Who is the Boss - the Lender or the Developer?

Who is the Boss….the Lender or the Developer?

Many investors and developers embark on a career in property in order to build significant wealth, work their own hours and be their own boss. But is there really that much freedom in property? And who's really the one in control when it comes to a developer and lender relationship? Read on for our Managing Director, Saam Lowni's, thoughts on the topic.

You have found a site. You have run all the numbers. You agree a price with the site owner. You have pulled together your equity. You have jumped through all the hoops a lender has demanded to provide you with the lion share of the funding to acquire the site and execute the construction. You may now fairly assume that since you have done all the heavy lifting up until this moment and put your equity into the first loss position that you are the Captain of this ship and will steer your team to a healthy profit in the next 12-24months.

Although you are technically the Captain, you may find that the desired autonomy and freedom to do as you please is far from the reality. This is the feeling shared amongst many investors and developers, especially those that are earlier in their career.

The truth is that when you choose to work with a funding partner, you will become answerable to those that provide the funding. It is highly likely that you will need to accept the terms, conditions, moving goal posts and anything else the funding partner throws at you, whether you like it or not. After all, it is true that “the funder is under no obligation to lend to you” and in the contract it states, “your home will be repossessed if you do not keep up with repayments”.

The answer to this conundrum (in my opinion) is that the developer is indeed the Captain of the ship and should act as such. However, the lender is the weather that guides the ship to safety along the voyage. The weather has God like powers and will provide a sunny outlook with wind in the sails - if you abide by their rules and react well to every additional document requirement and moving goal post they throw at you at any stage of the transaction/relationship. However, if you decide to disobey, not cooperate, or not provide them with the documents, evidence, or items they have demanded, they can and will create conditions that will ultimately sink your ship.

This perception of ownership of a deal is that the developer is taking all the risk, doing all the work and for that reason funders need to be more accommodating, understanding and pragmatic. Although this is true in part, in the end, the funding partner will largely dictate the terms of the deal and it is paramount that as a developer/investor you do everything in your power to work with the lender to make the deal work.

At Merryoaks, due to our extensive and broad background, we are able to carry out appraisals, create investment memos and court investors and funders on your behalf to bring you the best finance solution. Even in complex cases, our professional industry contacts will aid us in solving the problem, so you don't have to.

   Speak to a Funding Specialist

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