Certainty at a time of turbulence

First published in the Bridging & Commercial Magazine, February 2024

What are the main factors that have contributed to the success of LDS Sales Guarantees?

Alex Maltby: Innovation, clarity and relationships. The property development sector has seen a wealth of new and recurring headwinds since the 2008 global financial crisis—it is heavily affected by economic and geopolitical events, which can impact on everything from labour and construction costs to consented land supply and ultimate demand and values of newly built homes. The Sales Guarantee is an innovative product designed to mitigate these risks for the benefit of both developers and senior lenders, and our relationships have been key in getting these benefits known to the market.

How many lender collaborations do you have and how successful have they been for LDS?

Richard Cannings: We have numerous relationships with senior lenders, which include six preferred partners such as Atelier. Having multiple preferred partners allows us to transact across this range with speed and efficiency as the intercreditor is already agreed. These lender partnerships generate quality business on a daily basis, and we have many more due online this year.

What are the most important factors you look at when considering which lenders and brokers to partner with?

AM: Our mindset is to work with experienced, quality-driven brokers and lenders for whom supporting SMEs is their top priority, so any firm that is aligned in this way will make an excellent partner for us. Our team spends time nurturing these relationships so that the Sales Guarantee is a natural extension of the broker/lender’s structuring of the deal.

In your opinion, what are the key factors to guarantee a successful collaboration between all parties involved in a deal?

RC: There needs to be a concerted focus from all parties, especially the professional teams, for a successful transaction. Trust is at the heart of all of these as each side places it in the other to perform. Our wider group is in its 24th year of business and has a hard-won reputation for being reliable and straightforward to work with.

2023 has been a fairly turbulent year for construction, with some firms going into administration. How has this influenced the demand for the LDS Sales Guarantees and the types of developers and projects applying for them?

RC: It’s definitely highlighted the benefits of fixing costs at the outset where possible for developers and senior lenders alike. High-profile cases have reminded us that scale isn’t a guarantee of success, and this has driven an increase in enquiries from larger developers undertaking more complex projects – which in part drove us to scale up last year, increasing our maximum GDV from £30m to £55m.

What trends do you expect to see in the construction sector, and which parts of it do you expect to perform the best in the next 12 months and why?

AM: On the demand side, multi- and single-family rental markets are experiencing a boom and I expect this to continue for the next 12 months as larger housebuilders look to ‘right size’ their books of completed housing stock. This provides an interesting exit route for developers but, whether pricing will compare favourably to open market sale in the medium to long term, we’ll have to see.

RC: In the build-to-sell market, the predicted future interest rate cuts and mortgage costs reducing are welcome—it will be interesting to see what promises come out of the general election with respect to first-time buyers. However, the supply chain still has some fragility, despite cost inflation having stabilised, with contractor insolvencies continuing to be high. We would predict there is more of this to come.

What are the biggest issues you think developers will face in 2024, and what advice do you have for them?

AM: Combined with supply chain weaknesses and the continuing challenges around planning and land supply, it’s not hard to predict that overall housing supply is going to remain constrained. Delays in bringing forward sites and uncertainty over delivery place ever greater pressures on developers’ capital reserves. While volume builders are more able to deal with working capital pressures, there is a bigger problem for SME developers—especially those that are trying to grow. Fortunately, this is where LDS can help.

What plans does LDS have for 2024 and beyond?

AM: While deal flow can make it hard to horizon scan, we ensure we set time each week to review future plans. It’s our view that we only need to partner with eight to 10 lenders to cover the spectrum of requirements for our developers. We are on target for this and each new partnership unlocks more opportunities for LDS and the lender. The Sales Guarantee is enjoying rapid adoption, but that doesn’t mean we will rest on our laurels. We are working on a wide range of product enhancements and new offerings. They all have one thing in common in that they will improve the success of lenders, brokers, and housebuilders nationwide, resulting in more new homes guaranteed.

RC: We are alert to the shadow side of rapid growth, so are constantly improving the efficiency of our systems and processes. This enhances the experience for our clients and increases our capacity to process more transactions. The team is growing steadily and we will be adding to it as the year progresses—we definitely need more relationship directors to handle the volume coming through. This is especially true as we see LDS clients move onto their second and third sites with us. We tend to become part of the developer’s finance structure—we are often named in the capital stack with the senior as “tbc”—and our close working relationships mean clients keep us updated on their pipelines and ambitions, which is exciting and challenging in equal measure!