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Argyll Property Partners was delighted to partner with law firm Gunnercooke in presenting a property panel discussion in Leeds on 22 January. The theme of the event was the future of SME residential property development in the north of England, and it provoked a fascinating and lively discussion.

This is the second panel event Argyll Property Partners has hosted jointly with Gunnercooke, following the first one in Manchester in October last year. The event was attended by an enthusiastic audience of developers, bankers, surveyors, lawyers and others involved in the property sector in Leeds and surrounding areas.

The panel of property experts comprised:

  • James Epsley, Director, Debt Finance, OakNorth Bank
  • Stuart McEwan, Partner, Currie & Brown monitoring surveyors
  • Paul Markovitz, Director, Argyll Property Partners, mezzanine funders

David Merson, Commercial Real Estate Partner at Gunnercooke, led the discussion.

The residential development market in Leeds and the North

David opened by asking Paul to outline the current state of the market in Leeds and the north and how it compares to the south, south-west, the north-west and Midlands.

Paul pointed out that in 2019 house prices in the north and the north east went up by 2.7%, compared to an average rise of 1.4% across the UK. He quoted research by Savills which showed that over the next five years the north-east, Yorkshire and the East Midlands will see average house price growth of 21.6% compared to 4% in London and the south-east.

In addition, there is an under-delivery of new housing in metropolitan Leeds at present with the city having reached only 85% of its current housing target. One reason Paul gave for this is the systemic problems in the planning system due to underfunding, something that affects the whole of the UK.

He feels that the under delivery in the area, plus mortgage affordability returning to the 35-year national average and continuing low interest rates means there’s definitely capacity for growth in Leeds and the north, especially when you factor in the affordability of the area compared to many other areas in the UK.

James Epsley reinforced this by saying “Yorkshire has got some catching up to do and so that means there’s a lot of potential for developers”.

Challenges and opportunities

Stuart McEwan said that future challenges will be build costs and the availability of labour. He referred to projects that are struggling to get over the line in time, mostly because main contractors can’t find sub-contractors. This is compounded by the increase in insolvencies among sub-contractors, which is partly driven by the squeeze placed on them by slow-paying main contractors.

James echoed this concern about delivery, saying one of the big factors when he’s assessing a deal is the strength of the contractor.

Modular housing

The panel was asked, “Where are we with modular construction?”

James said that given the rise in build costs and contractor insolvencies, modular construction is very interesting. But, he said, it needs to be proven, and people need to have confidence in it, certainly in terms of the funding and security. David Merson confirmed this from a legal perspective saying that when the banks can figure out a way to secure modular construction, that’s when it will become more mainstream.

Stuart said modular construction is “definitely where the market is moving” and gave the example of modular bathroom pods now almost always being used in student accommodation and funders rarely having an issue with them.

Stuart said modular construction is already popular in income-generating assets such as hotels and student accommodation because of the benefit of getting them operational six months before traditional construction. The construction cost savings or increases are irrelevant compared to the benefit of getting the cash flow from the business, but housebuilding doesn’t quite have that same impetus on getting to completion as quickly.

Paul said the private rented sector (PRS) might change that saying “the model in this country is still home ownership, but as we move more towards the PRS, modular construction in volume might then start to take off. Then you may find that modular construction companies would also perhaps start to cater to the SME market.”

Interest rates

The panel felt these would stay low for the foreseeable future, with James summing up the general consensus when he said: “I think it’s one of those questions if you ask three economists you’ll get three different answers, and all of those will probably be wrong.”

Advice for developers

David asked what advice the panel would give developers when starting a new scheme and applying for funding.

James said developers should engage the funders as early as possible so that they can help you understand what they’re going to need to get the funding package approved.

Stuart said developers should make sure the construction contract is as watertight as possible. “Everyone goes into a development thinking that nothing will ever go wrong, it’ll be built on time, on budget. But, within three months, generally there’s some sort of dispute and the first document that people go back to it’s a contract,” he said. David reiterated this, saying it is wise to have the contracts looked at professionally, especially when you bear in mind the fact that JCT contracts have been prepared by the construction industry and are not necessarily developer friendly.

Paul mentioned the importance of having clear, accurate and credible appraisals so that he can see that the development makes sense financially.

Other issues discussed

The above is a summary of a wide-ranging discussion between the panel and the audience that also covered cladding and valuation issues, HS2, environmentally friendly heating systems, the recent general election and, inevitably, Brexit. On the last two issues, anecdotes from audience members indicated an increase in confidence in the sector immediately after the election with reports of flurries of sales being agreed.

Thank you to Gunnercooke for hosting what proved to be another outstanding event, followed by excellent networking opportunities.

Thanks also to the panellists for taking part, David for leading the discussion and all the attendees. Given the success of this event and the previous one in Manchester, we are hoping to hold another event with Gunnercooke later in the year. Look out for details as and when we have a date and location. 

  • “I think they are probably the best provider of mezzanine finance in the market. I am a client and a broker so I’ve dealt with them extensively with both hats on. Unlike some other lenders who do the same thing, Argyll fill you with confidence from the get go and offer support throughout the project. They are all very experienced, have a broad knowledge of the property market and respond to you quickly and professionally and with great efficiency. The relationship between them and my senior lender Close Brothers is seamless and always goes smoothly. I will use them again and will continue to recommended them to other developers.”
    Paul Smeeth
    Director, Charles James Developments Group
  • “I have used Argyll Property Partners for mezzanine funding on a number of developments and always find them highly professional and easy to deal with. I like the fact that they are so straightforward and make quick decisions. As they use their own money to lend they don’t need board approval and this makes the approval process very quick. I have no hesitation in recommending them for mezzanine funding.”
    Lee Clemson
    Director, Mantle Developments
  • “We found Argyll to be very quick and efficient. They gave their investment decision in short order and were easy to deal with. They understand the residential property market and had a good knowledge of the North Yorkshire market in which we operate. They were switched on to what we require – fast money and for the process to be simple when it comes to security packages and dealing with professional teams. Argyll were in fact introduced to us by our senior lender and they worked very well together as a team. We intend using Argyll again and have no hesitation in recommending them.”
    Nick Moody
    Newby
  • “I recently used Argyll Property Partners for mezzanine finance and found them highly flexible and good to deal with. They are very clued up about what is going on in the property market and gave me some valuable advice about the development. They have an existing relationship with my senior lender and this made things very easy. All the way through they did what they said they would do and delivered the funds quickly. I would recommend them.”
    Karen Seward
    Director, Modena Homes
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    Richard Hayward
    Director, Richard Hayward Properties