Downing Development Finance (DDF) has successfully committed secured loans of over £100 million to small and medium-sized enterprise (SME) property developers, in less than two years since launch.
DDF focuses on making secured loans to property developers delivering residential-led schemes across the country.
To date, the DDF team has committed funding across 37 deals and worked with over 25 developers since its launch in December 2017. Parik Chandra, Partner and Head of Property Finance at Downing LLP, explains how this reflects Downing’s unique approach in the current market:
“This is funding which will have a tangible impact in the real economy, facilitating the development of around 500 units and delivering family housing across the UK. While market conditions are more challenging than they were a year ago, reaching the £100 million milestone in these conditions demonstrates our desire and ability to lend through market cycles.
“A significant driver of our success, and something that also sets us apart from other funders, is that we genuinely invest across the UK instead of being too London-centric.”
Investing across the regions
DDF has provided funding for developers in parts of the UK where mainstream funding is not generally an option, and current sites being funded include ones in Belfast; Kingsbridge (Devon); Highbridge (Somerset); Liverpool; Fitzwilliam (West Yorks); Stockton-on-Tees; Coxheath (Kent) and dozens of places in between. The most recent deals include a £4.2 million development facility for the construction of 19 units in Gloucester. Typically, DDF lends between £1 million and £10 million, but has the ability to make larger loans by exception.
Access to funding
Many developers still find it difficult to access traditional funding, but, as Parik explains, those considering alternative finance options should carefully assess individual lenders before making a decision on which funder to partner with:
“Traditional, large scale, banks pulled out of the sub £10 million end of the property development market as a result of the financial crisis and, where they do lend, they do so at very conservative leverage levels which is largely inappropriate for most SME developers in the regions. While this may have driven some developers towards alternative financing options, there are many players in this field and not all lenders will be suitable for all schemes. Many lenders are volume driven which may create problems including higher default rates and liquidity crunches in a downturn.
“It’s important for developers to look carefully at how a lender is funded, for example, as well as their track record – particularly during a downturn - before making any decisions. We can lend up to 90% loan to cost/70% loan to gross development value but also expect a meaningful equity contribution from management on every deal.”
Looking to the future – headwinds on the horizon?
Parik goes on to give his outlook for the next 12 months and beyond, including any potential impact from Brexit and wider political and economic influences:
“We are not volume-driven, as many funders in this space are, and based on current market conditions we expect to commit around £100 million over the next 12 months. The uncertainty around Brexit and the repercussions of our withdrawal from the EU are likely to persist, so there will continue to be an element of risk in the sector. In this environment inevitably some loans will enter distress, however with a well-diversified book, no hard defaults and with repayments of £21 million to date cementing our track record, I genuinely believe we have one of the best teams and one of the best performing books in the market.”