Building dreams from the ground up

This summer, Funding 365 unveiled its ground-up development proposition. The firm’s founder and managing director Michael Strange and marketing director Laura Kendall talk about why they decided to enter the challenging market

WORDS BY ANDREEA DULGHERU

ver its 10-year history, Funding 365 has been mainly known for its bridging loans—so it may surprise some to see the lender enter the ground-up development finance space this year. However, both Michael and Laura clarify this is a natural progression for the firm, building on from its light development proposition established in 2020.

“We always had the ground-up development expertise in our back pocket—in fact, one of the first deals we did when we set up the company was a ground-up scheme,” says Michael. “We’ve got a lot of good contacts—quantity surveyors, asset managers etc—who we’ve used over the years, so we knew we could step into that space when the time was right.”

The main reason why the business chose to enter this space was the significant demand for ground-up development finance from its existing borrowers. “We had clients asking us if we could fund ground-up schemes, so that became something we had to address. At this point, we’ve got a great client base to whom we can give a full suite of products, so the ground-up option fills in that gap for the whole property development lifecycle for us,” Michael explains.

Funding 365’s ground-up development proposition offers loans from £250,000 to £1.5m for residential projects across England and Wales, at up to 85% LTC and 65% LTGDV. The facilities are offered on terms of 3-18 months, with fixed pricing from 0.89% per month/10.68% per annum with a 1% broker fee, or from 0.94% per month/11.28% per annum with a 1.5% fee.

The product can be used for a range of smaller-scale schemes, including HMOs and holiday lets; however, it is not available for developments with more than 15 units, homes with adverse environmental conditions, owner-occupied properties, or non-standard construction projects. Loans are available for UK residents and limited companies only, including people with adverse credit history and first-time developers.

Pitched at the gap

Before the product range was opened to the wider market, the team did an informal trial run for about 18 months to ensure it was suitable ahead of official launch. “We didn’t advertise it in any way, shape or form—we just mentioned it to the brokers closest to us,” says Laura.

“Once brokers got hold of the fact that we were doing development funding, they just brought in deal after deal—which, bizarrely, led to us winning Development Lender of the Year at the Crystal Specialist Finance Ball, even though we didn’t publicly have a development product,” adds Michael. support them throughout the project. “This comes down to the fact that we’re happy to jump on the phone and hold people’s hands throughout the whole process,” states Michael. When it comes to embarking on this journey, he advises first-time developers to be mindful about the costs of a project—especially during the current times plagued by the rising cost of materials and labour shortages. “It comes back to being realistic on costs and, for developers that haven’t been through a process with a lender before, there’s a bit of education on how a development loan works. The other thing is that developers have to almost be legal experts as well these days, because there are so many potential and actual law changes in this space. It’s a fair ask for small family SME housebuilders to stay on top of all of this as there's a lot getting thrown at them, and that doesn't appear to be stopping.”

The funding used to deploy this product comes from Funding 365’s existing institutional partners, which were happy to support expansion in the ground-up development space. In terms of the funds available to deploy for this product, he clarifies it isn’t unlimited, but its funding partners are fairly flexible and have not set a specific limit. However, he comments that they want ground-up development to account for only 20–30% of Funding 365’s overall business, with the remainder of the loan book to be split across its other products, including bridging and light development.

Aims and demand

One person throughout

One element that sets the lender’s new proposition apart is its experienced team and, more specifically, its structure, as Laura tells me all deals are handled from “cradle to grave” by its underwriters. “We don’t have a BDM system, a credit team, or asset managers. Brokers will call and speak to an underwriter to get the terms, and then that underwriter takes the loan all the way through to redemption. It also means that when we issue loan terms, they’re credit backed, so we’re not going to have a late-stage renegotiation.”

Michael adds: “At the end of the day, the underwriter is the person who looked at the case, underwrote it, met the borrower and understood the plan in detail. I don't really get how you can pass that knowledge on to somebody else in the chain—it just makes sense for that underwriter to stick with the process right through to loan redemption. That's also why our borrowers love our system, and it's more efficient for us as well.”

The company is also open to lend to first-time developers, as long as they’ve got a solid, experienced team that can

With the product now available to the whole of market, I am curious to learn what the firm’s lending targets are—however, Michael explains that Funding 365’s priority is not the quantity but the quality of loans that come through its doors: “The truth of the matter is funding is not a problem; our institutional funders want us to lend more. What’s more challenging is finding good-quality deals that you want to fund. The minute you set a lending target, then you try to hit that figure whether you are lending against good projects or not. Sometimes, that might cloud your judgement when deciding whether you should be lending this money, and whether you are potentially putting a developer into a risky position—if they have a marginal project, any wobble in the housing market or costs could mean their life savings are gone. We're not just about lending for the sake of lending; it’s funding good projects that make everybody money in the chain.”

Both Michael and Laura are confident that Funding 365’s development finance offering will see significant demand from brokers and developers alike. Michael adds that the business is here in the development space for the long haul, even with the numerous market difficulties. “I believe times are going to get quite tough: affordability is stretched by any measure, and house prices will fall, albeit maybe not by as much as people think, so there’s going to be some pain in this sector and some lenders which have been very aggressive in the past are going to withdraw a little bit. However, I think development opportunities will still exist, as housebuilders still need to build. This is another challenging market, but we're a lender and our job is to lend. It doesn't matter if times are tough or not—we still have to do it.”

Dev Exit funding you can rely on...

80% LTV Stepped at 0.65%

75% LTV Flat at 0.89%

No valuation up to 70% LTV

Loans up to £10m net

No minimum interest

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Finding the right site with a click of a button

Every successful development starts with a great site—but with soaring costs and strict planning constraints to consider, finding the perfect one can be an arduous process. We look at how technology that can identify and appraise plots can unlock boundless opportunities for developers

Words by MITCHELL FASANYA CEO and co-founder of Searchland

Technology has disrupted the property market considerably, whether it be in residential sales, lettings, housebuilding, or any other aspect. In the main, this innovation has been for the better; we can now carry out what were once laborious jobs with far greater speed and accuracy.

This is certainly no different when it comes to sourcing sites for development. The key benefit is the ability to identify suitable plots quickly. This has helped facilitate carrying out the sheer volume of site searches required to find the handful of plots that meet a developer's requirements.

Shortlist Quickly By Criteria

Not all site sourcing platforms are built equally, but the best of the bunch ascertain a huge amount of data from a plethora of sources. This includes data on planning application proposals and appeals; the sourcing of infill plots, class MA and class Q sites; sold price data by location, property type and tenure; information on company ownership, boundaries, strategic land, renewables, and utilities; HMO figures; planning constraints such as flood zones, conservation areas and the green belt; and heritage constraints such as listed buildings.

This data is very expensive to gather and, traditionally, you would pay for the manual collection, extraction and normalisation of each data source. So a platform that can deliver this at your fingertips is already adding considerable value and providing you with a huge differentiator over those that don’t. For example, the best site-sourcing platforms can identify 100 potential sites in the time it would take historic platforms, agents or developers to source 10—if they’re lucky.

Previously, it might have taken as long as 10 hours to appraise a site, whereas today it can be done in an hour.

Using Searchland, for example, a developer can start their search based on their own key criteria. How many units are they looking to build and in what areas? Are there any particular constraints they are looking to avoid? Do they want to view areas where local authorities are failing their delivery test, or in those that are ahead? Once these initial criteria have been set, they can look at additional factors such as settlement boundaries and whether there are plans to extend them, or if there are any Strategic Housing Land Availability Assessment (SHLAA) sites at the edge of the boundary.

After doing so, they can run their enquiry on Searchland before filtering the results. We provide more than 50 filters to help narrow the selection down and allow more granular searches, such as whether they take into account specific acreage, if a site already has housing on it, if there are commercial units that can be converted, or whether there are new-builds nearby, and so on.

We then give developers the ability to save suitable sites into a project flow, allowing them to revisit their results when convenient and contact the owners. The option of contacting hundreds or maybe thousands of landowners via our automation software is another big differentiator when it comes to site sourcing.

Once landowners have been contacted, developers are left with a list of interested parties. Then it’s a case of negotiating to get the right price, getting an options agreement in place, securing financing, building out the project, and selling on the project.

Through this process, developers can search off market, avoiding agent fees and other associated costs, while also giving them first access to sites and the chance to negotiate directly with the landowner. However, this search function is essentially the ‘shiny exterior’ of site sourcing innovation, and it’s fair to say the biggest advancement has been the availability of the data that powers these searches. We live in a digital world and data is probably the most valuable currency of all. The best-looking website or platform is worth nothing if it doesn’t have the data to give it power.

Match Your Needs

In every area of proptech, there are a multitude of platforms all aiming to solve a problem—and site sourcing is no different. So how do you filter through the sales pitches to identify the ones that can add real value to your business? It may sound obvious, but you really need to identify what your individual needs are as a business. Is it the identification of sites? Help with due diligence when you do identify a suitable opportunity? Or being able to fund the deal? These requirements will be met by different offerings. For example, when it comes to site sourcing, speed is of the essence. Essentially, you need to know how many sites a platform can identify and be able to do it quickly. You won’t be the only one and, if you aren’t using technology, you will be miles behind your competitors. Nonetheless, speed is just one differentiating factor, and returning fast results is no use if a platform is terrible from a user’s point of view. Some platforms can be confusing to negotiate, difficult to use when setting up searches and, often, the data you need isn’t readily available. Therefore, you will want to make sure you opt for a platform that has a high number of correctly geo-coded sites, a substantial amount of these in every area, and the most metadata on them. Those looking for long-term strategic sites need this data, and only a handful of platforms provide it. If your platform does not, you simply won’t be able to compete against those using one that does.

Finally, another key aspect of site sourcing that has been radically improved by technology is the ability to manage workflow. Even today, some platforms will simply provide you with a map of sites, with the developer required to manually record their findings. This is a key area we’ve addressed at Searchland. Our platform merges title and ownership data, so our users can send letters through the site to thousands of landowners in a few clicks. This facilitates reaching a high volume, allowing them to scale up to hit their targets.

HOW TO SPOT A LONG-TERM LEADER

Using technology is rarely a case of a single fix, and it’s certainly not a case of plugging in any platform and expecting the same results across the board.

Data, usability, functionality, and speed are all key considerations for developers looking to implement proptech within their site sourcing approach. It’s also important to remember that there’s no finish line when it comes to innovation through existing and emerging tech, such as AI, which is also expected to improve the proposition offered by site sourcing platforms. Opt for one that is embracing change head on, as they are sure to remain the industry leaders in years to come, not just in the current market.

Finally, the modern-day developer needs an arsenal of tech solutions that helps them to get ahead of the game at all stages. Site sourcing is just one aspect, and developers still need to complete their traditional due diligence checks, including the involvement of solicitors and the completion of surveys, not to mention the additional processes that come beyond this point. For those looking to streamline the development process in its entirety, a number of different proptech solutions—in addition to site sourcing technology—will be required to do so. After all, there’s no point in sourcing sites at speed if you fall at the next hurdle.