While businesses in every sector have been impacted by the global financial crisis over the past 6 years, one area that has taken a particular hit is the property market.
After the housing bubble burst in the immediate aftermath of the crisis, banks effectively put the brakes on for any business looking to raise finance for building and developing property. Business and residential property alike looked like a bad idea; no one was buying, no one was moving, no one was willing to take the risk. Today, things seem to be improving and there are some things to consider for any business looking to boost its cash flow with new property finance.
The recent banking crisis impacted on the property market to such an extent that activity in many instances virtually stopped. Banks closed their doors to any kind of property business and in, some cases, asked for funds to be repaid, even if the borrower was not in default. Even property asset holders with performing debt were, at times, asked to repay facilities.
2009 was probably the worst year; very slowly the market has improved. There are now sources for most types of property loan. This includes speculative residential development finance, commercial property mortgages, owner occupied and tenanted premises.
The bank situation has changed as well: some of the damaged banks are now back in the market; there are others who will probably never lend again. There are also new entrants. Some banks now have targets to meet in terms of new lending and so the market has moved on considerably since 2009.
Key to any property transaction is a choice of facility type. No sensible businessman looks at one supplier only; sourcing finance should be treated in the same way. A major lesson learned from this latest property recession must surely be “Avoid the control of one lender”.
Make sure you have a choice
Choice is therefore important. Selecting lenders is important. Anyone looking to find funding in the property market that will be a good match, both financially and in terms of the professional relationship, must prepare a quality presentation to prospective lenders. The format of this presentation will vary from transaction to transaction. However, a critical element is always to highlight the skill and experience of management. Have they done this type of work before? What is their experience? How can this be established?
Getting the presentation right
The format of a quality presentation will depend on the type of transaction involved. A proposal for funding a development finance project where there is a risk as to sales will be very different from one for a well-established business that owns property.
When dealing with any property asset, valuation is critical. Any property owner, developer or asset holder will have his own idea as to value. This will be based on local experience and, possibly, immediate comparables. Whenever you are submitting a presentation, you should include a market commentary. There is no need to instruct a valuer at this stage; however lenders will want to know how you see the valuation of your property in relation to others that are similar.
Modern technology enables the usual searches to be made, but nothing can replace actual immediate knowledge of the area. Comments from local agents, actual comparables and photographs supported by the usual web searches should be included in the initial presentation to demonstrate an awareness of the local property market. Banks may use this as a basis for considering what can be done.
Any property transaction may need early consideration. This particularly applies to the residential/development market when a site is being acquired or considered. A simple development appraisal should be completed at an early stage to give an idea of the figures. We can provide guidance in all of these areas.
The current message has to be that for well-considered property transactions there may be a source. Getting a choice can be a critical matter. This is an area where we can provide a range of guidance.
This post was kindly written by Andrew Barstow. Andrew established Barstow Associates in 1981, a company which offers impartial specialist funding solutions across the full range of commercial property transactions.
Image by: Rachel