelerator Program is deliberately comprehensive and dense, in order to meet their needs. The program is comprised of many valuable components including the network,
coaching calls and the private support forum. The online modules, prepared and published by our professional and experienced team, are packed with highly valuable content and advice with lifetime access.
Issue No. 4 – Qandor – 007
The Experts Our panel of experts has over 550 combined years of business experience, built over 5,000 homes and developed over £1.5bn in property value. Each Expert will deliver an exclusive masterclass, sharing their experience, expertise and property insight.
Alan Waxman Property Developer Landmass London
Ben Keenan Property Developer Broadwing Homes
David Kemp Planning Consultant DRK Planning
Dicky Lewis Architect White Red Architects
Doug Johnson Engineer Mesh Energy
Evan Maindonald Property Developer Melt Property
MORE INFORMATION
008 – Qandor – Issue No. 4
Jamil Qureshi Peak Performance Psychologist
Jonathan Erdman Consultant Solicitor Keystone Law
Lee Langley Mortgage Consultant OnPoint Mortgages
Mike Bristow Investor, Fintech CEO CrowdProperty
Mike Frisby Property Developer Brankin Developments
Naman Pathak Property Developer Mountbatten Homes
Neil Scroxton Architect Scroxton & Partners
Oliver Lowrie Architect Ackroyd Lowrie
Paul Oberschneider Financier Hilltop Credit Partners
Issue No. 4 – Qandor – 009
ARCHITECTURE
DESIGN REVIEW: HELP OR HINDRANCE? JONATHAN MCDOWELL Director Matter Architecture www.matterarchitecture.uk
Design Review is on the rise within the Planning process. After a somewhat patchy and inconsistent of CABE statutory reviews, it has become a more regular and positive force, now more effective in pushing up the design quality of new developments across the country. And it is likely to become more relied on in the Government’s forthcoming reforms 010 – Qandor – Issue No. 5
of the planning system. For those new to the experience, the most visible part of Design Review is the presentation of proposals to a Panel of independent experts across multiple disciplines - usually including architecture, urban design, landscape, and sustainability. Generally, reviews take place as part of the ‘pre-app’ process, before proposals are finalised for a planning application. The outcomes of reviews are reported by officers to planning committees and are usually considered as material considerations in the
final decision, although the weight given to them varies. Design Review does also cover wider elements such as reviewing emerging policies and masterplans. The National Planning Policy Framework (NPPF) requires that local authorities have some form of Design Review to ensure high standard of a design. The London Plan and many Local Plans also include this requirement. The broad intention is that Design Review acts as a critical but supportive friend to both applicants and LAs, providing specialist expertise independent of the planning process. Over 2/3 of Local Planning Authorities in England now use Design Review panels, including 26 of the London Boroughs. In addition, there are wider regional panels and specialist ones focussed on specific development areas or commissioning organisations. Some are run in-house by authorities while others are organised by
external consultancies. Reflecting this variety, they have differing approaches and confusingly go under a plethora of names like DRP, Place Review, Independent Review, Design Surgeries and increasingly, to reflect the breadth of issues, as Quality Review. My practice Matter Architecture has a lot of experience as active participant on both sides of the Design Review table (or, in the current situation, the virtual Zoom table). As architects, we regularly present our schemes to a variety of different Panels. And, between myself and my co-director Roland Karthaus, we are members of a dozen panels: council panels including several London boroughs, regional panels like Design South East, national ones like those organised by Design Council, and specialist ones like HS2. So we get to see a lot of what works well and what doesn’t. We are keen to see the process work better and so are active in the Design Review Network, which shares best Issue No. 5 – Qandor – 011
practices across different panels, and also in running workshops to help train council officers and Members to better understand what makes good design (and how to read drawings). Different panels have very different characters and procedures, and some are certainly more effective and helpful than others. But in my experience, they are improving, learning lessons from one another, measuring outcomes and becoming more consistent. Why should a developer care about all this? Perhaps more to the point, why should a developer pay for it? In the early days, Design Review was publicly funded, but since the demise of CABE in 2011, it has become marketised, with little or no public funding, so in most situations it is
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the applicant who has to pay for the privilege. Research carried out by UCL suggests that Design Review is widely considered to bring a range of benefits including better designed building and places, higher local expectation of good design and helping to fill skills gaps in LPAs. While the developers surveyed were understandably more circumspect, they did tend to see the benefits of speeding up the process and increasing certainty, and on balance considered them to be good value for money. Promised Government reforms to the planning system are set to allow fast-tracking of ‘well designed’ schemes, and that will rely more on Design Review panels to help assess quality. Where applicants put forward weak schemes and do not engage with panels properly, the assessment can be scathing and strongly threaten the chance of consent. But where the applicant engages the process positively, the support of a panel can be very helpful in giving confidence to officers, and in turn to committees, to approve good schemes which might be more ambitious
than councils are prone to support. Indeed, in my experience, panels do often recommend that proposals should be more ambitious, perhaps taller or more dense, and can convince officers to take a less conservative position than is their usual fall-back. Well-designed schemes should be more valuable and viable, and so can afford to provide more enduring quality. I have seen many instances where applicants engage with panels positively and are able to improve proposals to provide real benefits for everyone. To do this, it is essential that applicants appoint and support a really good design team who are willing to engage in collaborative discussion, and that the design review process is undertaken at the right time, before proposals are finalised, so that there can be a real open engagement. I would be interested to hear what experience Q. readers have had with Design Review - good or bad- and any suggestions of how it could work better to ensure we are building places of real long-term value. Q. Issue No. 5 – Qandor – 013
ARCHITECTURE
WHY FEW ARCHITECTS MAKE FOR SUCCESSFUL DEVELOPERS. BEN RICHARDS Director of AURA Architecture & Interiors and Development Director at EXP Property www.aurahomes.co.uk www.exppropertyinvestments.com
Let me start this thought-piece with a bit of background and somewhat of a riddle. I’ve worked for architects. I’ve worked for developers. I own an architecture practice. I own a property development company. My degree is in Architectural Engineering. So, what am I?
property developers. At architecture school, you are very much pushed towards conceptual thinking, where the impetus is on creativity and exploration. Yes, there are modules on contracts, procurement methods and quantity surveying, but generally, if you are studying architecture, your enjoyment comes from the art of design.
In truth, it depends who I’m talking to! But above it all, I’m a business owner. This, I believe, is where most architects fail as
Why would an architect want to develop property? Let’s first discuss why an architect
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may want to become the developer in the first place. The obvious answer here is 1) the potential profit. One successful development could bring the equivalent income of many years in practice working on client projects. Then there’s the fact that 2) an architectdeveloper is their own client! What architect wouldn’t want to answer to themselves and make all the design decisions? 3) They can guarantee a higher quality finish and chose not to value-engineer out their favourite piece of the scheme like a developer would. These are all excellent Pros! Having been on both sides of the coin, I can speak first-hand about the benefits gained by being an architect-turneddeveloper and why I continue to run AURA Architecture and EXP Property in tandem. Becoming a better architect The main benefit an architect-turneddeveloper gains from learning the property development lifecycle from start to finish is an appreciation of the struggles. This way
they are better placed to serve their developer clients. An architect that has analysed development opportunities from scratch, seen the financial stress, dealt with investor relations, understood the legal complications, and shouldered the uncertainty of the sales market can provide a truly optimized design solution for the developer. Through my time working for the Berkeley Group, it was clear that the design is only one part of a successful property development puzzle, albeit fundamental to its success. We break our development business down into the following departments: • Land and Planning • Funding • Investor Relations • Design • Construction • Sales & Marketing • Estate management. To be a good developer, you will need Issue No. 5 – Qandor – 015
to be proficient in all departments, not just in Design and Construction. As the old saying goes, “You make your money when you buy”. The Design and Construction stages become only the operations to deliver. On the face of it, architects are perfectly placed to become a developer. So why do many fail… or not take the leap? I first discussed why an architect would want to be a developer, and this is key. For all the benefits, some people just have no desire for it. Designing and creating beautiful structures and senses of place is their passion and so that’s what they will do. Others just aren’t cut out for it. To develop property, it takes a certain ability to analyse and take calculated risk; a resilience to changing dynamics; the ability to negotiate/sell; and to fundamentally understand business. These aren’t typically characteristics of a ‘creative’.
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The ability to take off a ‘design hat’ and switch to the ‘developer hat’ is generally an alien concept for someone that has spent more than 7-years in the study of art and design. It’s simply a different part of the brain. With all the above being said, I believe there are real opportunities for architects with a true desire to learn the art of property development. Why architects should turn their hand An architect has the natural ability to visualise very quickly what can be achieved from a site, or see an angle that others miss. They have the technical expertise, understand the planning system, and have a solid network of third-party professionals to deliver schemes with great efficiency. As an architect-developer, there is much greater speed in decision making due to a greater design ability and technical understanding. In a much quicker timeframe (than a developer employing external
consultancy), there is the opportunity to test ideas and narrow in on an optimised scheme. Speed of movement can often be the deciding factor when offering on a site. So where is the opportunity for both architects and developers? If an architect is willing to educate themselves in structuring deals and understanding financial products and surrounds themselves in the right property circles (Qandor, for example), then they could forge a very profitable path as a developer. If ‘design’ is their one true passion and there is no business acumen, I believe it’s destined for failure, unless there is some form of Joint Venture (JV) agreed. A JV could be a great opportunity for both the architect and the developer. For developers, there is great value in working with architects during the development appraisal, and maybe more so where the architect has a vested interest in the project at an early stage. This could be on a profit share, or even on a ‘success-fee’ basis. We have recently undertaken a similar
JV structure with my design company AURA, where our concept design, preplanning advice and full planning fees were significantly reduced. In return for de-risking the developer in terms of capital expenditure, we agreed a fee multiplier based on the number of units we obtain at the planning stage. This was only a small project where the developer needed 4-units to achieve his profit margin targets. We have pushed this to 6-units and are confident in a successful approval. More units, more developer profit, more renumeration for the architect. Everyone wins. The added bonus of having design resource and an extended network of professionals should greatly increase the speed a developer can move. We certainly find this in my development company. The future Architect-developers are excellent at unlocking under-used and quirky brownfield sites where creativity and innovation combine to create spectacular homes. I hope the trend continues where smaller architect-developers take on a small percentage of development projects of their own alongside their main client work. Ultimately, I have confidence that architects can become great developers if they have the risk appetite (and want to!), but education into property development as a business will be the key to their success. I’d love to hear from architects that have or are turning their hand to development. It’s a risky path but if you get it right, it can be very rewarding. Get in touch for a chat! Q.
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INTERIOR DESIGN
WHY PAYING LESS FOR YOUR PROPERTY DEVELOPMENT COULD COST YOU MORE IN THE LONG RUN. LINDA ROSEN Founder EDGE Design Studio www.edge-designstudio.com
How often have you reminded yourself, ‘You get what you pay for’ when you chose the budget option only to regret it later? Usually, it’s not a big deal. We learn from our mistakes and buy better next time. But what if poor quality goods could cost us our health, the health of others or that of our planet? That’s the risk we take when compromising on quality to cut costs.
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What happens when we buy budget goods? In a bid to save money, we reject high-quality products that are built to last in favour of cheaper alternatives. In the long-term, we end up spending more money on regular replacements as they inevitably break or wear out. Just like we’ve seen with the fast fashion industry, this wasteful attitude to consumption endangers our fellow humans and our planet. And that’s not all. By
choosing cheap, we’re also compromising our own health. Quality Low-cost goods are often made in developing countries where the standard of materials isn’t as consistent, resulting in lowerquality products. In some circumstances, manufacturers take a ‘money over morals’ approach and allow bribery and corruption to further damage the calibre of their output.
Health First But far more importantly, cheap goods can be a major health and safety risk. Testing laws are not always as stringent as in Europe, allowing for sometimes lethal mistakes to occur. Back in 2006, drywall in some American homes was found to be radioactive. In 2009, toxic sofas were responsible for several deaths in the UK. They contained a harmful substance called DMF which was later banned.
Issue No. 5 – Qandor – 019
“What if poor quality goods could cost us our health, the health of others or that of our planet?” Meanwhile, highly poisonous lead has been found in taps, children’s toys, and fabrics. Humans are getting sicker every year due to our unhealthy exposure to chemicals in food, pollution and home and workspaces. Our toxic lifestyles contribute to mental illness, cancer, diabetes, heart disease, obesity, autism, and ADD. The Social Cost And it’s not only the end-user who’s in danger from the trend for cheap products. Often, countries which offer inexpensive manufacturing services have low worker welfare standards. Many employees have no choice but to expose themselves to harmful toxins and dangerous processes in farm and factory jobs to feed their families. And for the global West, it’s a case of ‘out of sight, out of mind’. We like cheap products and don’t mind paying other countries to do our dirty work for us. If we were exposed to the brutal reality of what cheap manufacturing looks like, would we still buy the goods? Would we accept these
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kinds of working conditions on our own shores? The Environment The other lives we risk when we outsource cheap manufacturing are those of animals. Many animal-derived products are cheaper to source from developing nations with few if any animal welfare laws. This means we have no guarantee of how the animals are treated or if they are endangered. The environmental damage doesn’t end there. The chemicals used in budget production pollute groundwater, destroy ecosystems, harm plants and animals and impact workers’ health. Plus, all those cheap replacements we buy end up in landfill, polluting the Earth once again. And that’s before we consider air pollution. What’s the carbon footprint of the product? And how damaging is shipping it from the other side of the world? How can we make better choices? We need to change our consumption habits and pave the way for change across the rest of the world. Once the demand for cheap, toxic products has abated, manufacturers will look to develop more sustainable habits to keep customers spending. For now, buying locally guarantees a higher standard of worker rights and greatly reduces the environmental impact of the goods we buy. Plus, we safeguard our health by selecting products that comply with the strictest regulations in the world. Let’s pay a little more for safe, highquality products which will cost us far less in the long run when we aren’t paying for them with our health. Q.
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TECHNOLOGY
WELLBEING AND LIGHTING CONTROL: OPTIMISE YOUR ENVIRONMENT. STEVE DETMER Residential Channel Programme Manager Lutron Electronics www.lutron.com
When implemented and designed correctly, lighting control has the power to transform the look and feel of an environment. And yet, many have not made the connection between wellbeing and lighting control.
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More and more homeowners are taking an interest in interior design and lighting. The proliferation and diversification of smart home technology means that more homeowners are looking for guidance on how best to integrate it into their homes to transform spaces into beautiful, adaptable environments. These new expectations mean that the modern interior designer must be able to act as a consultant and trusted advisor, collaborate effectively with technology professionals and manage the expectations of their customers.
When it comes to fulfilling the role of an advisor, designers must educate homeowners on the wide variety of benefits of smart lighting control, including general wellbeing. Highlighting why some overlit or underlit spaces may have a detrimental effect on their wellbeing is a crucial step in the consultative process. It’s especially important to emphasize that good lighting isn’t simply about visibility and aesthetics, but also about comfort. A growing interior design trend inspired by the homes of celebrities and social media influencers is large, white and bright spaces, with floor to ceiling windows and spotlights throughout. Whilst this can be aesthetically pleasing, it’s important that homeowners understand the implications. This design can create glare in areas where they expect to use screens – such as
television rooms or home offices – which over time can cause eyestrain and headaches. This is where the introduction of blinds into these areas can prove highly beneficial, providing the homeowner with the ability to customize the space based on activity or time of day. Another additional benefit of natural lighting control is that it saves energy and decreases heating/air conditioning bills. In recent years, we’ve seen a ubiquitous shift toward wireless technology and minimalistic design. Today’s homeowners want fewer wires and smaller controls/keypads that blend in perfectly with their colour scheme and allows them to achieve that luxury aesthetic. It’s the interior designers’ role to work with technology professionals to advise homeowners on how best to achieve a space that combines aesthetic and functionality – all within budget. Issue No. 5 – Qandor – 023
The same can be said when it comes to lighting control automation. Although pendants, lamps and shades contribute to a room’s overall look, how these are automated should not be visible. This level of control, coupled with high quality design, is something that has previously been limited to luxury homes. However, new developments in the industry mean that lighting control is becoming a more affordable option for all homes, and even older homes can easily be retrofitted with wireless technology.
While homeowners might have the best intentions when it comes to replicating a design they have seen online, they may still find that after months of working with their interior designer - customising furniture, 024 – Qandor – Issue No. 5
lighting fittings and settings - they are still unable to achieve their desired aesthetic. For this reason, smart lighting needs to be flexible, with the ability to adjust scenes and settings intuitively and retrospectively to ensure that the space continues to meet the desired needs of the user. Today’s homeowners are also more time conscious and will be reluctant to invest in a system which may require them to call customer services to change or update settings. In the majority of cases, most would prefer to do it themselves which is why a flexible lighting control system is the best solution. In addition, adaptable systems help homeowners to feel like they are making a solid investment, with the knowledge that they can easily make adjustments following changes in lifestyle, season or daily schedule. Modern homeowners have new and
heightened expectations for their homes, and it’s vital that the modern interior designer be able to keep up. By keeping up to date on the latest smart home technology and fostering those valuable relationships with technology professionals, designers will be equipped to deliver a knowledgeable and valuable service. More importantly, by learning the basics of lighting control and wellbeing, interior designers can ensure they are delivering on a home design experience that captures style, convenience and comfort. Q.
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HOME TECH
TECH FENG SHUI AND OUR DESIGNERS. LUKE CRUTCHER Director Living Home Technology www.livinghometech.co.uk
Home Tech. It’s all the rage. Control this from an app, control that with a blink of an eye, or maybe something else with nothing more than a thought. There are now more smart home kit choices out there than there are choices in places to eat. Seriously, next time you’re sat at your computer trying look all busy, just search the term “smart heating controls” and prepare to be dazzled by an array of kit that makes a BMW options list look positively anaemic. With so much choice out there, this smart home thing should be a doddle, right? Well, not really. Not if you want a home that 026 – Qandor – Issue No. 5
doesn’t look like it’s the control deck from the Starship Enterprise (we’re talking that clunky 60’s version with huge blinking lights and push levers for warp speed). What you need is the tech without the “wall acne”; the features without the “inyour-face” engineers’ idea of what “looks good” all over your walls. For this to work, you need more than a technology installer, you need superman! Well, not quite; you just need a company with a strong design ethos. We’ve coined the phrase “Tech Feng Shui” for a reason and it’s not because we’re super cool, let’s face it. It’s because (we hope) it gives you some idea about the lengths we go to when designing a group of systems to work cohesively in one
of our homes. For this to work, our designers need to get super nerdy (even more so than usual). They need to work out ways to remove wall control panels but not the control. They need to condense 15 individual control apps into
1 (who wants to keep swapping apps for control of different items?). They need to asses a building’s shape and structure to make sure Wi-Fi is going to evenly spread throughout each room (this is so exciting). They even need to calculate the
Issue No. 5 – Qandor – 027
heat given off by the equipment in the room and in the racking system, making sure this won’t impact on performance (this makes for great dinner time conversation at home). Once they have done all this, only then is kit placed around the home and always with an eye on interior design and a nod to our Tech Feng Shui (do you love this term yet?). This, as you can already tell, is the exciting corner of the office. Boy do these guys know how to party. But we have to admit, it wouldn’t be a Living system without them. Performance and design working in harmony is what makes a Living system stand out from all others. So, let’s give praise where praise is due to the unsung heroes of the Living team, the tech condensing, heat measuring, app removing kings of the office: our designers. Q.
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CASE STUDY
HEATON GRANGE: CONVERTING A 37-ROOM FORMER MONASTERY. PAUL TAYLOR Director BlockHaus Estates
This property had a checkered past and was at one stage listed for over 500k, but we purchased this 37-room former monastery after many months of negotiation for just £262k, which included the former caretaker’s house at the rear. We set out to convert the rear building whilst the main building went through planning, and we ended up spending around £130k 030 – Qandor – Issue No. 5
converting the rear building into two 4-bed HMOs, which generates £3,500pcm. This smaller building was then split from the main building and valued at £350k, meaning we owned the main building for around £60k. We then received planning to covert the whole building and covert the loft to create 29 ensuite bedrooms, split into 6 units. When finished, we would have 8 stand-alone HMOs in one site.
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Existing 3D view
Proposed 3D view
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What was the biggest challenge when developing this site? The biggest challenge was the variations on the main JCT contract due to structural issues realised after opening the walls up – also, very tight site access. Any lessons learned f rom this project? Don’t underestimate the costs of converting an old building. It would have been cheaper to convert to 8 flats, then convert to HMOs after, as the spec on soundproofing to go straight to HMO meant each room is soundproofed like an individual flat.
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Project type
Conversion of former monastery
24%
Project duration
18 months once complete
30%
Location
Newcastle
No. bedrooms
37
No. bathrooms
Annual gross rent
£204,240
Average pcm per room
£450
37
Annual operating costs
£40,000
Size
1000sqm
Annual mortgage
£55,780
Purchase Price
£262,000
Development Costs
£1,130,000
All Other Costs
£20,000
Total Costs
£1,412,000
Valuation
£350,000 + £1,4m (estimated) £338,000
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£108,460 11.67% Net yield
6.19%
Cash left in
£99,500
Interest
£5,970
Annual ROI
109% on cash left in
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CASE STUDY
ALPHABET HOUSE: INCREASING THE GDV FROM £3M TO £9M THROUGH GOOD DESIGN. OLIVER LOWRIE Director Ackroyd Lowrie www.ackroydlowrie.com
Ackroyd Lowrie delivers Planning Consent for 29 Units + Nursery on site with previous consent for 9 units. Ackroyd Lowrie were appointed by the owners of a nursery in Newham. They had been looking to develop the site for many years and had achieved a consent for a 9 unit block of flats on the site. However, when AL met the client, the brief was to re-provide the nursery and maximise the site for residential development.
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The site contains a 2 storey Nursery building built in the 1950s and long past its usable life. It’s also bounded by a 5 storey block to the East, terraced Houses to the West, and Upton Park Tube station to the North. Therefore, the design had to respond to several different constraints in order to occupy the entire site. Ackroyd Lowrie worked closely with the
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Planners through 2 pre-applications to develop a language that responded to the site and delivered residential units with great daylight and amenity. The diagram opposite shows how design evolved to respond to context and how the massing was broken up to avoid an overbearing impact on the street frontage.
Ackroyd Lowrie identified the key principles that the planners were looking to achieve in the design using simple diagrams to ensure the planners were aware they were being listened to.
Issue No. 5 – Qandor – 039
The final design proposal uses a simple palette of brick in different tones to break up the massing, with vegetation being used to soften the amenity spaces. The final design achieved a consent for 29 residential units, of which 9 are affordable shared ownership, plus a ground floor nursery that already has an occupier lined up to take the new building. The GDV of the development has been calculated as £9.6m, versus an approximate GDV of £3m from the original consented 9-unit scheme (images of final design opposite). Q.
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PROPERTY OF THE MONTH
THE HIGH STANDARDS OF 21 GROSVENOR CRESCENT MEWS. ALAN WAXMAN Founder and CEO Landmass www.landmass.co.uk
The main challenge with this house was that there were only windows at the front, as it was surrounded on the other 3 sides with other houses. My solution was to cut out a rear corner, put in a glass retractable rooflight and create an internal 10.5-meter waterfall going down to a Zen garden. At Landmass, we like turning the negatives to a positive, and buyers thought the house was like a Tardis in Dr Who, as what
you saw from the outside was very different to what you saw when you came through the door. The construction was tough, as we were not allowed to use any heavy machinery to dig out the basement, and all the rubble had to be bagged up and removed by hand. The hard work was well worth it. Nicole Kidman, who I met with, was going to buy it, until she got pregnant and changed her plans for London. We won best Interior Design in the UK & Best Development in London in 2009 for this project. Q. Issue No. 5 – Qandor – 043
A white leather clad wall in the entrance hall hiding a secret door to the garage which had a heated floor, so clients would go into a warm car in wintertime.
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Heated limestone cladding in the atrium above the zen garden to keep the area warm & cosy.
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Bespoke kitchen with a rail and ladder, like in a library, to help get up to the high-level cupboards.
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A bespoke double bath was made from marble for the master bedroom, along with a fitted hand towel steamer, to give the residents the same pleasure as in a 1st class cabin.
We dipped the huge hinges for the mews doors in acid, and then had them chromed, to give back life to the original heritage of the craftsmanship – the only hinges in Belgravia where this attention to detail has been done. All the speakers were hidden in the ceiling plaster, so the sound was invisible. For a free consultation to discuss your project, please contact me on alan@landmass.co.uk.
Watch the remodelling and renovation of this property CLICK TO WATCH MORE Read more about how Landmass can help you CUSTOMISED SERVICES Looking for inspiration for your next project? Download this PDF DOWNLOAD NOW Issue No. 2 – Qandor – 047
PROPERTY FINANCE
BRITAIN PREPARES FOR RECOVERY WITH CONSTRUCTION IN THE ENGINE ROOM. PAUL OBERSCHNEIDER Founder Hilltop Credit Partners www.hilltopcreditpartners.com
It comes as little surprise to hear that the UK economy has just experienced its greatest contraction since the Winter of Discontent in 1979. Frankly, I would have expected to go back to the 1940s for such a grim comparison but that’s still a pretty uncomfortable stretch. Boris has just announced a £5bn spending spree on infrastructure projects
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– historically the go-to sectors to give struggling economies a shot-in-the-arm: road, rail, comms and construction. In his “Build, Build, Build!” speech, Boris specifically brings the spotlight onto the housing industry as, arguably, the key driver of post-Covid recovery. Several routes for building recovery It’s little wonder attention has fallen onto construction. Contributing 8.6% of GDP in 2018, the sector is valued at £413bn –
four times the aerospace and automotive industries combined and employing approx. 11.7% of the total UK workforce. It’s interesting to note some of the areas of focus for the housing sector. In line with one of his electoral pledges, Boris referenced “levelling up” on several occasions – basically, more for ‘the regions’. Aside from addressing the grievances felt by many non-metropolitan areas of having been neglected and left behind, this policy also slots in nicely with the post-Covid phenomena we’ve witnessed of an exodus from the cities (in theory, at least). “Intergenerational injustice” was another attention-grabbing soundbite. A
new nod to the fact that most young people are now squarely excluded from the property ladder through no fault of their own. Enter a new £12bn affordable homes programme to support up to 180,000 new units over the next 8 years; there’s also a lot of noise about extending the Help to Buy scheme until March 2023. Small housebuilders – recognised in successive government white papers as vital players in housing provision – are to be given an extra £450m for new housing developments. Whilst I think that £450m is a mere drop in the ocean, it’s nonetheless nice that at last there’s some cold, harsh cash raining from above onto the SME sector.
Issue No. 5 – Qandor – 049
Finally, we have the most radical changes to planning regulations since World War Two, intended to make it easier than ever to build the right homes in the right places: greater flexibility and less permissions required for building repurposing; removal of restrictions for demolition and redevelopment projects; fast-track approvals for building upwards: they’re all plans to encourage the high street revival and development in regions beyond London. Factors to consider Whilst a little insufficient, the noises coming from Whitehall are at least positive. At Hilltop, we’ve been talking for several months now about two key factors that go hand-inhand with future housing provision. Access to capital Cass Business School has reported that the availability of development finance has contracted sharply since the pandemic, as most lenders shifted their attention from new opportunities to managing existing (and potentially toxic) loan-books. Pre-Covid issues are likely to get worse - capital will become more expensive, more difficult to secure and will cause greater headaches for developers inexperienced in such matters. As mainstream lenders continue their decade-long withdrawal from the market, the onus will fall onto alternative finance as never before and such lenders will need to be in sufficient shape to step up to the plate. Buyer priorities in the new norm The pandemic has altered a lot of perspectives. It’s changed the way employers and employees
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alike view working from home. It’s turned attention away from the cities and towards the regions. It’s changed attitudes towards longer but less frequent commuting. It’s brought technology and future proofing to the fore. Local developers must take these new demands into consideration with their projects to ensure viability and the savvy project funder should be prioritising those developers that do. I believe there will always be strong demand for housing in the UK – be that housing as a necessity, an investment or a lifestyle choice – and economic conditions are unlikely to ever change that. Taking the negligible decline (0.1% year-on-year) in house prices in June, after the ravages of the pandemic, I think it’s fair to say that the market is showing great resilience, which will only improve as does the wider economic environment. The more so with the help of Boris’ Build, Build, Build provisions. Forward-looking funders like Hilltop should play a key role in shaping future housing provision, always there to support SME developers adapting to the demands of the new normal, who build affordable, desirable homes and continue to invest in a better future. Q.
PROPERTY DEVELOPMENT
OPPORTUNITIES FOR DEVELOPERS AND THEIR INVESTORS IN 2020 AND 2021. RICHARD LITTLE Development Director Your Land Partner www.yourlandpartner.co.uk
We have a saying: “Lots of people make lots of money in the good times and fewer people make even more during the tough times.” Tough times are coming to the property sector; please do not believe the commentary suggesting that we will bounce back quickly. The economic “damage” already suffered means that is not possible. Strong words? 052 – Qandor – Issue No. 5
Maybe. That said, my view is that we should plan for the worst and “hope” for the best. Before we look at the opportunities, it is best if we understand the effect that relatively small falls in house prices has on the sector and how we work with them. Using optimistic forecasts is foolish when appraising, negotiating and agreeing deals so all deals should be stress tested for increased costs and falling values (up to the % where the asset has no purchase value). We will be seeing some increased costs; whilst labour is likely to go down due to
unemployment, materials may well go up. Deals should be structured on the lower base values and if the vendor won’t do this then walk away, watch and wait as the opportunity may come back. We were always told and have always told others that a deal is made in the purchase which is 100% correct; anything that is made after is a bonus.
If we are wrong and values remain stable, then no real problem as our own deal structures allow for the landowners to receive additional payments on top of the purchase price depending on the values at the time of sale or refinance. However, many “experts” are suggesting a quick bounce back for the housing market 2020
2022
%
%
%
%
GDP
(5.0)
3.0
3.5
1.2
Interest rate
0.10
0.25
0.25
0.20
5.9
5.4
4.7
5.3
(5.0)
2.0
2.5
(0.7)
(15.0)
5.0
5.0
(6.3)
GDP
(5.0)
3.8
3.7
2.2
Interest rate
0.26
1.03
1.08
0.79
5.9
5.0
4.3
5.0
House price growth
(2.2)
6.8
6.8
11.6
Commercial real estate price growth
(11.9)
8.9
6.0
1.7
GDP
(6.5)
1.8
3.6
(1.4)
Interest rate
0.00
0.03
0.06
0.03
Unemployment rate
6.3
6.7
6.4
6.5
House price growth
(7.6)
(4.1)
(5.3)
(16.1)
(26.6)
(3.3)
2.1
(27.5)
GDP
(7.8)
(0.1)
3.1
(5.1)
Interest rate
0.00
0.00
0.00
0.00
6.7
8.0
8.0
7.6
House price growth
(10.0)
(10.9)
(12.9)
(30.2)
Commercial real estate price growth
(39.2)
(5.7)
3.8
(40.5)
Unemployment rate House price growth Commercial real estate price growth
Unemployment rate
Commercial real estate price growth
Unemployment rate
Lloyds Banking Group plc May 2020 Issue No. 5 – Qandor – 053
with strong pent up demand and continuing low interest rates fuelling a return to the strong market seen in the first quarter of 2020. Will this happen? We do not know how Covid-19 will impact our economy, regardless of expert opinion on QE, taxation, inflation, stagflation, interest rates ,etc. No one knows and as ever most only see the headlines and commentary that fits their own thinking. Lloyds are the biggest mortgage provider in the UK and earlier this month they issued forecasts indicating a 5% fall in house prices during 2020 with a severe downside indicating a 10% loss. Whilst I do not believe that a 10% drop is the worst that could happen, let’s consider the effect it would have on land values. With most development projects targeting a 15 to 25% profit, based on the gross developed value (GDV), a 5% reduction in market values will see those potential profits fall
Nationwide May 2020
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between 20% and 33%. If we consider a 10% reduction, potential profits would fall between 40 and 66%. With forecasted profit reductions of just 20%, developing to sell becomes difficult to fund and developing to hold would require more cash to be left in at refinance. When we look to acquire land (including buildings), the land value is based on the GDV less all costs and profit. A 5% reduction in GDV will see land values fall drastically. Looking at the average UK house price which last month went over £220,000 for the first time, a rise of more than 35% in 7 years, coupled with the projected big rise in unemployment and well documented affordability issues gives clear indication that a fall in values is likely. The seemingly forgotten economic fallout of Brexit will only compound the Covid-19 effect. The table opposite shows the impact on land values for a project with a GDV of
£200,000
£100,000
£0
-£100,000
15
£300,000
£200,000
£100,000
£0
20
£400,000
£300,000
£200,000
£100,000
25
£500.000
£400,000
£300,000
£200,000
30
£600,000
£500,000
£400,000
£300,000
£2m. Our own projects generally see land values between 10 and 20% of GDV; areas of much higher values can see values rise to 30% and more of GDV. On average for our own projects we would see land values fall between 33% and 100%. What seems to some as a relatively small fall of 5% has a massive impact on the base land value. It is clear that Land values at less than 20% of the GDV will be close to or less than £zero, with a 10-20% fall in values, which is obviously an impossible sell to a landowner unless they are philanthropists and looking to provide homes for the community and/or special groups. Agents, valuers and most landowners are always extremely optimistic in respect of both GDVs and land values; they largely refuse to accept any downward change in values and it will take time to either reduce their expectation or for values to return. So where do we find the opportunities that can become deals? Regardless of any optimistic predictions, the reality is that many people will suffer financial loss during 2020 and
quite possible 2021 and, when that happens, savvy property developers and investors get opportunity. Motivation to sell or realise value from assets is always essential for a good deal. Without such motivation, good deals will be elusive, so understanding the motivation as early as possible in discussions will save a lot of time spent chasing “dead end deals”. Struggling businesses across many sectors and troubled development projects are likely to be plentiful for a good while. Development projects and businesses have been interrupted with cashflows impacting, for most, negatively. Increased funding costs and fees, fixed business costs, contract deadlines, planning consent deadlines, lower site and project end values, loss of rental income, and loss of fee income are amongst many of the business challenges developers and investors currently face. Identifying assets that may provide development and/or investment opportunities and having meaningful discussions to ascertain the extent of financial
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problems are needed. A business “failing” or closing down is not the same thing as one going bust; it can be described as one that has not been successful in its aims. If it can’t generate enough money to pay its owners/shareholders, then it might just cease trading and the directors wind up the company. In these circumstances, there may be a motivation to look at maximising the value of any property assets. Many types of business have land assets including retail, hotels & guest houses, pubs, restaurants, care homes, garden centres, leisure, garages, builders, farmers, professional services, storage & distribution, property developers, landlords, investment companies, medical & personal care, etc. These businesses could be operated by sole traders, partnerships, limited companies or PLCs so the routes to decision makers is very different. If you have an idea that a particular business may be struggling, this will often come from your own connections, local observations or maybe you decide to look at assets owned in a particular sector which is known to be having issues, e.g. currently
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closed restaurants, pubs, etc. Land Registry should give you information on who owns a particular asset and if there are any/many charges against the property and how recent they are. Lots of properties in the UK are owned by landlords, investors and investment companies and some businesses have their premises owned by different companies. Whoever owns the asset may be interested in discussing a potential sale if the business/sector is struggling. Company information can be found on www.companieshouse.gov.uk. Personal introduction is the very best way to start a conversation but mostly a connection is made by writing to the business owners and/or the listed property owner/s. It often takes 2 or 3 letters before we get a response, dependent on the owner’s motivation. Many struggling businesses, even big companies, do not reach out for help until its too late and then creditors, often those with charges over property commence proceedings for recovery of money and/or property. Some businesses enter administration, which means that the company is being taken under the management of an administrator – who must be a licensed insolvency practitioner (IP). A list of IPs can be found on www. insolvencydirect.bis.gov.uk. Once a company enters administration, it is given protection from creditors who may be threatening to begin legal action to recover outstanding debts. It can be of benefit to discuss potential property deals with an administrator as they may well be able to bring any fixed asset charge holders to the table for discussions and deals for purchase,
even subject to planning, can be achieved. This process however doesn’t stop the charge holders from taking action to recover the assets and many opportunities for deals can come from working with funders and investors that hold charges over properties to maximise the value of property assets, possibly through development and/or management. Do explore straight purchase, obviously at a price that works and accounts for any planning risk and current values. Whilst it is more difficult to access the development funders holding first charges, there are a number, new to the market in the mid and late 2010s, that have never taken back a fixed charge asset, and knowing what to do with it other than sell is beyond most of their experience. Most assets are taken back using fixed charge receivers
(www.registeredpropertyreceivers.org). Their role is to take control of the asset and recover monies for the lender by selling it. Incomplete projects often have a value close to the amount of money lent and in times of uncertainty this value falls below thus creating a situation where the lender needs to complete the project. With a package of some cash and the ability to complete an unfinished project, there are and will be opportunities to work directly with the lenders. Connections with anyone holding 2nd charges on projects can give you access to the 1st charge holder and 2nd charge holders; being a lot more exposed to market fluctuations, they are often keen to discuss “rescue’ proposals. There are many investors and some platforms, that are exposed as 2nd charge holders and investors that have no
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charges or debentures, possibly with PGs who are even more exposed. Connections that may be in this position are also potential sources of opportunities, though it should be said that right now it may be difficult to save the investment. Anyone with less than 1st charge is exposed and indeed it’s fair to say that a number of 1st charge holders are very nervous at the moment. Projects may be in negotiation; at heads of terms; in legals; secured; in the planning process; agreed funding; part allocated funding; on site at different stages; presold & under build contract; sold awaiting completion/s; on the market at pre-virus valuations; subject to joint ventures with landowners, equity stakeholders, contractors, professionals, end-users; the list of situations and combinations is potentially endless. It may be that Developers, funders and investors have multiple projects potentially all with different scenarios.
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Details of individual and company insolvencies can be found in The Gazette, the UKs official public record, at www.thegazette. co.uk. This is very useful for searching for companies and individuals that you can’t trace or are unresponsive to letters; it may be that they are already insolvent. Details of the IPs can be found and contact made if you are interested in a particular property or piece of land. Many business and assets are offered for sale through agents so keeping an eye out through the normal channels like Estates Gazette, Rightmove, etc. could be useful. Our own preference is to connect with a couple of commercial agents in each desired area and be specific in your criteria. In a soft/declining market, experienced agents are more motivated to work with the buyer and in my view it’s the only time to be using agents for acquisition. They will often be offering seized or controlled assets to the market and can be the
only way into some of these opportunities. Agents can give a good idea of the vendor’s motivation and credible purchasers are happy to facilitate meetings with vendors where possible. We always look to agree terms direct with the vendor; it makes for less issues during legals. Our usual methods of sourcing opportunities are identifying using the planning portal for sites with current or lapsed consent and refused applications, a combination of google earth street view and Land Reg e-services to find undeveloped sites, local plans and policy documents for identified, allocated and unallocated sites; everyone we know are continuing to use direct to owner letters and introductions. Keep an eye out for proposed changes to planning, particularly new permitted development rights that are likely to be announced over the coming months. One of the first things to do is to revisit any previous offers and identified opportunities. Get back in touch as circumstances may have changed or possibly will change in the coming months. Whilst many opportunities will come from others misfortune, it is my view that many will also come from changes in lifestyle with an increased motivation to realise value from assets to achieve those changes. We are in a period of massive opportunity and you need at least two of the following to fully benefit: • Cash • Experience • Connections • Available and deliverable ‘deals’
For those with only one of the above, be careful and you might do ok. For those with two, there is a decent chance of earning some cash. If you have three, then it should be a case of how much you make. If you are fortunate enough to have all 4, it will be a case of how much you want to make. I’m not aware of many that have a solid balance of everything above so there lies the big opportunity for those that have one or two. Collaboration is the best way to achieve the greatest results. Find what you don’t have and work together. Q.
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DEVELOPMENT
THE SECRET TO SAVING UP TO 30% ON YOUR BUILD OR NEXT DEVELOPMENT. ASH GORECIA Director Makana Group www.makana-group.com
You are in good company. Of the 325,000 construction f irms operating in Britain today, 92% have fewer than 8 staff. So, no cars for the vast majority of us. But, while small may be agile and adaptive, unfortunately it also inevitably means we are working to tighter margins and with higher costs. We can only dream of the economies of scale that the likes of Berkeley or Galliard benefit from. However, recent advances in modern construction methods have gone some way to levelling this particular playing field, and at Makana 060 – Qandor – Issue No. 5
Group, we are very proud to be at the forefront of one of these innovations. Developers, small to medium-sized building firms, and even those in the self-build community can now make significant savings on their builds and new developments, thanks to the use of 100% recycled light gauge steel. All you need to know about steel frame in 30 seconds Necessity is the mother of invention, so when people chose to build taller and taller buildings, they needed to find new methods of constructing them. Therefore, after thousands of years of construction evolution,
it was only relatively recently – in the latter part of the nineteenth century – that the first steel framed buildings were completed. Throughout the twentieth century, steel grew in popularity and for around a hundred years not much changed; steel frames were produced in great steel mills, hot rolled into columns and beams, and used primarily on large commercial projects. However, around 30 years ago, a quiet revolution began, the innovation that was to be known as light gauge steel – lightweight galvanised steel frames that could be positioned to be just as strong as their heavier predecessors; through the innovation of cold-forming, they were now far more costeffective to produce, making them, in recent years, a vastly more affordable solution for even the smallest of builds.
Material costs, construction schedule, labour issues and delays can eat into the profits of any project, but through the use of light gauge steel frames, we’ve proven time and again that savings of up to 30% are possible on a build, because it is: 1. Lighter A lighter structure may mean footings and foundations can be shallower, saving on time and materials. And, as light gauge steel can be lifted into place by manpower alone, expensive cranes are no longer needed. We had a job recently where the steel frame for an entire 5-storey block of 14 apartments was completed in 6 weeks by a team of 4 without the use of any lifting equipment. Issue No. 5 – Qandor – 061
2. Quicker The faster you are able to build to your agreed quality standards, the shorter the time you need to borrow money to fund the construction – which lowers the cost of interest paid on the loan. Lighter building materials, less construction time, fewer opportunities for human error and less equipment required, all lead to a quicker build using light gauge steel frame. 3. Thinner The profile of a light gauge steel frame unit is 100mm narrower than traditional steel frame. This may not seem like much, but when multiplied up for each unit used across the entire structure, a significant amount of space can be saved, increasing the useable square footage within the building and, therefore, increasing the property’s saleable/ lettable value. 4. Adaptable Delays can add a significant cost to a project, so anything that can keep them to a minimum is a good thing. Traditional timber frame requires cranes which cannot work when it’s windy. Brick and block construction will slow when it’s raining, but as long as health and safety regulations are maintained, there’s very little that will delay progress on a light gauge steel frame construction. 5. Cheaper Everything mentioned above – fewer delays, cheaper materials, less use of expensive equipment, lower manpower required and a faster build meaning less interest on loans, all go to reduce the cost of construction. And with increased internal square 062 – Qandor – Issue No. 5
footage making the value of the completed development higher, this means projects can be more profitable. 6. Recycled Until recently the recycling of steel was too costly for most to consider. However, at Makana Group, from our 5,000 sq. ft manufacturing hub, we not only produce 100% tested and certified recycled galvanised light gauge steel frames for our builds, but we are also one of the only companies in the UK supplying them to other developers and builders for use on their projects. So, if you are getting back to work after the Covid-19 crisis and are looking to your next project, consider the cost-saving potential and higher profit prospects of using 100% recycled light gauge steel in your next development. It could well revolutionise the way you choose to build. Q.
Property finance by property people Apply in just 5 minutes at: www.crowdproperty.com/apply or call 020 3012 0166
PROPERTY DEVELOPMENT
WHO WOULD WANT TO BE A DEVELOPER? A LESSON IN BLOODYMINDEDNESS. JEREMY WORMINGTON Managing Director Ferrata Property Group www.ferrataproperty.co.uk
When I got into property, I always thought that I would want to get into larger developments after the experience of renovating my own home, and then branching into HMO’s - I was never one to shy away from a challenge! (Buy-to-let always seemed too small and slow). That aside, I was sensible and have always ensured I received the right education and I continue to have residential conversions. 064 – Qandor – Issue No. 5
Even after the education, the time, stress and sheer effort to get a project to the development stage has been a struggle, though I have learnt a great deal and made many new friends along the way. I am also stronger; this tale is of the joys of finding a project that stacked really well 2 years ago, to the moment when we thought we would have to fire sell at a loss, and finally to getting the development started and the generosity of many people along the way. Bridge House was an ugly office building in the centre of the lovely cathedral city of
Lichfield. We had two options: demolishing and rebuilding or going for ‘prior approval’ to get approval for residential use. Maybe as an experienced developer I would have chosen the former and taken the planning risk, but my education was around ‘prior approval’ which we gained in quick time for 14 apartments, albeit many around 32m2. My business partner Diksesh Patel and myself met at the inaugural Qandor Founding Forum Workshop (now named Platinum Workshops) over 2 years ago, and we have been good friends ever since. His skill was finance from his time in the City, and mine were the operational aspects from my army days. We have made a good team and continue to learn and grow together. Our initial GDV margin was over 30%, and we thought that we had plenty of slack should Brexit have some effect on prices, and we knew that the real money was in the planning gained by extending further. By the time we completed the purchase of the offices, we had gained ‘prior approval’ notification and submitted planning for a further 10 apartments to get 24 in all. That was 18 months ago; with a fair wind, we expected to get the development started 6 months later. Wrong! By this stage, we had a strong team that was largely made
up of Qandor members and who were driven by the same values. It felt good, though not that everything was plain sailing. We had a great plan and the market supported the need for the type of apartment which we wanted to develop. As we moved into 2019, Brexit reared its head and the market started to go cold. As inexperienced developers, should we sell and move on, or keep going? That decision was largely out of our hands, since we were still waiting for the increasingly delayed planning decision. At the time, selling with ‘prior approval’ did not seem a viable option, though much more palatable some months later. The planners seemed stretched and took ages to respond to anything and when they finally gave the scheme their approval, it took another 6 weeks to receive the approval notice. In this time the market had definitely swung against us and selling at auction was increasingly difficult as the value kept dropping with few takers. So, what do we do 12 months later with a project that still stacked well in the local market, but no one is prepared to buy at auction? It was crunch time; we had to move towards developing as our bridging deadlines loomed. Finding lenders was also getting harder as they reduced their risk and, more importantly, valuers immediately down valued anything. We then had 6 months of to-ing and fro-ing with lenders as the noose seemed to tighten ever more and build costs rose. Issue No. 5 – Qandor – 065
In the middle of this, we suddenly had the Covid pandemic that caused the market to retrench further as terms tightened even more. We still have a small GDV margin and I think it was only our belief that this was a good scheme that finally enabled us to find a funder, CrowdProperty, and more importantly a development company, Dapatchi (both also Qandor members), that believed in the scheme, and hopefully us, to provide support to start the development straight after the Covid lockdown. As I write this, we have now exited our bridging finance and have just started on-site. Are we over the worst? I hope so, though I know there will be challenges in the months ahead, almost certainly economical, and we still have Brexit to deal with. It’s already been a rollercoaster ride, and the finish line is still 12 months away, but what have we learnt? These are representative: • Always start with a large GDV margin since it will get eroded, or down value the comps ;
066 – Qandor – Issue No. 5
• The build is always more complicated and expensive than initial estimates; • Planning is not always a gain; • Buy the property with 100% equity to avoid bridging complexities; • A great team will have answers for most problems; • Ask funders to explain exactly what they mean, and ask again; • Education is only the start, getting support and experience is key; • Keep on, keeping on! Small steps every day; • Join a fantastic property networking group for support and advice! Finally I would like to thank those in Qandor who have provided support and advice throughout the last 2 years, and to CrowdProperty and Dapatchi (Grazina Thompson) for their on-going interest. Ultimately, Diksesh, who has transformed himself, and the values he has brought to our partnership. Q.
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the perfect time to “it’sinvest in your home with an awesome home cinema Luke Crutcher - Director
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DEVELOPMENT
BUILDING THROUGH COVID. DENIS GLEESON Director Gleeson Build & Develop
It is almost six months since the U.K went into lockdown and it seems a good time to reflect on how the Covid-19 outbreak affected our business and no doubt countless others like us. Gleeson Build & Develop have been building property in London and the South East for 20 years – in fact, the nation was locked down only days before the company’s 20th Anniversary.
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Gleeson Build & Develop act as both developer and contractor on our own projects, meaning we have seen first-hand the struggles of our supply chain, the precarious position that many SME’s currently find themselves in and the innovative and proactive approaches they have employed. Lockdown & The Construction Industry The announcement of lockdown on March 16th 2020 caused a great deal of confusion for the Construction Industry. Clarity was
only truly provided when the Secretary of State for Business, Energy and Industrial Strategy, Alok Sharma, issued his open letter to the industry on the 31st March 2020. In this letter, he thanked the industry for our efforts in keeping the economy moving and encouraged us to work when social distancing could be enforced. It speaks of the scale and importance of the Construction Industry in the UK economy that the government was so keen to keep us working. The government’s clarification on this matter was important, as the public opinion of the industry appeared to be souring as we worked while others could not. Practical Steps to Protect For us, the adoption of the Site Operating Procedures published by the Construction Leadership Council meant a re-think of the Construction Programme and our methods of working. We had to take several practical steps to ensure compliance and the safety of our team onsite and that of the residents. Site operatives are now encouraged to bring their own lunch to site and lunch and break times are staggered to reduce numbers in the kitchen areas and exposure to local shops and residents. There is no doubt that the outbreak of Covid-19 has caused delays and cost overruns and time in construction equals money. When lockdown was introduced, we had just completed our sub-structure works and the masonry package had just started, so we were in a position where all operative could socially distance and continue to work safely. We also introduced additional plant to site which we
ordinarily would not have required, such as bumpa hoists and genie lifts, to ensure social distancing could be maintained. Supply Chain The construction industry is unique due to the number of suppliers and materials required to complete a development and these materials are now delivered from all over the world. No two buildings, however similar, are ever the same! I am sure many of us now have heard about the bags of plaster being sold for £50 to £60 due to nationwide shortages. We have found our supply chain have equipped themselves admirably given the circumstances. ‘Bricks and sticks’ have been readily available; we were however affected by the shutting of manufacturing plants, which has led to delays in procuring roof tiles. I am sure every contractor in the country will have similar stories. I have found it uplifting to see some suppliers being almost single-handedly run by Directors or Managing Directors. Many have had to make the difficult decision to furlough staff and are working tirelessly to ensure their staff have jobs to return to. Thankfully, we are now seeing many suppliers returning to a full complement of staff. Though quotes might be taking more time to receive than we would like, and lead times are being stretched, I have been struck by the patience and understanding of the industry at large (two words not usually synonymous with construction!). There is still very much a feeling of ‘we are all in this together’.
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Conclusions It is difficult to reach any definite conclusions at this point, as the situation remains dynamic. Gleeson Build & Develop are set to launch our 9-unit scheme in Leyton in September and we are hopeful, with the ‘Stamp Duty’ holiday and current buoyant market, that we will achieve strong off-plan sales. Practical completion is due Q.4 2020. From the build perspective, we have seen costs go up and we have seen delays for the reasons stated above. This was however unavoidable and necessary to protect staff, their loved ones, and the local community in which we are building.
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It’s been a unique challenge building through this pandemic. The words pivoting and unprecedented have been used almost daily. Like many SME developers, it’s very much a case of muddling through as best as we can and tackling each delay, government announcement, cost uplift or indeed any other challenge, as they arise. Q.
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PLANNING
BUILD, BUILD, BUILD. DAVID KEMP Director DRK Planning www.drkplanning.co.uk
On the 30th January 2020, the Building Better, Building Beautiful Commission published its review into the Planning System, with recommendations permeating the area of design, planning process and permitted development rights.
through three separate statutory instruments addressing the following, all of which take effect from 1st September: • Changes to the Use Classes Order; • Introducing new PD rights for additional storeys to a range of different building types; • Introducing a new PD right to demolish and reconstruct offices or blocks of flats.
This review has since helped to shape the most recent planning reforms published
If that wasn’t enough to shake things up, we saw the publication of the Planning White
“A Change is Gonna Come.” Sam Cooke
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Paper in early August. So, what does it all mean…? Focussing on the right building We have seen 7 new PD rights being introduced all at the same time; 6 of these are variations on the same theme – additional storeys to existing buildings – with only one PD right relevant in any case depending on whether your building is detached vs terraced, or in mixed use vs in use only as a single house or flats. The seventh PD right relates to the right to provide a new and taller replacement building on the site of an existing building up to roughly 5 storeys (possibly 6 if you count a new basement). Age Restrictions Apply All the new PD rights for extra storeys only apply to buildings constructed after 1st July 1948 and before 5th March 2018 (the date when the Minister first announced the new PD rights to Parliament); the ‘end date’ for PD to add extra space, but not extra units, on houses is 28th October 2018 and not 5th March. For replacement of existing buildings, the use of the building as flats or B1 Use must have existed since at least 1st January 1990. Developers will need to be creative in researching this, looking to various sources, including their architect’s estimate of the age, Google Earth (although unreliable before some dates), old building control records and websites such as ‘Old Maps’ (www.old-maps.co.uk).
The sky’s the limit? No, not quite. The limit will be two storeys above the existing building (or only one storey for existing one storey buildings). Nearly all the new PD rights for extra storeys are subject to a general height limit of 18 metres from ground level, with a further condition on terrace buildings that the new build cannot be more than 3.5m above the highest part of the roof of every other building in the terrace. A couple of the new PD rights are subject to a 30 metre limit overall instead. On PD rights on replacement buildings (Class ZA), the height cannot also exceed more than 7 metres above the height of the ‘old building’ (i.e. the one to be replaced) at any point – care needs to be taken when considering buildings of differing storey heights (e.g. part 2 and part 3 storey). Any exist ing or prop os e d accommodation in pitched or mansard roofs are not counted as a ‘storey’, which will affect which buildings might qualify, the overall height possible and external appearance of the final building. There will be questions to be settled as some things are unclear. For instance, it is not clear where ‘ground level’ is on a sloping site and it is not clear whether ‘footprint’ does not include existing areas of under crofts to some buildings. Recently, changes have been introduced to Building Regulations that may have a bearing on these rules in practice, requiring sprinkler systems to be provided in some cases of new development to not just new units, but to the existing dwellings in a block.
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This can add a further £2,000 to £3,000 per unit, aside from the legal and practical complications involved where access is needed to thread new pipes and ducting through the building. Design and External Appearance Common throughout the new PD rights is an emphasis on quality of external appearance. This is not new as Class M (retail conversions) and Class Q (barn conversions) PD rights were already subject to this qualification, because external works could be carried out as part of the PD application. This will clearly call for an assessment of planning judgement and could be an area of difficulty for developers. If similar proposals for full planning permission for additional floors have already been declined by the Council (or on an appeal), then it might be better to walk away, unless a significantly different approach might help. Unsurprisingly, buildings in conservation areas and listed buildings are not included and will require full planning permission (or listed building consent). Build your team of experts The full list of conditions varies slightly from one PD to the next, but will no doubt keep highways, sunlight and daylight, flood risk, environmental and noise consultants busy. Every single one of these conditions will present a point of risk that varies from one opportunity to another, so be prepared to have to build your contacts in these areas so that robust reports can be provided. Your planning consultant will usually be able to
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guide you on the reports that are most likely, as expert reports may not be needed for some or all areas in every case. Taking the lead on the Law As with the other PD rights, especially on office and retail conversions, developers naturally seek to stretch the limits of the law. Councils will not be so bullish and some may even try to bring in Article 4 Directions to restrict or exclude these new PD rights in their areas. Therefore, if the PD application engages points of possible legal argument over definitions and the interpretation of the words in the PD rights, then you may have to be ready quite early on to seek expert Opinion and advice from a Planning Barrister. Will it make a difference? It is difficult to tell at this stage how difficult or otherwise Councils may be or how widely they might try to bring in Article 4 Directions. The new Class ZA rights for replacement office buildings may be more of a concern to Councils as this takes away in qualifying cases the need to have to market the offices for a 12-month (or in some cases longer) period; only 6 months’ vacancy is required. This will present an obvious threat to office stock already depleted in some towns and cities by other PD conversion rights and might be a more obvious candidate for new Article 4 Directions instead of the PD rights for additional storeys, which are heavily conditioned by planning merits criteria anyway. In any event, if Article 4 Directions are introduced, there will almost always be
a window of usually up to about 12 months (or less) in some cases to get your application through, as these directions do not normally take immediate effect. As one can see, it might be challenging enough finding a building that is available and will comply with the legal and planning conditions that apply. On top of this, there is no 56-day time limit to Councils making an application and neighbours will have a right to comment, so in many respects they might feel like a normal planning application. The fees will not be the same £96 fixed fee as with current PD conversions, and can on larger proposals reach into the £10,000s. The clear advantage to developers is, of course, to add floor space which is not limited in terms of size limits for dwellings, dwelling mix and will not attract affordable housing contributions at any level (although CIL might still be payable). However, on the whole, this consultant remains very sceptical about the degree of impact this might have on providing the extra homes required to meet current need. The Use Classes Order changes The new changes to the existing Use Classes Order, unlike the PD rights introduced at the same time, are intended to be temporary for now, having effect only between 1st September 2020 and 31st July 2021. The Government may bring in further changes to the UCO or to PD rights in the meantime. The key changes are: • Certain ‘Community’ or ‘Leisure and Recreation’ uses from Classes D1 and D2 are now split between
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various use classes – Class E, F1 or F2. Classes F1 and F2 remain heavily ‘community based’ in their emphasis and there will be no PD to move to other uses. Some uses have been given enhanced protection from change of use, such as pubs (A4), and cinemas and theatres, as they are moved into ‘sui generis’ (a miscellaneous category from which any movement into or out of that particular requires planning permission). Offices, clinics, creches and shops and restaurants (A1, A2 and A3) will move into the same use class – Class E – allowing for freedom of movement back forth between these uses. Some shops, particularly small food shops with no similar facility within 1,000 metres radius, move into Class F2 – aimed at the ‘village shop’ use that has proven essential for community and day-to-day life during the coronavirus lockdown.
The current Class A and Class B uses as set out in the new and existing PD and Prior Approval rights will continue as before until and unless amended. Basically, these changes only bite on new applications for planning permission submitted after 1st September 2020. Some of these changes are likely to be welcomed by landlords and developers as they might allow for a quicker rate of response to move from unviable commercial
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uses to viable ones. However, recent research by LB Enfield indicates that most Class A uses have a similar level of rent compared to each other or creches or medical clinics – roughly about £25-£30 psf – so the relative incentive may be marginal at best in some cases. Possible unintended consequences? These changes to the UCO may have a more telling impact than the PD changes above, as Article 4 Directions cannot be used to control them. However, if the Council has good reason, it can seek to impose a planning condition restricting their operation or removing them from benefitting a scheme on a new grant of planning permission. Developers are already looking at ways around the planning system to improve their schemes or circumvent current restrictions on change of use. For example, a clinic or creche might require planning permission at the moment to move to a Tesco Express (Class A1), but the Council would normally regard this as a ‘community use’ and not allow the change under their policies. However, the new UCO would allow this change automatically without needing planning permission, and therefore the Council could not stand in their way. If currently in use as a church or village hall, which would be Class F1, if one changed the use before 1st September to a creche (both uses being in Class D1 before 1st September), then no planning permission is required to move to a retail shop or office, thus avoiding the Council’s ‘community use’ policies.
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Other developers are looking at converting B1 offices above A1 shops to ancillary offices to the shops, which then allows Class G rights by PD to then change the now-ancillary offices to up to two flats. In most cases, Councils have brought in Article 4 directions to stop loss of offices to residential use by way of Class O Prior Approval but have overlooked Class G rights; this might change in future if enough developers start exploiting this route. Councils are also concerned about a possible re-emergence of the out of town retail park where offices could freely move to A1, A2 or A3. I also expect that Councils might try to put more obstacles in the way in terms of licensing or building regulations to thwart a change of use they cannot prevent via planning. The Planning White Paper It would be difficult to do proper justice to this topic in only half an article – but it will be an ongoing subject on which we will have more to say at a later date. However, the possible changes to the planning system may be profound. There is a move away from setting planning policies at a local level, which is welcome as there is a huge amount of repetition adding to time and complexity in reviewing opportunities. Principally, these policies will be set at the national level and development management policies centralised. More use will be made of the ‘permission in principle’ route, which establishes a presumption in favour of certain changes of
use or types of development, subject to local design codes and consultation. The approach will be heavily ‘zonal’ with three main zones: Growth, Renewal and Protect Zones. Growth zones will be earmarked for substantial redevelopment, using permission in principle and a presumption in favour of development, then with slightly more control in renewal zones. There will be a presumption against development in protect zones; these will include the Green Belt, countryside areas and conservation areas, although it may still be possible to come forward with a planning application to try and persuade the Council otherwise in these areas. It is disappointing to see no consideration of development in the Green Belt beyond these proposals, especially as there may still be a housing requirement in such areas. Issues such as democratic decision-making, use of Committees and the involvement of neighbourhood plans are mainly unresolved and need to be reconciled with the attempt to simplify the system. Further detail is needed on areas such as sustainability, biodiversity and heritage, which often create complexity and slow down applications. SME developers are likely to welcome the proposals for unifying and simplifying the s106 and CIL regime. They will also welcome the proposal to bring in a higher threshold nationally at 40 or 50 homes for Affordable Housing. I fully expect Councils to strongly resist this where they can. The Government wants to bring this change in quickly by Autumn 2020, but it will be a
“Every single one of these conditions will present a point of risk that varies from one opportunity to another, so be prepared to have to build your contacts in these areas so that robust reports can be provided.” policy change, not a legal one. This means that it is non-binding on Councils who might try to get around this by saying that they have exceptional local circumstances that justify a lower threshold (as they have done before). The speed of change will vary depending on the part of the proposals engaged and will need the Government to commit to greater funding for public services and planning departments already embattled through staff lay-offs and cuts in Government grant over many years. What is does though is force planning and the need for sustainability and good design much higher up the agenda. This is just the start! The Consultation on the White Paper will last until 1st October 2020. The Government will then publish a further review and proposals that it intends to take forward (date uncertain). A change is definitely ‘gonna come’. Q.
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CROWDFUNDING
LET’S BUILD, BUILD, BUILD… AND TOGETHER WE’LL BUILD A BETTER FUTURE. MIKE BRISTOW CEO & Founder CrowdProperty www.crowdproperty.com
On 30th June, Boris had his own “education, education, education” moment. “We will build, build, build… build back better, build back greener, build back faster.” An exciting rhetoric for anyone involved in building physical assets. But, as always, the challenge is in the implementation. The sentiment is right – the principles of Keynesian economics, which advocate increased government expenditures and 078 – Qandor – Issue No. 5
lower taxes to stimulate the demand-side of the economy, has proven itself in many economies in their toughest ebbs, especially if this can be mirrored by private sector investment. So, who will build, build, build and play a key part in reviving the economy? Spoiler alert: if you’re an SME developer – we believe it’s you. Major infrastructure, such as HS2, is an obvious investment area - but this is the opportunity, and maybe the imperative, to finally build enough homes in this country, which is so vital in many
in this country, which is so vital in many regards for the economy. The secret to doing that is empowering the entrepreneurial SME residential property developer segment but, as you’ll probably have felt, that needs the many barriers that have significantly increased over the last decade to be tackled. We talk quite a bit about the remarkable decline in SME developer housing output (from c.60,000 homes in 2008 to c.20,000 in 2017, in a context where the country built only 200,000 in each of those years considerably less than the 300,000 required) so for this segment to be the answer, not only do we need to significantly increase
output but also reverse this declining trend – tackling the fundamental barriers that have been behind it. The planning system has been a major barrier for SME property businesses building more homes in this country and significant changes are following Boris’ rhetoric. CrowdProperty’s research, which includes the largest survey ever conducted amongst SME residential property developers, shows that SME property professionals believe that ‘an improved planning system’ could be the third most beneficial driver of building more homes going forward, above ‘improved tax policies’ in fourth.
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These are only surpassed by ‘an improving economy’ (which is less directly influenceable) and 41% selecting ‘better sources of funding’ – now we get to the nub of the issue. So whilst the Government is pulling planning and taxation levers, building the best SME property project lender in the market was the genesis behind CrowdProperty - addressing the many pains associated with traditional sources of funding that have progressively choked this segment more and more over the last decade. There’s never a more powerful raison d’être for a business than solving fundamental market pains that the founders have felt personally and know how to solve. So, what does it really mean? Let’s dig into some more of the survey insights that represent the underlying sentiment of SME developers, pre-Covid19 disruption. A big change since I started investing in property in 2002 is that the not-sosophisticated (albeit successful) strategy of ‘buy house, let it out, refinance, repeat’ that I employed doesn’t stack up anymore.
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Extraordinary profit attracts greater competition (and often taxation) and that requires participants to compete harder, to shift business models and generally need to work harder for profit. The strategy most preferred by respondents to our survey, with 62% stating they will be doing it ‘more’ (35%) or ‘much more’ (27%), is to build/ refurb to keep. We see this as a structural change amongst property investors in the absence of strong capital growth projections – ‘buy, add value, refinance, repeat‘ – the value-add piece enabling recycling of capital being the change, the consistent piece being the desire to build a long-term portfolio, despite taxation changes for landlords. Your peers then dug into the crux of the biggest housing output barrier responding to ‘What’s most important when seeking finance for your property projects?’ Top responses, i.e. the most important factors, amongst the entire set of respondents were: 1. Reliability of Finance; 2. Transparency; 3. Speed of Finance; 4. Loan Amount / Maximum LTV; 5. Quick and Easy Drawdowns. It’s powerful to understand differences between experience segments and the importance of these factors. Relative to the overall set, less experienced SME developers place greater importance on LTV, Interest Rate, Fees and Timing of Fees. This is rational – they are building cost models and working to optimise those to ensure that the development stacks up and can potentially raise equity investment to complement the debt capital.
The telling factors are those which are rated relatively important by more experienced developers – they rate Reliability of Finance, Transparency, Speed of Finance, Quick and Easy Drawdowns, Access to Decision Makers and Knowledge/Expertise of the Lender highly – they have felt the pain of traditional sources of finance more (a very tangible example here is in speed of drawdowns – sitting on IMS reports can have severe knock-on effects to contractor moral and potentially project progress), and crave a better holistic, expertise-based, trusted partnership with their lender. Experienced developers know that reducing the time spent on funding (which for an SME developer is approximately onethird of their time) means that more time can be spent on finding sites and progressing sites – i.e. growing their property business quicker. It’s very powerful acting like the more experienced in your field and seeking those critical success factors yourself. Let’s take a look at the factors that were collectively rated highest in more detail. What do they actually mean? First and foremost, it’s fascinating that in a pre-Covid19 world (the survey was Q4 2019), Reliability of Finance came out on top. The reality is that this has never been more stress tested than through Covid19 lockdown. We collectively know a lot more about how reliable lenders are when the going gets uncertain and who’s sources of funding are actually reliable. Understanding the sources of your lender’s capital is critically important –
we’ve seen offers being reneged upon (not just tightened on LTV/LTGDV) and even drawdowns to cover completed activity on site being refused through no fault of the project itself, which is destructive to the project. This is driven by the fact that many lenders have single sources of wholesale capital, whose broader exposure is often linked to equity markets. They will press pause when markets get volatile… which ultimately impacts you most of all. As it happens, and what couldn’t be more important right now, is that we have uniquely diverse sources of capital from retail, high net worth, ultra-high net worth, private fund and major institutional sources. Lenders with concentrated sources of capital were the first to shut up shop as Covid19 set in. Even those with multiple sources were exposed as those sources had exactly the same underpinning exposures to equity market volatility and lending attitudes. Diverse types of capital, with many sources within each type, with different needs, preferences and attitudes, which can only be built up from 6 years of lending with a perfect track record, gives far greater reliability of funding through any stage of market cycles. Just as SME businesses are the beating heart of the wider economy, empowering the multitude SME property development businesses is the secret to delivering ‘build, build, build’, finally delivering enough homes into the market and driving much needed spend in the economy on labour, materials and services. This article continues online! CLICK HERE TO READ MORE
Issue No. 5 – Qandor – 081
PROPERTY FINANCE
TOP TEN INVESTOR TIPS FOR HOUSES OF MULTIPLE OCCUPATION. JAMES TUTTY Director and Project Manager Nationwide Property Investment www.nwpinvestment.co.uk
In this guide, I am going to explore one of the higher cash flowing options that you can use in your property portfolio which is Houses of Multiple Occupation (referred to as HMO’s). You will probably already be familiar with how you can use a standard Buy to Let property to generate significant returns on your capital. They are simple, people understand them, and the management can be straight forward a lot of the time. Houses of Multiple Occupation, on the other hand, address the ever-increasing needs
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of people to find a place to live. They don’t have all the benefits of renting your own place, but the collective use of the same property can significantly reduce the monthly bills of the tenants within them. In addition, HMO’s will typically include a higher level of services from the landlord, including payment of the utilities, cleaning, and even gardening services in some cases. They can work very well for students in particularly and also near major employers or sites of industry, giving the workers an inexpensive place to live in close proximity to work. They also work very well for the landlord as well, whereas in Essex for instance a threeor four-bedroom house may generate an income of approx £12,000/annum. The same
property, if converted to an HMO, could easily generate between £30,000-£35,000/annum, so whilst they require a lot more management, incur more costs at setup and running them, and have various challenges in making them allowed, they are a very cash-flow efficient way of utilising a property, generating several times the return of a single let. With the increasing popularity of this type of property since 2011 and a plethora of websites advertising rooms, mandatory HMO licensing came into force in the UK in 2018 for all HMO properties with over five people in them. This means any HMO either existing or new must apply for a license from their local council, which can sometimes take a long time, so the process should be started early. The regulations stipulate minimum room sizes, but their main
focus is around fire safety in the property as in HMO’s there can be greater incidence of risk around this area. What is a House in Multiple Occupation? Under the Housing Act 2004, if you let a property which is one of the following types, it is a House in Multiple Occupation. • An entire house or flat which is let to 3 or more tenants who form 2 or more households and who share a kitchen, bathroom or toilet. (For a definition of household, see below) • A house which has been converted entirely into bedsits or other non-self-contained accommodation and which is let to 3 or more tenants who form two or more households Issue No. 5 – Qandor – 083
and who share kitchen, bathroom or toilet facilities. • A converted house which contains one or more flats which are not wholly selfcontained (i.e. the flat does not contain within it a kitchen, bathroom and toilet) and which is occupied by 3 or more tenants who form two or more households. • A building which is converted entirely into self-contained flats if the conversion did not meet the standards of the 1991 Building Regulations and more than one-third of the flats are let on short-term tenancies. Top Ten Tips to running a successful HMO Macro Location, Micro Location When first choosing to invest in an HMO, you must first choose which region of the country to invest in. If you have already decided on a particular area that you focus your investment in, then this will be straight forward; it is 084 – Qandor – Issue No. 5
generally recommended to invest in an area nearby to you, where you know the area well and where the rental yield is high. The cost for renting a room seems to have less elasticity than the cost of housing. What this means is that the average cost for renting a room seems to range between £300 - £600 in large parts of the country. In some areas, it may dip slightly below £300, and in London it could definitely go above £600, but the majority of rooms seem to be in this price bracket. If you compare this with the price of housing, then if you invest in the North you can easily pick up 3-bedroom houses for less than £40,000 whereas a 3-bedroom house in some parts of London could cost over £1 million. With this is mind, it is worth looking at areas to the north with the overall yield in mind. If you purchase a place in the north and convert it to an HMO for £100,000 and get it generating £2,000/month – this will work a lot better than getting a similar place in the south for £400,000 and only generating £3,000/month.
This isn’t to say HMO’s don’t work further south; they do, but you may be able to optimise them even further if you can explore areas where the house prices are lower. Another thing you will want to consider when choosing which region to invest in is whether there are government infrastructure projects, or major employers based in the area. In Manchester, for example, there is a major airport expansion currently underway over the next 8 years, which will draw tens of thousands of workers into that part of the city from all over the UK and Europe, which will put significant strain on the local housing stock over the next ten years. This would be an important factor in assessing whether there was sufficient demand in an area and could also have the spin off benefit of increasing the property value over the longer term. HS2 could also have a similar effect on the flow of people and jobs to various cities in the UK, so if you are not constrained to a particular area, you can strategically choose where to invest. Once you have decided on a part of the country to invest in, you want to look more closely at the town or city you wish to invest. What is it that will make people want to rent rooms in the place in which you choose to purchase the property? Is a town dependant on a single major employer in the area like Ford in Dagenham back in the 80’s for instance? Perhaps it is a university city like Oxford or Cambridge, which sees an influx of tens of thousands of students each year. Lastly, it could be further north in a lower cost area such as Liverpool with its major docks and large work force. On top of this, nearly all larger towns have hospitals and higher education facilities around them, and these will have a steady supply of students
needing housing. Finally, once you have drilled down to the town where you wish to invest, you will need to look at the specific location for the property you want to invest in, even down to the street level. This is where local knowledge is going to be most useful and if you don’t have this yourself, then you will need to find someone local who you trust and is knowledgeable about property investment to assist you. This is an important area to get right and is one of the main reasons why it can be better to only invest in your home area. In the specific area you invest in, you will want to have local amenities such as shops, restaurants, bars etc. Depending on who you are targeting, it will be near the employer/hospital/ university/industry/town centre. Q. This article continues online!
CLICK HERE TO READ MORE Issue No. 5 – Qandor – 085
PROPERTY DEVELOPMENT
THE FUTURE OF THE HOUSING AND THE PROPERTY DEVELOPMENT FINANCE MARKET. GARY WALSH Director Optima Property Funding www.optimafunding.co.uk
The disruption to the housing projects caused by Covid-19 is well debated and documented. Closed cons truc tion sites , shortage of materials, aborted sales, withdrawal of lenders from the market, breaches of borrower covenants, illiquidity, etc. Whilst lenders, developers and associates will, overall, work through the construction element of the cycle, what is unknown is the impact that the disruption 086 – Qandor – Issue No. 5
from COVID-19 will have on-demand for residential housing and at what price. In other words, will house prices fall, if so by how far and how quickly? There are lots of opinions in the ether ranging from minimal to Armageddon but, in truth, it is an unknown. The status of the Property Development Finance & Bridging market will, to some extent, be shaped by the outturn of asset values. If prices drop significantly over a short period, some developers and lenders will lose money, and this will result in withdrawal from the
market. Lenders that are heavily exposed with highly leveraged projects or that have made poor lending decisions may struggle. As will those with liquidity issues. Anecdotal evidence of lenders withdrawing from the market and reducing LTVs suggested that the Development Finance market had significantly contracted, which has now been confirmed in a report by CBRE. Some lenders will not return, and others will have reduced capacity and appetite. The fundamentals of the housing market remain strong. There is a shortage of supply and ‘generation rent’ are desperate to get on the ladder. Interest rates, and thus mortgage rates are at an all-time low. The banking sector is liquid (unlike 2008) with suitable capital reserves to withstand economic shock and £ Sterling, and thus UK property is attractive to overseas investors. However, pushing against this is the inevitable recession which is likely to result in an additional million or so being added to the dole queue. The cost to the Government of supporting the economy through the crisis will add eye-watering sums to both the debt and deficit. To put it in perspective, the world central banks have put significantly more into QE since lockdown than in the financial crash of 2008. It is not yet known whether we will have a V, U, L, or another shaped recession, nor the resulting outturn of Government debt. How will the Government fund the public purse (increased taxation/austerity/borrowing) and how will this impact on disposable incomes? Putting aside economics, sentiment will be a driver, certainly in the short term.
Redundancy or fear of it - fear of a second wave of COVID-19. Sellers will be wary of selling at a discount, and buyers will be wary of buying an asset which may drop in value. Early data on activity reflects pent up demand, with Knight Frank reporting accepted offers since the lift of lockdown up 52% on the five-year average outside London and 35% within London. On prices, Nationwide Building Society report a drop of 1.7% May on April and 1.4% June on May, with annual house prices dropping by 0.1%, the first drop since 2012. Perhaps we are in the twilight zone; straddled either side by the light of the upturn in activity and the gloom of the pending recession. Against this economic background, what appetite will Development Finance & Bridging Lenders have in the next 6 months? Well-funded lenders with clean lending books will support applications from experienced developers with well-located, designed, and Issue No. 5 – Qandor – 087
pending recession.”
to construction costs, the build programme and extend sales periods. Therefore, we can expect up to 3-6 months to be added to a typical 15-18 month project. Until valuers have robust comparable house price data, they are likely to continue to include the ‘material valuation uncertainty’ clause. If larger developers sell substantial stock at a discount, this will result in lower average sales price data. The result of these market adjustments is that the developer will need to invest more cash into the project than they had anticipated prior to the pandemic. All in all, pricing may rise slightly to reflect the perceived risks and we may see Fintech playing an ever-widening role.
profitable projects in the appropriate target markets. For example, family housing in the Help To Buy price range. It remains to be seen whether the much-mooted move from the hustle and bustle of the city to the peace and tranquillity of the suburbs transpires. LTVs will be moderate until the outturn of property values is known or stabilises. Cash will be king and highly leveraged debt and equity will be in shorter supply. With senior debt lenders withdrawing, or reducing LTVs, mezzanine finance will be in vogue. Lenders will apply robust contingencies
What opportunities will exist as the market opens up and what strategies are relevant? The outcome is likely to be a buyers’ (developers) market. With enforced additional costs in construction and finance and with uncertainty over sales values, developers should work on higher margins. This should lead to a reduction in land prices. Look out for distressed assets that will come to the market. Seek joint ventures with landowners, and secure sites subject to planning options or contracts. Incentivise sellers to agree to defer part or all of the land purchase price until post-construction and sale of assets. This will deleverage the finance, reduce finance costs, improve profitability, and reduce the risk to both the developer and the lender. Aim to structure projects with less debt and more equity, if possible. If developer
“Perhaps we are in the twilight zone; straddled either side by the light of the upturn in activity and the gloom of the
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equity is limited, bring in third-party investors. Whilst this may be more costly overall, it will lessen the risk of the project and reduce finance charges, providing flexibility in the event of slow sales. Always pre-sell off-plan where possible and consider deploying a sales underwriting strategy so that any unsold units are pre-sold to a thirdparty. Research and consider modern methods of construction to establish whether you can save time, money and increase margins. Commercial property prices are likely to fall with business failures, particularly in retail and hospitality, resulting in vacant town centre premises. This will provide opportunities to convert this commercial space to residential, under both PDR (Permitted Development Rights) and
planning consent. With limited space for new residential development in urban areas, attention is turning to building on top of existing buildings and the government is due to introduce PDR (Permitted Development Rights) for airspace. There is potential significant opportunity here. Government Policy on Housing The Government is under siege from numerous industries (airline, retail, hospitality etc.); housing is in the queue and three recent announcements have caught the eye: • Stamp Duty - the raising of the threshold from £125,000 to £500,000 on residential properties with immediate effect is most welcome.
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• CBILS for Property Developers The CBILS scheme whereby the government guarantees 80% of the debt and covers finance charges for 12 months is now available to property developers from a handful of lenders. For both the construction and sales phase. • Planning Reforms - Robert Jenrick, the Housing Minister is undertaking what appears to be a radical review of planning policy. Ideas being mooted include removing some decision making from local councils and putting it with central government, zonal planning and deregulation of use classes, amongst others. A policy paper is due this month. Successive governments have failed dismally to address the housing shortage and radical supply side strategies are required. With the importance of housing and construction to post pandemic economic recovery, perhaps this is the time for the government, with its majority of 80, to take on nimbyism? New Garden Cities anyone? Other ideas doing the rounds include: 1. Extending Help to Buy for two more years; 2. Reintroducing the Help to Buy Mortgage Guarantee scheme; 3. Extending unimplemented planning permissions by a year; 4. Relax – reduce statutory payments
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such as s.106/CIL; 5. Government to JV with House Builders by providing land at nil cost; 6. Government to forward purchase housing stock to be re-sold to buyers upon occupation. The house building and associated finance industry face interesting if challenging times, but with significant opportunities. Q.
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MORTGAGE UPDATE
IS NOW THE RIGHT TIME TO BUY PROPERTIES? LEE LANGLEY Principal OnPoint Mortgages www.onpointmortgages.com
The government’s announcement of a temporary stamp-duty holiday up to £500,000 in England and Northern Ireland has certainly led to a spike in enquiries here at OnPoint Mortgages. Interest has time buyers, home movers and buy-to-let investors. In fact, the measure is of greater benefit to home movers and buy-to-let purchases, as first-time buyers were already exempt up to £300,000 outside of London and £500,000 inside. First time buyers meanwhile face the challenge of lenders withdrawing 90 and 95% LTV products. It is understandable of course that lenders will want to review house
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prices and the impact on unemployment once the furlough scheme ends. Looking ahead, however, as an industry we must ensure that those with smaller deposits are not denied the opportunity for home ownership due to Covid-19. Especially when saving is hindered in a low interest rate environment and the ‘Bank of Mum and Dad’, crucial to many when getting their first foot on the ladder, will not be immune to potential financial difficulties caused by the pandemic. Data published in the latest Moneyfacts UK Mortgage Trends Treasury Report states that from the 1st of June to the 1st of July 2020, the number of deals available at 90% LTV fell from 183 to 70 and the number of deals available at 95% LTV dropped from 31 to 14. Those offerings at 5% deposit are limited, typically specialist products for
specific locations, professions (including some key workers) or guarantor mortgages that require a third party to put up collateral, such as a savings deposit or a charge against their own property. At 10% deposit there remains an appetite from a small number of lenders, but with significant demand and lender operations often stretched to capacity, the availability is ever changing. We have seen flash sales and banks such as HSBC sensibly restricting applications to a certain number each day to protect service levels, and this will continue until there is a wider market shift into this space, with the re-entry of Nationwide being a great sign. So, what can developers do to help potential purchasers? With the current requirements for a larger deposit, registering a development for the Help to Buy scheme for new builds would be important. This scheme is only available to those located in England, but similar schemes are available in Scotland, Wales and Northern Ireland. The Help to Buy scheme is currently due to end in March 2023 and from April 2021, the scheme will only be available for first time buyers. This allows purchasers to put down at least a 5% deposit with an additional 20% equity loan coming from the government, 40% if in London. Some major homebuilders are offering a discount for key workers or including financial incentives for buyers. Lenders criteria can vary greatly in respect of incentives with some not accepting them at all. Those that will accept typically cap at 5% of the purchase price, with anything over this being deducted from the valuation. Financial incentives can include a
combination of help towards legal fees, stamp duty, cashbacks, white goods, carpets and curtains. Before taking a reservation fee, a developer needs to ensure a buyer is suitably pre-qualified via a mortgage broker in respect of their ability to obtain a mortgage. This is absolutely vital due to the additional scrutiny lenders are placing on the sustainability of an individual’s income for all types of applications. If an employed buyer has been furloughed, they will typically only use 80% of the normal basic salary, while for the selfemployed they will look at the sustainability of their business earnings, seeking an understanding of the company’s ability to trade through the pandemic. For those that have taken a payment holiday, expect the lender to seek clarity on why and expect mortgage applications to take longer while this additional underwriting takes place. While funding will become more difficult for some, those that can meet requirements will be eager to purchase before the 31st of March 2021 stamp duty holiday deadline. Pricing is incredibly competitive as at the 20th of July 2020, Santander has a 1.74% 2-year fixed rate at 85% LTV, with a £999 lender arrangement fee and 3.22% representative APR. The affordability calculations remain similar to those used pre-pandemic; in fact, TSB have reduced the stress interest rate they use in their assessment from 7.25% to 6.6% as of the 19th of June 2020. The low cost of mortgages and flexible affordability calculations mean this is a great time for those with sufficient deposit.
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This especially appears to be true amongst those with the ability to work from home, who may now be in a position to expand the location of their search for a property outside of the more expensive areas within cities and towns. The prevalence towards working from home will certainly be something that developers will want to consider in future projects. Your home may be repossessed if you do not keep up repayments on your mortgage. Some forms of Buy to Let and Commercial Lending advice are not regulated by the Financial Conduct Authority. Q.
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TAX
THE GOVERNMENT WANTS TO GIVE YOU MONEY, BUT YOU ARE NOT CLAIMING IT! JONATHAN MORE Construction Lawyer Fenwick Elliott www.fenwickelliott.com
The property and construction industry are going to have a hugely challenging climb out have heard all the doom, gloom and hurdles that face us, but in this article I wanted to focus on the positives, or potential positives, that may help our sector when the economy does start to crank up, as it will and as it shows signs (with some bumps and uncertainty) of doing
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“...it is estimated that R&D in the construction industry could be worth over £1bn a year in R&D tax credits, yet in 2014-15, for example, there were only 480 claims from construction businesses, totalling just £23 million.”
Two things that will be crucial in driving construction of the properties to be invested in, sold, or leased from now on will be technology and innovation. The problem with this is: How do major construction contractors who operate on, historically, profit margins of around 2%3% (goodness knows the current rates) invest in technology and innovation? One form of assistance in this field comes from what may be a surprising source: HMRC. There is a certain type of tax relief and credit that the Government actively wants to give all sectors of industry (yes, you read that correctly). That relief is Research and Development or R&D relief and it can be applied to constructions companies and potentially to developers.
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Simply put, it is an incentive to encourage companies in the United Kingdom (not just in construction) to invest in new and innovative products, working methodologies, and in finding solutions to problems. HMRC defines eligible R&D as “activity that attempts to solve a problem through technological or scientific advancement”. The first question in my head when I learned about this initiative, as it may be with you, was: just how many specialist contractors created the type of innovations that might qualify for R&D tax relief? No sleight at all on the construction industry, but that initial question was a complete misunderstanding on my part of what work can qualify for R&D tax relief. As discussed below, however, it appears that many in the construction industry likewise do not fully understand how this relief can benefit them either. The HMRC test may sound like quite a high bar; it isn’t. It isn’t easy, as it is not always obvious what R&D is, and submitting a compliant claim that maximises the relief that may be obtained requires specialist assistance. However, as you will be well aware, contractors will hit problems every day on construction sites that require solutions to resolve and continue with the works. If the solution to the problem is one not utilised before (or generally known within the market), or not previously used in the UK, then that company will have, in principle, a claim for R&D tax relief in respect of the cost of all work involved in solving the problem. Areas that are ripe for R&D can be technological (ecological and sustainable solutions, for example) but can also include the development of tools and
materials to improve efficiency, a new method of construction, development of systems to meet health and safety requirements, etc. The relief was launched over 15 years ago, and R&D tax relief now forms a key part of the Government’s plans to boost UK enterprise in the run up to Brexit, with increased spending of an additional £2 billion a year by 2020 announced in last year’s autumn budget. Here is the crux of the matter, and why I felt it was important to cover the topic for Qandor. It is estimated as many as 97% of eligible businesses fail to claim R&D relief that they are entitled to. More importantly, for readers of this blog, it is estimated that R&D in the construction industry could be worth over £1bn a year in R&D tax credits, yet in 2014-15, for example, there were only 480 claims from construction businesses, totalling just £23 million (this is a bit out of date but was the last major survey on this topic). That is a big shortfall on tax relief that could be claimed by the construction industry. This is something that construction companies ought to be considering, particularly given the notoriously tight profit margins of many contractors. It is not unusual for contractors who are properly advised in relation to R&D relief to succeed and claim relief on between
7-10% of turnover. Indeed, some projects will be considered to be R&D projects in their entirety. In short, tax credits i.e. income, in the sum of millions of pounds, can be derived from the project if a claim is recognised, and properly compiled and submitted. And the final half of the above should be of interest to Developers and client, not just the companies constructing projects. It is the main contractor and his subcontractors that drives the process of construction. It is during that process that the innovation that gives rise to what might be a significant claim for tax credit arises. It is of course the developer or client that owns the asset, but not necessarily (hardly ever, in fact) the party that develops the innovation that gives rise to an R&D claim. There is, however, nothing to stop the developer or client in being part of the process that compiles and progresses the claim. If you think about it, the developer or client ultimately owns what is built for it. There are many projects where in such circumstances, non-proprietary intellectual property developed specifically for a project will become owned by or the property of the developer or client, dependant of course on whether or not the contractual framework supports such a position. The same is the case for R&D relief. The contractual framework for a new construction development can be set up as such that the developer or client can benefit from, if not all of the innovation, at least a percentage of it. The contract mechanics would have to support this, and such drafting is a bit “dry” and technical for an article of this type, but it is an issue which could be explored in more detail should there be a desire to learn more. Just let me know! Q. Issue No. 5 – Qandor – 099
LISTED PROPERTY
SHOULD LISTED BUILDINGS BE DEVELOPED? EMMA MORBY Director of Land Acquisition Heritage England www.heritageengland.co.uk
The definition of a listed building is a structure that is acknowledged as being of national importance, special architectural and historic interest. So, the thought of a listed building being developed into a different use could be deemed a contradiction in terms. When you take into account that listed building consent is required for almost all the works you carry out, and these works may affect the character of a listed building, 100 – Qandor – Issue No. 5
including its internal or external features, some could say the development would ruin the definition of “historic architecture”. Heritage England are one of the very few developers in the UK who are willing to take on these beautiful, often forgotten historic buildings and find an alternative use for them. There have been a number of high profile redevelopments on listed buildings, such as Admiralty Arch, Battersea Power Station and, more recently, Raglan Gatehouse. The Government’s National Planning Policy Framework makes it clear
that when considering the impact of a proposed development on a listed building, great consideration should be given to the asset’s conservation, and as a listed building of Historic National importance is “irreplaceable”, any harm or loss should require clear justification. A listed building has an unfair portrayal as being an obstacle or hindrance to a development and we often hear developers trying to create the concept of “Enabling Development” so the project can become financially viable. A classic example would
be the construction of houses within the curtilage of a listed building where planning policy would normally prohibit them. The profits from the sale of the new homes would pay for repairs to the listed building - this can been seen in the Raglan Gate House design where Jon McDermott, a director of Raglan Gatehouse Developement Limited, applied for 4 New House. So I take you back to my first question: should we develop buildings of Historic National value? Should we as developers use ➳
Issue No. 5 – Qandor – 101
• our knowledge to preserve history for years to come? The answer for Heritage England is yes. If, as an organisation, you can restore a once forgotten Heritage building which has fallen into a poor state of repair or even a ruin and breathe new life into the building to allow future generations to benefit from the history these old buildings hold, then why not!? But development of these beautiful buildings come with a fine line that as a developer you should not cross. Heritage properties are, by their very nature, unique. They include some of the most important and characterful homes in the UK. However, it is important that you consider all the implications and take specialist advice before proceeding to purchase, even if they have a low-price tag! Here are some things to look out for: • Insurances are higher, as often the rebuild costs are much higher. Get a quote; • Build costs are higher due to original material such as Crittall windows being used instead of UPVC. Increase your build costs by a minimum of 25%; • You’ll need the support of a Heritage consultant like IHBC (Institute of Heritage Building Conservation) to create things like a HIA (Heritage Impact Assessment); • You’ll also need a Town Planner - MRTPI approved (Member of the Royal Town Planning Institute); • Work with an architect who has heritage 102 – Qandor – Issue No. 5
• • • • •
•
experience and is ARB (Architect Registration Board) and/or RIBA (Royal Institute of British Architects) approved; Speak with the local conservation officer before purchase and explain your plans; Speak with Historic England and try to welcome them into a project. They are not the enemy! Get an ecologist report to see what restrictions you might face from things like bats; If you are unable to gain access into the building, use a drone to get footage of the interior; Keep in mind the whole site is protected, not just the building. This will include boundary walls and gates; Check for services such as water. Often buildings of age do not have mains connections and their original sewer systems will have failed by now; Get a copy of the original plans and the listing. This will tell you what parts are to be preserved.
Finally, the most important point: work with the local community. These buildings have been in family generations; the locals have often played there as a child or have grown up watching the building fall into decay and feel a personal attachment to it. Off siding the locals from day one can be highly detrimental to the future development you may propose. In 2019, VR1844 Ltd purchased a 45,000 sqft defensible Barracks in Pembrokeshire which is Grade 2 listed and has Schedule Ancient Monument status. You will need an experienced team of heritage specalists, planners, architechs, and builders who know and understand
what challenges come with owning and redeveloping a building like The barracks. Just the insurance for a building like this is around £70,000 - £100,000 per year (Flee cover only)! This building even came with its very own two goats in the moat, “Dolly & Molly”. Despite the additional work involved, Heritage properties can make the most rewarding and stylish developments and, for Heritage England, we help create and sustain a legacy to some of the most impressive buildings around the UK. If you’re thinking of starting a Heritage project or own a little slice of history already…what are you waiting for? Q. Heritage England is not and never has been the owner of The Barracks or Raglan Gate House, They are held in SPV’s of which Emma Morby is a director of.
Issue No. 5 – Qandor – 103
BUSINESS
GREAT EXPECTATIONS… OR NOT. NEIL SCROXTON Managing Director & Founder Scroxton & Partners www.scroxtonandpartners.co.uk
I’ve had a tough week. A really tough week. Nope, I’ve had a tough few months. This f*** ing Covid thing has taken its toll. It took my liberty, my support network and my team. My father died from it and I had to make four very nice people redundant. To top it all off, last week it made me look like I was incompetent at my job in front of a very important, longstanding client. OK, so that last bit wasn’t directly Covid’s doing, but I want something to blame. The reality is that my client’s expectations were not managed correctly through a crisis, and it came back to bite me. You may be reading the above and 104 – Qandor – Issue No. 5
thinking that I’m confessing to not doing my job properly. I’m not; the project has been handled fantastically by myself and my team in what has been the most perfect of storms and we have protected the client from huge uncontrollable overspends. However, we made the cardinal sin of thinking that everyone thinks just like we do. We failed to qualify expectations and then manage those expectations accordingly and so instead of being viewed as ‘the team that is excellently handling a tough situation’, we have worked our hind-legs off and managed to lose some confidence. It makes me sick to the stomach just writing it. Managing your client’s expectations… scratch that; managing everyone’s expectations should be your number one goal as a professional. You can be the best
designer, the cleverest deal creator and the hardest worker, but if you do not manage to communicate the situation on the ground and the risk (particularly fiscal risk) that is embodied in a project, no one is going to see or appreciate the work that you are doing. In fact, you can actually be pretty crap at your job while managing expectations well and your clients will love you for it. Good communication in a crisis is vital. It is so easy to find yourself engrossed in problem solving while assuming that everyone else knows what you are doing. And by ‘good’ communication, I don’t mean simply sending emails and updates. To communicate well, everyone needs to speak the same language. The other day I was reading about some of the most catastrophic military decisions made, and as much as we would like to blame the ‘person’
behind the decision to go to war, the reality is that we need to look at the quality of the communication leading to that decision. Particularly that around risk and most importantly around the likelihood of that risk emerging. Let’s consider the statement: ‘there is a 60% chance that there will not be a cost uplift’. If there is a cost uplift, was the statement wrong? Of course not; when we think carefully about it, we know that there is a 40% chance that the cost could rise. Much the same can be said for 80/20, 90/10, 95/5. If there is a chance of the opposite happening, then the statement is not wrong if said alternative outcome happens. Now consider that on being told the bold statement, ‘there is a 90% chance that there will not be a cost uplift’, and on hearing that statement you make a decision to spend
Issue No. 5 – Qandor – 105
your last few thousand pounds on a new car… and then there is a cost uplift. Was the statement wrong? No, but the communication around the issue, or at least the perception of risk around the issue has not adequately covered off the ‘downside’. When the chance of a downside is slim, that is when your communication needs to be on point; that is when your responsibility as a professional must kick in and take control. So, how do you do that?
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Risk is multi-dimensional. The probability of an event changes as time progresses and knowing that is the trick to managing expectation. If the bold statement above was changed to ‘there currently is a 10% chance of a cost uplift, and a 20-week window when this statement could change’, clients can focus on the downside and factor in the length of time that they should continue to perceive the risk as live. Sometimes the severity of a slim risk is not enough to make clients take
note. A further clarification would be: ‘this means that 1 in 10 projects of this nature will experience a cost uplift in the next 20-week period of their project’, and it helps to ensure that the same risk is explained in alternative ways that may get the message through that nothing is certain until it is certain. We spend our lives trying to do a good job, we have restless nights about our USP and the value that we add, and then we wonder why others don’t always ‘get it’. If we learn
to manage expectations and provide good communication that adequately explains risk in context, and if we impart our knowledge generously onto our team and employ proactive pessimism in our statements rather than reactive optimism in our actions, I am sure that 5% of our clients will still require you to communicate in a way that helps them understand the downside better, while 95% will have their expectations managed amazingly. Q.
Issue No. 5 – Qandor – 107
RECRUITMENT
CHANGING PERCEPTIONS – COULD WE ALL BE DOING MORE TO CUT OUT DISCRIMINATION? RACHEL GEDDES Business Principal Mortgage Advice Bureau www.mab.co.uk
Qandor member Rachel Geddes is Business Principal and a Mortgage Adviser at Mortgage Advice Bureau on Lombard Street in the heart of London. In this article, she gives tips on how to be impartial in order to get the best candidates working for you. When I started out in the financial industry over 15 years ago, the world felt a different place to what it is now.
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However, given the recent events around the unjust murder of George Floyd by an American state police officer, the Black Live Matters movement has triggered serious questions about whether we’re doing enough across all corners of the globe to cut out racism and prejudice. I’m fortunate enough to have grown up in a diverse community where race, colour, gender or sexual preference was never a second thought for the people I surrounded myself with. As a young child and into my teenage years, there was never a thought in
my mind that anyone could be judged for anything other than being themselves. I entered the finance sector in my early 20s and it soon became apparent that being young and female wasn’t the norm for this industry. I hit the ground running and quickly picked up a senior mortgage adviser role and as I looked for my next opportunity, interviews felt more like an interrogation. I’d be quizzed on how I’d arrived where I was in my career, as opposed to two human beings having a conversation about whether I’d be suitable for the role. It’s those experiences during my upbringing and early days of my career which motivated me to ensure that when it came to running my own business, I’d always give people equal opportunities.
This is why I truly believe we can all individually make changes in our lives to bring about equality and arrive at the world we want to be in. Best person for the job Choosing the ‘best person for the job’ is a phrase we hear often, but are employers really practising what they preach? I can hand-on-heart say that in my mortgage advice business, we absolutely only hire the best person for the job. As standard practice, for every CV we receive, I ask the recruiter to leave the name blank on the CV. I simply want to look at their experience, suitability for the job role and what they can bring to the business. This automatically eliminates any
Issue No. 5 – Qandor – 109
underlying preconceptions I could have about the individual, whether it’s the way they look, their name or gender. We live in a world now where the first thing many employers do is hop on social media to check out a candidate. In some cases, this means we’re prejudging what people do in their spare time vs. what they can deliver for a business before the interview has even started. In my team of eight mortgage and protection advisers, we have a broad range of ages and people from all walks of life, yet this was only pointed out to me recently by an industry peer. It’s not something we’ve ever looked to engineer; it’s naturally happened because we’re picking the best people for the job and those that fit with the wider ambitions of the business. On the flip side, we’ve not made a concerted effort to hire people from different backgrounds because that’s something we feel is the ‘right thing to do’ – that’s also not solving the problem of discrimination, merely hiding it. Getting the most out of people From an employer perspective, interviews can be lengthy processes if you fail to be strict with yourself. Before starting out on any recruitment, know what gap you’re trying to fill, the skills you need and, most importantly, personality and culture fit within the business. If you know a candidate is looking to progress to a management role, can you offer that? Is your business scaling up in a way that allows people to progress with the right support and development? Ask these questions before starting out and avoid a ‘blanket recruitment drive’ because that’s what you think you need.
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If I’m bringing somebody in for an interview, or in the current climate doing an interview remotely, they’ve already wowed me with their CV. I narrow the candidates down to three with the intention of hiring all of them because I think they can bring something to the business. I conduct interviews informally because I believe that gets the best out of people and gives me more of an indication about their personality and what they want from their career which, in my opinion, are the two most important factors in recruitment. The COVID-19 lockdown has forced many employers to conduct interviews over the phone or via video which, in my experience, has taught me a lot about potential candidates. 75% of our business is conducted over the phone or initially starts with a phone call, so I can instantly get a feel for their mannerisms and how they keep conversations flowing with potential clients. Ultimately, we’re in a business where providing the quality advice to clients is key, and if the adviser can gain a customer’s trust over the phone, this puts them in a great position. You can train people skills and teach them systems, but you cannot change their personality. Always ask candidates key questions such as what they would like to be doing in the next three to five years and match up whether that fits with your business plans. Recruitment is expensive but it can be even more costly when you get it wrong. Q.
WATCH MORE ON YOUTUBE. As Qandor and Tropolis prepare for a busy postsummer period, Matt and the team are increasing their presence on YouTube, with a wide variety of content from past Q.TV presentations to interviews with facinating entrepreneurs and thought leaders. We are also soon going to be launching several new videos as part of an educational series to help
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IS COVID-19 (FINALLY) DRIVING PROPERTY FUNDRAISING ONLINE? MARK LLOYD Managing Director Max Property Group www.maxpropertygroup.com
We live in a highly digitised society, in which investors can buy anything from Forex to stocks at the touch of a button, and yet the largest investment sector in the world has scarcely advanced (technologically speaking) in several decades. The effects of Covid-19, whilst driving businesses online, may be the nudge that the property market needs to drag it kicking and screaming into the 21st century.
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Despite the technological advances of our lifetime, real estate has been oddly immune to the digital revolution. The global property market was valued at $228 trillion by Savills in 2016, yet few tech companies have attempted to take on its complex landscape in comparison to other sectors. Database companies such as Zillow, who netted over 300 Million USD in 2019, and crowdfunding platforms, one of the fastest growing investment sectors, have demonstrated the market’s ripeness for a digital makeover, yet property financing has scarcely evolved over the last 200 years.
Enter Covid-19 Whilst countless business sectors are being devastated by the Covid-19 pandemic as it sweeps the globe, leaving untold damage to the world’s economy in its wake, perhaps one industry is actually benefitting from the changes enforced on the global population. Geographical confinement and social distancing are forcing the global population to go online: Investors, employees, financiers and property owners are all being compelled to manage meetings, give instructions and make payments with the least possible human contact. Online payment platforms, video conference applications and remote management technologies are in use more than ever before, and the investment process is finally moving online too.
The End of The Dinosaur Era Raising funds for a property development in the UK, although perhaps streamlined by technological aides such as video conferencing, still involves following the traditional channels such as raising seed capital, applying for developers’ mortgages, providing stacks of paperwork and spending many hours with compliance departments, valuers and contract lawyers. With the emergence of crowdfunding as an acceptable and increasingly mainstream fundraising method, Max Property Group is applying the crowdfunding movement to property development, making fundraising a simpler, more accessible affair. The property company with headquarters in Rotterdam has been
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developing an online fundraising platform since 2017. Max Crowdfund is the only property crowdfunding platform of its type in the Netherlands to have recently been granted approval by the financial services authority. It has harnessed the power of fast emerging blockchain technology to add transparency to property transactions and has taken the concept of crowdfunding and applied it to project development – and it has done so within the regulatory framework of the Dutch financial services authority. About Max Crowdfund maxcrowdfund.com is being developed as a global property platform to serve developers seeking funding for real estate projects, as well as investors looking for property asset backed investment opportunities. The site brings them together to mutual benefit. All the projects listed on the platform are carefully vetted to ensure only the highest 114 – Qandor – Issue No. 5
quality projects are funded. Similarly, investors must undertake rigorous AML and KYC procedures, in accordance with financial regulations. The result is a safe and transparent marketplace for developers and investors alike, to realise projects and make solid investment returns. How Max Crowdfund Can Help UK Developers The regulatory approval granted to Max Crowdfund allows the platform to raise funds for companies registered in the Netherlands, UK and Germany. The company behind the platform, Max Property Group, has been operating property investment funds in these three countries for over half a decade. Property Developers and companies in the UK are now able to create an account on Max Crowdfund and submit an application for the funding of an asset backed project. The property asset backing the loan can be
anywhere in the world. A compliance team will then vet the project before approving it and listing it on the Max Crowdfund platform, which currently has over 70,000 users worldwide. Main Advantages of Using Max Crowdfund • Speed: The compliance and quality control team will often conduct due diligence more quickly than traditional channels; • Efficiency: Once a project is listed, fundraising is performed online, with transactions taking hours rather than weeks. There are no notaries, contracts, lawyers etc. to slow down the process; • Transparency: All transactions that take place on the platform are registered on a bespoke blockchain to ensure that they are irrevocably recorded; • Alternative: Max Crowdfund is a useful resource where traditional sources of funding cannot be utilised (such as in the
“Max Property Group has been trying to move real estate investing online for years, and now it seems as if a terrible disease has given the global collective mindset a push in the right direction.” case study); • Low fees: Thanks to automation, the fees charged by the Max Crowdfund platform to raise funds for a project are very low in relation to traditional fundraising methods. Q.
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