Spring Update

What feels like the first hint of Spring has arrived with some warm sunshine coming through the open window as I write. However, as we all know in the good old UK, it could quite easily be back to a cold, grey, rainy day by tomorrow (or even later today!).

One can draw some analogy between the changeable weather and the state of the economy and property market, or more specifically the sentiment that controls it.

For it is indeed how people feel and the choices they make that makes a market. This has been well documented by many authors and commentators, none more eloquently than Sheena Lyengar in her book ‘The Art of Choosing’, a hugely informative and very enjoyable read, well worth buying for your next holiday.

With so many variables in the market and the wider economy, sentiment is prone to fluctuate almost as quickly as the British weather!

Within our small part of the property market, an examination of our portfolio of loans across the country showed a very slow start to the year in terms of sales of completed properties but there has been a progressive pick up in sales achieved from February onwards.

These sales have covered many areas of the market both in terms of geography and value including high value single units in London, town houses in Plymouth, barn conversions in Warwickshire and apartments in Bournemouth.

In overall terms, we believe that the long-standing principles of development remain true in that units that combine the right design in the best of locations, finished to a high quality and standard of specification and most critically, priced correctly, will continue to sell.

We are seeing perhaps a more “normal” sales market and it is important that developers and lenders alike review new schemes based upon not only realistic and achievable values but also appropriate timescales to achieve completed sales.

It remains vitally important that developers have the most appropriate funding structure in place for their schemes and are working with those lenders that have the depth of experience and understanding of the property market. This ensures that they are an asset to the development team and not a potential liability.

Indeed, whether we are purely structuring funding for a client or providing a mezzanine facility to them, we strive to ensure that all parties involved are the most appropriate for the individual transaction. We continue to favour working alongside debt lenders with not only the requisite depth of experience but also with whom we have a strength of relationship that can provide confidence that all parties will work together towards a single aim.

We find that having the ability to provide mezzanine finance of anywhere between £100,000 and £2.5m per transaction, on a highly professional and most importantly reliable basis continues to prove a great attraction for developers.

Knowing that a lender will perform as expected at the required moment is of course key and our borrowers know that as a lender we have never failed to deliver the funding agreed, even in the most challenging of economic conditions.

The first quarter of 2018 has been a positive one for Davon with a very healthy flow of new transactions from both existing clients as well as a continuing stream of new parties and we look forward to continuing to assist clients with navigating what can be a confusing funding market.

We enjoyed another successful MIPIM in Cannes and our regular Wednesday evening event proved a great success, hosted for the fifth year running with Jackson Stops and BLP Insurance. It was good to see a healthy attendance from a wide cross section of people within the industry. We firmly believe that MIPIM continues to have great benefits in terms of re-enforcing existing relationships as well as forging new ones and already have next year’s event firmly in the diary.

So, despite BREXIT, US trade sanctions, Russian spy poisoning and the many other global challenges let us welcome the warmth of spring and continue to play our individual parts in delivering the much-needed new homes to the market.

We at team Davon look forward to continuing to work closely with our clients, existing and new, in structuring and providing the finance needed for projects.

Enjoy the Spring and the warmth it will bring!

David Norman

Davon Limited
April 2018

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Davon at MIPIM 2017

Davon May Update

As 2017 marches on, it is proving to be as interesting times as ever.

Since our last email update at the beginning of the year, we have had the continuing farce that is the Donald Trump presidency, endless commentary about Brexit and the likely effects on the UK, be they good, bad or indifferent. Continuing tensions in many locations globally and a UK general election in a few weeks’ time….all exciting and interesting if not more than a little scary at times!

In terms of the property industry, we have of course had one of the largest gatherings of UK property professionals at the annual MIPIM event in sunny Cannes, South of France. The general sentiment at the event seemed positive, mixed with a healthy dash of realism and caution and as Davon we certainly found the event productive as well as enjoyable.

For the fourth year running at MIPIM, we co-hosted a drinks event on the Wednesday evening alongside Jackson Stops Staff and BLP Insurance and were delighted with the turnout and the mix of guests that attended. Thank you to those of you that could join us and we look forward to perhaps welcoming those of you yet to attend next year. Our event certainly seems to be established as a key meeting place for those involved in development in the UK and grows in numbers each year.

In terms of the funding market, it of course continues to evolve. Indeed, with nearly thirty years of experience in funding, I think it is fair to say that the continual changes in the market since the credit crunch of 2008 stands out as being far more pronounced than at any other time in Davon’s existence.

We continue to see new lenders entering the market and existing lenders adapting terms and some lenders leaving the marketplace. We suspect this will only continue for the foreseeable future where so many active lenders are “non-bank lenders”, often backed by private equity which usually comes with a defined target life for their investment.

From a borrower’s perspective, this continually changing market certainly makes it more challenging for developers to be aware of the funding options that exist and even harder to compare offerings that can vary substantially in both structure and terms.

These fundamental changes within the market have no doubt contributed to us continuing to see very strong levels of activity in all aspects of Davon’s activities, be it the structuring of funding with third party lenders and investors for all types of projects or the provision of mezzanine finance for residential developments.

Indeed, on the mezzanine lending side, the combined loan books of our two lending platforms, Davon Investments and Strata, include projects across many location in England with our typical loan sizes ranging from £100k to £2.5m per transaction.

There continues to be an increasing level of interest from a wide range of developers in using mezzanine with borrowers appreciating it can prove an extremely efficient way of minimising equity required for projects.

For instance, whilst we often provide our facility at the outset of the project, we are just as happy to be brought in at any stage of construction, subject to the metrics and nature of the scheme. Our facilities are flexible, so if a borrower has surplus cash available from say another completed scheme, our lending can be repaid in whole or part.

Either way, a borrower can further increase the return on their capital invested.

Having been active in the mezzanine space for over a decade, we have made a concerted effort to keep our offering simple and flexible. Our key benefit is allowing developers to minimise the capital invested in any one scheme, enabling their equity to be spread across a wider range of opportunities.

We are particularly proud of the high percentage of repeat customers we have in our loan book, many having multiple loans with us at any one time.

Likewise, the relationship that Davon has with the senior debt lenders we work with allow us to ensure the combination of debt and mezzanine work seamlessly as a package. In the right circumstances this relationship also assists with the re-gearing of the debt facility at a later stage of a scheme allowing for the early repayment of the mezzanine and in turn reducing the funding cost for borrowers.

With lending at the heart of what we do at Davon, we are also very proud to have actively commenced lending in a completely different arena. That of lending to less privileged entrepreneurs in the developing world through one of our chosen corporate charities, Deki – www.deki.org.uk

Deki’s aim is to assist people in the developing world to help themselves by starting or growing a business that can sustain them and their families and reduce or remove entirely their reliance on outside financial assistance. We believe very strongly in what Deki is seeking to achieve and accordingly would encourage you to involved.

As always, we look forward to the coming few months and the excitement they will no doubt bring and to continuing to assist our clients, existing and new, with their funding needs.

In the meanwhile, enjoy the better weather (when it arrives) and we look forward to having the opportunity of speaking with you soon.

David Norman

  • 0118 978 3955
  • david@davonltd.com

Davon Property Finance - David Noman

Davon Property Finance - Tulse Hill Case Study

Davon January Update

Firstly, we hope you all had a very enjoyable and relaxing festive season and welcome to 2017.

From a Davon perspective, 2016 was a fascinating and a busy year.

Never in the company’s 20+ year history have we seen so much global political turmoil and change and with such changes there inevitably comes uncertainty.

With the top end of the property market still reeling from the SDLT changes, this further uncertainty has not helped that market recover its prior level of activity. However, we hear rumours from sources that the substantial currency change post referendum has led to some increase in transaction numbers in higher value properties over recent months – it will be interesting to see how the sector performs this year.

Further down the value range, the market is undoubtedly being supported by the continued imbalance between supply and demand combined with a continued cost of borrowing that remains at historically low levels. Indeed, post referendum, it seems inevitable that the cost of borrowing is likely to remain lower for longer than perhaps would have been the case without a vote for Brexit.

We see across our portfolio of loans that the Government Help to Buy equity loan scheme is playing a considerable role in assisting with sales, particularly for schemes within Greater London. This is positive on the one hand as the policy is clearly proving very successful. On the other hand what happens if and when the Government support for the market is removed or even just reduced?

Within the funding market, the events and resultant changes in 2016 have probably been favourable for Davon as a business. In more uncertain times, clients are even keener to have solid and professional advice as to the funding options that exist for any given project and thus Davon’s brokerage business has seen a high level of activity.

On the lending side of our business where we provide mezzanine finance for residential developments we have benefited from a greater degree of uncertainty, hesitation and in some cases a withdrawal from the market by some of the less experienced mezzanine providers.

At the same time, most senior debt lenders have re-focused firmly on lending at slightly reduced levels of exposure which has again reinforced the need for mezzanine funding. This can assist a developer to achieve a combined borrowing level that allows them to work within the constraints of their available equity or to spread the equity they have across a greater number of opportunities. This substantially increases their return on capital while also spreading risk.

As a result, we have seen our mezzanine loan book continue to grow and indeed 2016 was a positive year all round for our lending platform, Strata Residential Finance plc – www.strataplc.co.uk – with a continued flow of new investors enjoying the benefits of investing in a business that is now approaching ten years of trading and paying an attractive rate of return. In addition, investors can benefit from Business Relief allowing the investment to be considered outside their estate for IHT purposes after an initial investment period of two years.

So, the question remains with the backdrop of the UK departing the EU (well, the process at least being started!), a new US President and many political changes in Europe…what will 2017 hold?

Nobody of course can say with any certainty and with so many variables at play the next year will be full of uncertainties. To paraphrase Donald Rumsfeld “there are known knowns, there are known unknowns and there are unknown unknowns”. I for one think we will have plenty of all the above!

However, the UK economy continues to stand up robustly in comparison to all developed economies and ironically, the many prevailing uncertainties might just make the UK seem all the more attractive to global investors and corporates.

And meanwhile, at a domestic level, there is an under supplied housing market full of real people looking for real homes to live in. Therefore, we believe that the key to continued success for our developer clients is to continue to focus on the important aspects of each and every scheme.

To buy sites that allow for the development of homes that meet the demand for that location and to deliver those properties to market in a timely and efficient manner and to a high standard of finish and specification as appropriate to the target market.

We have seen through many cycles that those developers who steadfastly pursue those aims with determination and focus continue to flourish.

And we at team Davon look forward to continuing to succeed alongside our clients, established and new and to embracing the excitement and challenges that the New Year brings.

Our very best wishes to you all for a healthy, happy and prosperous 2017.

 

David Norman

  • 0118 978 3955
  • david@davonltd.com

Davon Property Finance - David Noman

Davon Property Finance - Seafin

Busy Times

Busy times at team Davon since our last email update.

During June we had our annual summer cruise on the Solent with a great group of Davon clients. The event has become something of a tradition and the yacht we charter and her crew ensured an exceptional day for us all as always, this year helped along by lovely early summer weather.

 

 

For the rest of June, life was then dominated by the EU referendum vote and all the analysis of what might happen followed by the result itself and the rather tumultuous period that followed in the following weeks.

Interestingly, from a Davon perspective, from the Monday following the vote we have had an extremely busy two months. This has taken us somewhat by surprise given the sense of uncertainty that prevailed immediately post referendum and it then being summer holiday period.

We have had a strong flow of new transactions coming in from clients, both new and existing and a healthy number of loans in lawyer’s hands and progressing to completion. The end of summer/early autumn period is set to be hectic for us.

We are not entirely sure what lies behind this post referendum busy period, but one factor may be the uncertainty that Brexit has caused. Less experienced property lenders have come to a halt or reduced their levels of exposure, whereas we continue to be very much open for business as usual.

It does seem that the sentiment of the market and perhaps the UK as a whole with regards Brexit is very much that the world has not stopped turning, that it will take a considerable amount of time for anything to change and that in the meanwhile life goes on.

As we see it, the fundamentals of the mainstream housing market haven’t changed, with supply limited, cost of funding low and strong levels of demand for most types of product. Prime central London and high value units still remain adversely effected by the SDLT hikes of the last 18 months.

The key points to evaluating any funding proposal remain constant – experience and track record of developer, strength of the development proposal, depth of market for units proposed and a good profit margin.

The other encouraging evidence we have seen is a good rate of sales being achieved by our developers across a wide range of geographic locations and types of property.

So, we hope you all enjoy the last bit of the summer and look forward to continuing to assist clients, old and new with funding for their property projects.

David Norman

Director, Davon Limited

August 2016

Davon Property Finance

Davon Turns 20

Last month we celebrated quite a milestone in business, twenty years since the creation of Davon Limited!

As principal founder of the business, I had been in the property finance industry for some eight years before creating Davon, thus bringing my time in the business to approaching 30 years – a worryingly lengthy time for a man who still feels too young for that to possibly be the case!

My co-director Chris Hector, who many of you will know well, has been part of the Davon history almost since its formation meaning that as business partners we have now been “married” a considerable length of time (as he regularly reminds me).

Many things have changed in those twenty years. In 1996, average house prices in the UK were, nationally, £51,367 (as opposed to £198,564 currently) while the average London property value was < £100,000 (against > £500,000 now).  The cost of a pint of beer in 1996 was £1.60 (against £3+ per pint currently) whilst a litre of fuel in 1996 was 39p.

And yet, although many things have changed, much remains the same all these years later.

Most critically, we believe that personal relationships, professional integrity and providing the best service to clients remain the key planks of success in any business, none more so than in the world of property finance.

These principles have never been more important than in recent years when we have seen boom, recession and gradual recovery again….but with a hugely changed backdrop of new lenders, terms and methods of funding.

Never has it been more important to have expert guidance and advice through the labyrinth of funding options to ensure the most efficient and appropriate structure is put in place for each and every project.

With our near thirty-year’s experience in the industry, our clients and borrowers have the benefit of all the hard work that has produced thinning and greying hair (in my case any away!).

We look forward to celebrating our anniversary with as many of you as possible during this year and continuing to serve our clients, existing and new, for many years to come.

Many thanks to you all for your support and business over the years and we look forward to providing the benefit of our funding knowledge and continuing the journey through our fascinating industry.

 

David Norman

  • 0118 978 3955
  • david@davonltd.com

Davon Property Finance - David Noman

 

Davon Property Finance - Case Study - Raynes Park

Spring Market Update

The first quarter of 2016 has proven extremely busy across all areas of the Davon business.

With all the continued uncertainties in the property and funding markets, clients have continued to value more than ever the wealth of experience and expertise that the Davon team has in ensuring the most appropriate funding structure is found for any individual project.

With the active lenders in the market continually changing the ability to consider the pros and cons of all options is key to choosing the most appropriate funding for a project.

Direct lending of mezzanine finance has been extremely active in terms of both new loans being made and repayments occurring in both our lending vehicles, Strata plc and Davon Investments. With a growing number of entrants into the financial market, our brokerage activities also continue to be very busy.

March saw our traditional co-hosting of our event in Cannes, South of France alongside our friends at Jackson Stops Staff and BLP, see more on this and some photos of the event.

We are also very excited to announce this week the launch of our shiny new website that has been fully updated and refreshed, please do have a look at davonltd.com and let us know what you think – we hope you enjoy it and find it informative.

Against the backdrop of continued economic uncertainties, the impending Brexit referendum, ever increasing rates of SDLT and whatever else may be thrown at the property industry, we at Davon look forward to continuing to assist our ever growing family of clients with all aspects of funding for their projects.

We hope you can all enjoy the spring weather and the long days and wish all continued success in these interesting times.

David Norman
April 2016

January Market Update

It is always fascinating to see how the new year starts and the “feeling” one has of the market place and sentiment as people return to work after what is normally quite a long break over the festive period for most of us in the property industry.

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