Business Moneyfacts – Development Finance special – February 2013
Noel Meredith – Director, United Trust Bank
The relationship between broker, client and lender has changed considerably over the last few years. Before the credit crunch, one of the broker’s key tasks was paring down the vast array of funding options available to their client and presenting them with a simpler decision based on the borrower’s requirements and their expert knowledge of the marketplace. More often nowadays the broker’s challenge is to find a lender which will even consider the proposal at all.
With fewer lenders to choose from a broker’s ability to consistently source good deals has become a sought after talent. According to our recent research nearly three quarters of brokers said they met the majority of their new clients through word of mouth referrals, so gaining a reputation as a deal maker can do wonders for a broker’s business. Developers eager to secure finance for their next project seek out brokers who can demonstrate strong lender relationships and a healthy track record of successful cases. Frequently it’s the relationship between the broker and the lender which can make the difference when placing a case which is slightly outside of the usual criteria.
When a broker presents a proposal we endeavour to give an indicative reaction within 24 hours. If the proposal stacks up on the information provided we’ll want to quickly carry out initial investigations and set up a site meeting with the borrower. If it’s something we can’t help with we will tell the broker so – it’s important that the broker can swiftly pursue other options.
At this stage a Business Development Manager (BDM), usually either Jonathan Nail or Paul Keay, or myself will oversee the proposal and whoever takes the case will usually manage the loan all the way through to repayment. Having one person as the main contact for the broker and the developer enables us to quickly establish a good working relationship between all parties. The broker can play an important role in encouraging closer relationships between lender and borrower rather than acting as a barrier between the two. Achieving a good rapport early on will undoubtedly help if we encounter snags along the way. These closer ties will also be important further down the line especially as the broker will usually be the first party to step away from the project once the loan begins to draw down.
Before we take the proposal to our credit committee and start appointing third parties there’s a considerable amount of background checking we do ourselves and the broker can help in this process by acquiring the information we need from the borrower. As well as information on this development we’ll also look for evidence that the developer has prior experience in the sector and details of previous projects will help to assure us that this is the case. Evidence that they have built similar developments on specification, on budget and on time will help the application to proceed quickly.
Having assured ourselves that the proposed development looks suited to the location, that the build costs appear reasonable for the specification and the target pricing appears achievable, we’ll discuss outline terms with the broker and if acceptable we will arrange a site meeting with the developer, usually within a week of receiving the proposal. We meet every borrower and see every site we fund. This helps to strengthen the relationship and we can learn a lot about a borrower at a meeting that we simply can’t get from the paperwork. All being well the BDM should now be ready to seek approval from the credit committee and arrange for a formal offer of funding to be sent to the borrower and the broker.
The broker plays an important role in the due dilligence by helping to orchestrate the flow of information required by the Bank and its professional team, the valuer, the quantity surveyor (QS) and the lawyers. During this process we may encounter unexpected issues such as a lower valuation or advice from the QS that the estimated build costs will be higher than planned. This might require an adjustment to the terms of the loan and the broker will play an important role in counselling the borrower on their options. A good relationship between lender, broker and borrower is a great help during any renegotiation.
Once the due diligence is completed satisfactorily the final paperwork is signed and the Bank can release the first tranche of money to get the project started. At this point the broker’s work is done and they will often bow out leaving the BDM and developer to carry on together.
The QS will carry out scheduled visits to the site during the build to monitor progress and check that the work is being completed to a satisfactory standard. It’s extremely important to the developer that the funds are released quickly once the QS has issued a monitoring certificate so that payments to contractors and suppliers can be made on time and momentum maintained. Henrik Darlington of Land Charter (Newport) Ltd told me recently that UTB’s service levels when dealing with construction draw-downs were the best he’d ever experienced. Having worked with many High Street banks and development finance lenders, funds had sometimes taken weeks to come through following the QS certifying the progress. Working with UTB on a development near Saffron Walden the funds were frequently in their account within two or three hours.
Throughout the build the BDM will also make further visits to the site to meet the developers, check progress and keep in touch with their marketing plans for the final product. With many years of experience in the team we can often provide helpful advice on marketing the finished properties, maintaining the strong partnership between lender and borrower all the way through to the repayment of the loan.