Developing the lender Intermediary relationship
The role of the Intermediary is one that has developed significantly over recent years both in terms of the relationship they have with their clients and with the lenders they work with. This has certainly been the case within development finance. As one of the few lenders who have remained lending throughout the credit crisis we have noticed numerous changes.
In the period prior to the credit crunch there existed a vibrant economic environment with funding widely available and so often the primary role of the intermediary was to filter the myriad funding offers available to their client. However as the credit crunch began to bite and funding became more restricted there was increasing pressure on developers and their intermediary advisers to not only find the right funding deal, but in some cases, to find any funding at all.
During this period there have been casualties on all sides with lenders, developers and intermediaries all feeling the pinch. In our sector it became increasing obvious that we were one of the few active lenders remaining in the development finance sector. The loss of many specialist lenders and lack of appetite from High Street banks drastically reduced the number of reliable sources of finance for mid range developers borrowing up to £5m in any sort of regular volume.
This increase in the difficulty to secure funding for a project put a pressure on intermediaries as their developer clients were eager to obtain new funds or to refinance an existing project, but perhaps did not fully understand the changes that had occurred in terms of available LTV and pricing.
As a result of this many developers convinced that funding on “traditional terms” was available somewhere, and so started shopping around numerous intermediaries for the one (or anyone) that could secure them the funding that they required on the terms they were used to.
One of the core facets of an intermediary’s relationship with a client is their ability to get a deal and so the relationship that an intermediary had with lenders became a crucial selling point. In a vibrant market, brokers theoretically had access to a wide number of lenders but in practice regularly did the bulk of their business with those lenders they found delivered best. Therefore it was often the case that different brokers would produce different funding solutions, often bringing a new lender into the reckoning.
Fast forward to a post credit crunch world where just a few lenders remain active. All the active brokers will be in regular touch with the few lenders remaining. In these circumstances it is unlikely that instructing multiple brokers will tease out a new lender to seal the deal.
To illustrate the point, over the past year we have experienced the same project being offered to us over a period of many months by a series of different brokers. The terms we are prepared to offer does not change so at best the developer has merely delayed the start of his project. At present there is no shortage of projects for development lenders to look at. We are naturally inclined to focus our efforts on the new, fresh projects and not keep revisiting projects. The professional broker will recognise this and check what other mandates have been offered and lenders approached. He will also counsel the borrower on the terms that are realistically available. In 2012 we all need to focus on the deals that can be done and avoid wasting our time on proposals that either cannot be financed or where the developers expectations are unrealistic.
We have a tremendous relationship with the intermediaries with whom we do business and this is primarily based on the fact that they use their knowledge and experience about the deals that they present to us. We welcome proposals for developments in areas where the market can be proven to be active and prices reasonably stable. This attention to detail and appreciation of a local housing market is something that intermediaries can do incredibly well and makes the decision of the lender far easier as the ‘exit’ route is clearly visible and realistic. In today’s market it is a sad reality that first time buyers and second stepper properties are difficult everywhere because of the mortgage deposit trap and a realisation from an intermediary that this will form part of a lenders’ decision process will impress both the developer and the lender.
Another change that we have noticed over recent years is the genuine partnership that exists between the lender, the developer and the intermediary. Successful intermediaries do not act as gatekeepers or create barriers between a lender or their client, instead recognising that a quality lender can benefit their customers by offering advice and helping them do the right deal not any deal. We personally visit every site with the potential borrowers which we hope demonstrates our commitment to the relationship we have with both our clients, the borrower and the intermediary.
The role of the intermediary will continue to be vital in the development finance market and the winners will be those that form the closest bonds with lenders, establishing a mandate to present cases based on knowledge, expertise and realism.