With 2023 now closing, it’s the perfect time to look back and take stock of all the successes as well as the things that maybe didn’t quite go to plan. As an industry, I feel 2023 was a year of two halves. The first was one where there was so much uncertainty around cost of materials and labour as well as increasing interest rates. This made lenders and valuers nervous about the viability of projects.
Yet moving into the second half of 2023, although there was a large fallout with some big industry names unfortunately going into administration, the industry as a whole started to find its rhythm with costs of materials stabilising, labour costs stabilising although still being high and GDVs also (surprisingly to me) seeming to bounce back.
I believe we’ve come to a point where developers know they need to continue to develop and the government in some part, finally recognising the issues that need addressing in the construction industry.
Here’s your inside look on how Henray Capital’s clients triumphed in 2023’s dynamic property market.
Henray Capital’s Standout Projects
For Henray Capital, the year started off with some great enquiries; the stand-out one was a large PLC requiring a different route to funding. Their typical high street lenders had reigned in their LTVs and with cost of materials increasing across multiple jobs, they needed cashflow across the business. Henray Capital introduced the developer to development finance via a fund which works with 90% LTC and 75% LTGDV for their ground up site in Essex. After many site visits and meetings, the deal closed 6 months later being the largest Henray Capital had closed to that date. The developer returned with other projects and we are working through these currently.
Unique Challenges and Solutions
Another interesting project was a large commercial unit, again in Essex. The developer was keen to work with a flexible lender as he had big plans for the site. He wanted to split titles during the term of the loan and hadn’t fully decided on exactly what the refurb would look like as this depended on the type of tenant looking to take the space.
I gave the borrower 3 different options however only one lender allowed the flexibility the developer was looking for and so we progressed with those that offered 65% LTGDV on a heavy refurb product specifically for commercial units. The lender also allowed for the titles to be split and at that stage a revaluation to allow the borrower further drawdowns subject to LTV covenants not being breached. Upon completion, the borrower is now looking for a term product across the site.
Learning from Setbacks
One project which didn’t come to fruition was introduced to Henray Capital via a solicitor who we work with regularly, was that of a large semi-commercial development in Suffolk. After discussing at length with the borrower, it was clear he was in a bit of trouble as the LTV was increasing as he was in default and there were both senior and mezzanine loans on the site. After a few conversations with some of my regular lenders, it became clear that refinancing the site was something that was not going to be possible especially as lenders were being very conservative around July time with leverages.
I discussed with the borrower and originally agreed he would sell off some of the residential units to bring down his leverage down to 65% LTV. After numerous unanswered calls and emails, it was apparent the borrower had found another route. After reviewing the project and communication, it’s clear I should have explained to the borrower earlier that my funders were not going to be able to help and introduce him to another broker that works all of the market with alternative lenders which are more risk averse.
Support and Success
Finally, a deal where the developers needed a little handholding through the legal process was an 8-week completion. My lender was one that focuses specifically on the southwest, they lend up to 75% LTGDV and do not require valuation or MS. Internally they are a small team, all with QS backgrounds and know the area and market really well. The borrower was keen to grow their business however wanted to ensure no hold-ups with MS and drawdowns etc. they were also concerned about valuations, unless the surveyor really knew the area.
The lender met the borrowers on site and immediately knew the partnership was perfect. We engaged legals 2 weeks after the initial enquiry from my borrower. The legals were a little turbulent as there was an existing lender for another site on the SPV with a debenture who would not agree to a letter of non-crystallisation in relation to their site. We worked collaboratively with all solicitors and found a way to progress with all parties being covered and happy. The borrower is now looking at the next project and we aim to complete their second deal early 2023.
A Year in Summary
In total, Henray Capital has worked on 87 different projects. 12 have come to fruition in 2023, some are falling into next year but many were projects that I knew my lenders would not be able to fund or were not viable after really digging down into the costs and researching GDVs. For those my lenders were not able to fund, I would pass the viable projects onto partner brokers who I know well and would be able to support the developers as they are all of market brokers.
Looking Ahead into 2024
In summary, for 2023, Henray Capital has honed its offering on development and heavy refurb finance as well as its relationships with specific lenders, mainly funds directly who work on large ground-up schemes, BTR, or PBSA. I have purposely sought to understand the mechanics behind specific lenders’ appetites for phased schemes of 24 – 36 months over offering funding for all projects. This, in turn, has meant when borrowers are looking for specific lending, especially at 90% LTC, Henray is perfectly suited to offer them competitive negotiated rates.