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Soaring costs and constraints in the construction industry are constantly rising, which is causing an increase in the number of contractors declaring bankruptcy, not to mention significant delays to the delivery of housing projects Along with the expenses of labour and supplies, land values are also growing, making the outlays associated with development projects greater than we’ve seen in a long time

Yet, in spite of such a challenging landscape, support is available for developers provided they are willing to engage with lenders before any unrecoverable difficulties come to fruition As with any effective partnership, transparency is key After all, delay is not a new concept to lenders and will always be considered in the form of contingency when assessing any construction loan

Key considerations to make when approaching a lender are:

1 Engaging with the lender at the earliest opportunity, especially if significant disruption has been identified The lender will need time to find a solution, often with input from the bank’s independent monitoring surveyor (IMS) and legal advisors, so the earlier the forewarning, the greater the chance of a solution

2 Be clear about whether the delay is being caused by a relevant or significant event The lender will need to know whether the developer or architect has put something in writing to confirm and set out a ‘fair and reasonable’ request for an extension of time and whether that extension of time is deliverable.

3 Be prepared to provide a detailed and revised timeline or cashflow as well as a solution to the issue in hand Evidence that the project remains viable and that a feasible plan B is in place can go a long way too

Lenders recognise the mounting risks developers are susceptible too, which is why the following measures are increasing in prominence:

1. Loans to developers rather than contractors, with fixed-price agreements between borrowers and contractors then helping to lower the risk of cost overruns

2 A requirement for lower overall leverage for property development finance to lower risk

3 A good level of contingency – ideally around 10% against core build cost – for all development appraisals

4 A full due diligence assessment of any main contractors’ finances.

5 Verification of the projected costs of construction to ensure developers are able to meet their contractual obligations This may include an assessment of forecasted increases in material and labour costs

6 A staged drawdown structure that ensures funds are being used for their intended construction purposes and not to cover unanticipated increases elsewhere in the project. While strict deadlines and site inspections may seem daunting to some, a lender’s insistence on both of these will ensure funds are focused on the successful progression of a development

In such a challenging and uncertain landscape, speed of action can prove vital. Those developers experiencing unforeseen delays should engage with their lender at the earliest opportunity with an open and honest assessment Through effective management of risk and an understanding of a developer’s current situation, lenders will often be able to ensure a project can still remain on course to complete

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For more information on Secure Trust Bank Real Estate Finance and its property development finance options, go to www.rdr.link/dam001