WHO WOULD WANT TO BE A DEVELOPER? A LESSON IN BLOODYMINDEDNESS.

By Jeremy Wormington, Managing Director of Ferrata Property Group

When I got into property, I always thought that I would want to get into larger developments after the experience of renovating my own home, and then branching into HMO’s - I was never one to shy away from a challenge! (Buy-to-let always seemed too small and slow). That aside, I was sensible and have always ensured I received the right education and I continue to have a property mentor for office-to-office residential conversions.

Even after the education, the time, stress and sheer effort to get a project to the development stage has been a struggle, though I have learnt a great deal and made many new friends along the way. I am also stronger; this tale is of the joys of finding a project that stacked really well 2 years ago, to the moment when we thought we would have to fire sell at a loss, and finally to getting the development started and the generosity of many people along the way.

Bridge House was an ugly office building in the centre of the lovely cathedral city of Lichfield. We had two options: demolishing and rebuilding or going for ‘prior approval’ to get approval for residential use. Maybe as an experienced developer I would have chosen the former and taken the planning risk, but my education was around ‘prior approval’ which we gained in quick time for 14 apartments, albeit many around 32m2.

My business partner Diksesh Patel and myself met at the inaugural Qandor Founding Forum Workshop (now named Platinum Workshops) over 2 years ago, and we have been good friends ever since. His skill was finance from his time in the City, and mine were the operational aspects from my army days. We have made a good team and continue to learn and grow together.

Our initial GDV margin was over 30%, and we thought that we had plenty of slack should Brexit have some effect on prices, and we knew that the real money was in the planning gained by extending further. By the time we completed the purchase of the offices, we had gained ‘prior approval’ notification and submitted planning for a further 10 apartments to get 24 in all.

That was 18 months ago; with a fair wind, we expected to get the development started 6 months later. Wrong! By this stage, we had a strong team that was largely made up of Qandor members and who were driven by the same values. It felt good, though not that everything was plain sailing. We had a great plan and the market supported the need for the type of apartment which we wanted to develop.

As we moved into 2019, Brexit reared its head and the market started to go cold. As inexperienced developers, should we sell and move on, or keep going? That decision was largely out of our hands, since we were still waiting for the increasingly delayed planning decision. At the time, selling with ‘prior approval’ did not seem a viable option, though much more palatable some months later.

The planners seemed stretched and took ages to respond to anything and when they finally gave the scheme their approval, it took another 6 weeks to receive the approval notice. In this time the market had definitely swung against us and selling at auction was increasingly difficult as the value kept dropping with few takers.

So, what do we do 12 months later with a project that still stacked well in the local market, but no one is prepared to buy at auction? It was crunch time; we had to move towards developing as our bridging deadlines loomed. Finding lenders was also getting harder as they reduced their risk and, more importantly, valuers immediately down valued anything. We then had 6 months of to-ing and fro-ing with lenders as the noose seemed to tighten ever more and build costs rose.

In the middle of this, we suddenly had the Covid pandemic that caused the market to retrench further as terms tightened even more. We still have a small GDV margin and I think it was only our belief that this was a good scheme that finally enabled us to find a funder, CrowdProperty, and more importantly a development company, Dapatchi (both also Qandor members), that believed in the scheme, and hopefully us, to provide support to start the development straight after the Covid lockdown.

As I write this, we have now exited our bridging finance and have just started on-site. Are we over the worst? I hope so, though I know there will be challenges in the months ahead, almost certainly economical, and we still have Brexit to deal with.

It’s already been a rollercoaster ride, and the finish line is still 12 months away, but what have we learnt? These are representative:

• Always start with a large GDV margin since it will get eroded, or down value the comps ;

• The build is always more complicated and expensive than initial estimates;

• Planning is not always a gain;

• Buy the property with 100% equity to avoid bridging complexities;

• A great team will have answers for most problems;

• Ask funders to explain exactly what they mean, and ask again;

• Education is only the start, getting support and experience is key;

• Keep on, keeping on! Small steps every day;

• Join a fantastic property networking group for support and advice!

Finally I would like to thank those in Qandor who have provided support and advice throughout the last 2 years, and to CrowdProperty and Dapatchi (Grazina Thompson) for their on-going interest. Ultimately, Diksesh, who has transformed himself, and the values he has brought to our partnership.