The why behind part-complete projects

After almost two years of a global pandemic and a drawn-out Brexit, this does not come as a surprise. Delays are increasingly the norm and virtually nothing costs as much or, takes as much time as anyone expects.

Conversely, research by Knight Frank highlighted that of 50 leading volume and SME Housebuilders surveyed “a quarter said they think build costs will increase significantly in 2022 compared to 2021 while 67% are expecting [only] a slight increase”. In 2021 alone, 40% of Avamore’s loan book was made up of part-built transactions many of which were experiencing delays or rising costs and, despite a potential stabilisation, there is generally around a 6-month delay where wider market dynamics are concerned and so, we expect 2022 to be similar.

An increasing proportion of the specialist lending space now offers some form of part-built development funding. This shift towards the Finish & Exit product – which Avamore pioneered – indicates what the market is craving right now; a solution for funders to step in when a developer is part way through a project. Historically, part-built projects were considered risky; by their nature, it was assumed that something had gone very wrong. Increasingly however, this situation is becoming part and parcel of the development cycle.

For us at Avamore, we have always operated on a ‘golden brick policy’; if only one brick is down, we consider the project to be part complete. In never shying away from early stage Finish & Exits, we’ve been able to see the full spectrum of why developers are becoming dependent on this sort of flexibility from lenders.

The same 2022 Savills development report highlighted that there are a number of “issues meaning that contractors are showing an unwillingness to tender on projects with higher risk profiles”. Contractors are being more cautious and more selective; in 2021, £10m of the Finish & Exit deals Avamore closed were due to the developer experiencing issues with the main contractor; it’s unsurprising that after some were in trouble last year, many are choosing to be more careful in the projects they do choose to move ahead with.

Similarly, lenders have understandably remained cautious in their approach. Many are beholden to their funding lines and, in the volatile market we have been navigating it does not come as a surprise that some cannot afford to be as flexible as they would like to be. Even many of those that do offer ‘part built’ funding are limited to projects with only the final 10-20% of works outstanding.; developers need much more than that. Slow drawdowns, loans being called in and an inability to extend have been some of the reasons that Avamore have stepped in to help borrowers reach the finish line for their projects. In 2021 alone, £30m worth of Avamore’s part-built transactions were a direct result of the existing lender on the project not being able to support the developer through to the end.

When Avamore first launched the Finish & Exit product in 2019, it was a direct response to cost overruns and unexpected delays driven by Brexit. Since then, we’ve collectively faced more challenges and therefore more scenarios for part-built funding to provide a solution. Undoubtedly 2022 will bring the unexpected but, as long as lenders like Avamore maintain a willingness and openness to provide support, the market will keep finding answers to the situations it throws up.