Mitigating risk when considering introducing a Property Developer to our Funder connections includes;
- The Developers we work with are absolute experts at what they do. This may sound obvious but it is concerning the amount of people out there that think they are professional property developers and don’t have the experience to deliver a project for a variety of reasons a. limited experience b. ‘real money’ to contribute (circa 10%+ of the Equity requirement) c. lack of a robust sales strategy (exit). d. an ‘attitude’ that will upset experienced real estate funders – the ability to adapt to different cultures and to stay calm. Think long term and don’t upset people that don’t require upsetting. We know our funders, their likes and dis-likes, but all of us need to work together in a partnership to achieve our mutual goals and work as a team. With a contract in place KPI’s have to be stuck to or else penalties arise but both of course parties have to deliver their end of the bargain. Everyone’s reputation is at stake here.
- They know their markets and locations inside out. Again obvious but the Developer must know their area they are developing like the back of their hand and also have necessary contacts in place with planning departments, contractors etc. Live it, breath, eat and love the area they are developing, it’s all about being passionate about what the developer is creating and to be able to sell the dream. Anybody can spot a development site, the real work is securing that site at the right price with sufficient potential, adding value and achieving the best possible outcome for all.
- They have an excellent track record of delivery and generating profit for investors and well respected. If not then we don’t stand a chance of getting them funded. They need to be realistic with their Exit/Sale of the asset(s) and not aim to break world record sale prices in that area, that is one sure way to lose a potential funder and what if the market changes/dips? Be prepared to inject your own ‘real money’ sweat equity does not cut it, funders will expect you to feel pain also and it get’s you the Developer a better deal on the profit split arrangement.
- They also know the exit (or exits) before they even start. A critical factor but not every developer considers an Exit, they just build and pray the assets will sell – not the way to go! ROI, Delivery, Exit model….hold or sell? ‘Burn rate’ on the capital?
- They also take the right steps to minimise planning risk. Risk mitigation is key, the more experience the Developers have with planning departments the better, it is a specialist skill set which can only be learnt after many years experience creating value added when it comes to the final product. Some Developers get it wrong, thinking they are unique in their approach for example ‘spacial planning’, building something which they like and are convinced is the best thing since sliced bread but the general public won’t appreciate, wrong town, wrong area, not fit for purpose and do not take in to consideration who the end buyer will be, are they elderly, young, with children, close to public transport, noise issues and will the property be in keeping with the area and stand out like a sore thumb which they think looks cool but is clearly so wrong? We all know and hear of Developers out there with assets that just won’t sell in what has become a sticky market of late, several price revisions going downwards……OUCH desperate times, therefore credibility lost in the market place is a disaster and word spreads quickly in this day and age of social media etc.
- The Developer needs to position him or herself appropriately presentation wise. Just one example is leave the flash car at home when arriving to meet the funder (or park it up the road where it cannot be seen), be low key and ever so humble, monitor your social media promoting your lifestyle if you are aiming to put in as less as possible as a contribution. Again word travels quick and checks can be carried out, promote your success but take it easy don’t flaunt it and by being humble you will probably get a better deal for yourself most likely (at least half of our funders are self made and came from nothing). Funders are most impressed by Developers that plough profits back in to their company’s and indeed get the financial appraisal right from day one not making amends to make the funder happy which are unrealistic to achieve. Make the funder feel special, again think long term with this joint venture and give the funder value, try to embrace their ideas that make sense, work closely, become one and revolutionise your life and your families for years to come. Keep ‘grounded’ always and consider ‘their culture’ and way of working not just your own.
- We want to work, as do our funders, with genuine, hardworking, honest, loyal people with standards, morals and ethics. This is a partnership and life is too short as they say so work with people we like is our motto.
As I say just some of the things we consider when working with Developers.