The Daily Arsenal

[Hoddle is a god]

We build all sorts, but there seems to be a particular need for starter homes, so we're currently into quite a few conversions. The cost of building and what we can make from any particular deal depends on each deal. I don't get involved in that side of things; my builder partner deals with all of that, and he is very sharp at it. I deal with raising the finance, and with putting the plot scheme/contract packages together, and with the marketing side of thins, too.

 

[Tobes]

We build all sorts, but there seems to be a particular need for starter homes, so we're currently into quite a few conversions. The cost of building and what we can make from any particular deal depends on each deal. I don't get involved in that side of things; my builder partner deals with all of that, and he is very sharp at it. I deal with raising the finance, and with putting the plot scheme/contract packages together, and with the marketing side of thins, too.

So if you're a partner in a property development company, then why do you have a charge out rate?

 

[Stan]

We build all sorts, but there seems to be a particular need for starter homes, so we're currently into quite a few conversions. The cost of building and what we can make from any particular deal depends on each deal. I don't get involved in that side of things; my builder partner deals with all of that, and he is very sharp at it. I deal with raising the finance, and with putting the plot scheme/contract packages together, and with the marketing side of thins, too.

So you don't know how much it costs to build your properties but you're in charge of raising the finance?

So when the bank and / or investors ask to see details of the appraisal, cost plan, projected ROI, IRR's etc you just shrug your shoulders and say "I don't know about any of that". They must think you're a really stupid **** coming to them for money in the first place and an even stupider **** for getting into partnership with someone who you give carte blanche to spend the money you've "raised".

 

[Hoddle is a god]

So if you're a partner is property development company, then why do you have a charge out rate?

Development is something that I have only recently go into. I do it part time, effectively.

 

[Stan]

Development is something that I have only recently go into. I do it part time, effectively.

Judging by your grasp on the finances I'd say you do it very ineffectively or, most likely, not at all! Maybe you refurbed your granny's flat once. There are a lot of people who call themselves "property developers" on that basis.

 

[Hoddle is a god]

So you don't know how much it costs to build your properties but you're in charge of raising the finance?

So when the bank and / or investors ask to see details of the appraisal, cost plan, projected ROI, IRR's etc you just shrug your shoulders and say "I don't know about any of that". They must think you're a really stupid **** coming to them for money in the first place and an even stupider **** for getting into partnership with someone who you give carte blanche to spend the money you've "raised".

You really don't have a clue how it works, do you?


I have helped many, many developers raise finance for building projects, and never once have I had to work out the costings. Never. Nor have I ever known of any other solicitor do that. The appraisal is completed by the developer, not the solicitor.

 

[Hoddle is a god]

Judging by your grasp on the finances I'd say you do it very ineffectively or, most likely, not at all! Maybe you refurbed your granny's flat once. There are a lot of people who call themselves "property developers" on that basis.

If only you knew!

You really are one bitter individual. Are you some Northern scally-wag cowboy builder who went bankrupt in the credit crunch, and have never quite recovered from the trauma? Did you lose your shirt, Stan? Is that why you hate even the thought that there are people out in the world doing well what you couldnt even do ham-fistedly?

 

[Stan]

You really don't have a clue how it works, do you?


I have helped many, many developers raise finance for building projects, and never once have I had to work out the costings. Never. Nor have I ever known of any other solicitor do that. The appraisal is completed by the developer, not the solicitor.

You might not have to pull together the cost plan yourself but you have to have sight of it to raise any kind of funding, whether it's equity, mezz, bridge or senior and you said it was your responsibility to raise the finance. It's impossible to raise money without a cost plan. It would be akin to getting a business loan without a business plan. It doesn't happen.

Let's bear in mind you said that you get 100% of the build costs but you don't actually know what the build costs are.

Do you really want to go down this route again HIAG? You know it's going to end up with the immortal words:

"why are you doing this to me Stan?"

 

[Tobes]

Development is something that I have only recently go into. I do it part time, effectively.

Development is not to be trifled with in my experience.

Planning delays, unforeseens, cashflow, extended sale times, costing **** ups, competition for land and suitable properties etc, etc etc.

It's not an enterprise to dick about with.....

As when it goes pear, it can be calamitous

I'll stick to being a slum landlord.

 

[Stan]

If only you knew!

You really are one bitter individual. Are you some Northern scally-wag cowboy builder who went bankrupt in the credit crunch, and have never quite recovered from the trauma? Did you lose your shirt, Stan? Is that why you hate even the thought that there are people out in the world doing well what you couldnt even do ham-fistedly?

I don't build. I secure land, get planning and move it on to developers. I'd love to sell you a bit of land. I'll even draft the development appraisal for you to justify my residual land value. No charge for that.

 

[Hoddle is a god]

You might not have to pull together the cost plan yourself but you have to have sight of it to raise any kind of funding, whether it's equity, mezz, bridge or senior and you said it was your responsibility to raise the finance. It's impossible to raise money without a cost plan. It would be akin to getting a business loan without a business plan. It doesn't happen.

Let's bear in mind you said that you get 100% of the build costs but you don't actually know what the build costs are.

Do you really want to go down this route again HIAG? You know it's going to end up with the immortal words:

"why are you doing this to me Stan?"

Who said I don't know what the build costs are? All I said is that I don't work them out. That isn't my job; I have a very experienced builder who does all of that, and he does it very well.

You do know how business partnerships work, don't you, Stan? Well, if you went bankrupt in the credit crunch, I don't suppose you do. Well, let's just say that the more successful partnerships bring in a blend of skills, that work in concert to bring about the desired result.

 

[Stan]

Who said I don't know what the build costs are? All I said is that I don't work them out. That isn't my job; I have a very experienced builder who does all of that, and he does it very well.

You do know how business partnerships work, don't you, Stan? Well, if you went bankrupt in the credit crunch, I don't suppose you do. Well, let's just say that the more successful partnerships bring in a blend of skills, that work in concert to bring about the desired result.

So back to my original question, what do you value engineer your build costs down to? Just pick up the latest appraisal that your partner has bluffed together for you!

I only got into property after the credit crunch had wiped out the numpties who had over borrowed from the banks to overpay for sites. That was when there was a real opportunity to secure sites on the cheap. God bless the Irish.

 

[Hoddle is a god]

Development is not to be trifled with in my experience.

Planning delays, unforeseens, cashflow, extended sale times, costing **** ups, competition for land and suitable properties etc, etc etc.

It's not an enterprise to dick about with.....

Very true, Tobes.

Mind you, it's far more difficult to raise finance, these days, unless you can show the bank that you have a track record. Money is getting easier to raise, but the banks are placing a lot of emphasis on deliverability. I have acted for several national house builders, so I know my way around the block. In fact, the reason why I got involved with my builder partner is because he gave me the choice of being instructed by him, or investing my fees in a project (to wet my feet). The fact that I have several good finance contacts also put me in a good position. So, all I am risking are the fees that I would have charged, but the rewards are ten-fold. My builder partner is a very experienced builder, having built many scores of houses in the locality that we are now building in; he knows the area and the particular market very well, and he is a superb craftsman. He has won awards for his past work.

For me, it really is a no-brainer.

 

[Hoddle is a god]

So back to my original question, what do you value engineer your build costs down to? Just pick up the latest appraisal that your partner has bluffed together for you!

There's that bitter tone again! Tut tut!

As you seem to be incredibly interested in my business affairs, I have sent an email to my building partner to ask him how he's costed our latest project.

I only got into property after the credit crunch had wiped out the numpties who had over borrowed from the banks to overpay for sites. That was when there was a real opportunity to secure sites on the cheap. God bless the Irish.

I take it, then, that you use your own finances?

 

[Stan]

Very true, Tobes.

Mind you, it's far more difficult to raise finance, these days, unless you can show the bank that you have a track record. Money is getting easier to raise, but the banks are placing a lot of emphasis on deliverability. I have acted for several national house builders, so I know my way around the block. In fact, the reason why I got involved with my builder partner is because he gave me the choice of being instructed by him, or investing my fees in a project (to wet my feet). The fact that I have several good finance contacts also put me in a good position. So, all I am risking are the fees that I would have charged, but the rewards are ten-fold. My builder partner is a very experienced builder, having built many scores of houses in the locality that we are now building in; he knows the area and the particular market very well, and he is a superb craftsman. He has won awards for his past work.

For me, it really is a no-brainer.

So you waived your fees and instead converted them into equity in the deal?

 

[Stan]

There's that bitter tone again! Tut tut!

As you seem to be incredibly interested in my business affairs, I have sent an email to my building partner to ask him how he's costed our latest project.



I take it, then, that you use your own finances?

Depends on what the opportunity is. I've bought sites unconditionally, I've bought STP, I've taken options, I've done JVs. As long as there is a planning angle or I've lined up an exit then I'm flexible on structure.

Options are obviously the preferred route as they minimise capital expenditure and exposure.

 

[Hoddle is a god]

So you waived your fees and instead converted them into equity in the deal?

If you want to look at it that way.

I've known this particular chap for quite a while, and we'd spoken on several occasions about us doing something together. He does all the building, so it's only fair that I do something. I do put some cash in, of course, but it's not that much in comparison to what we borrow.

 

[Hoddle is a god]

Depends on what the opportunity is. I've bought sites unconditionally, I've bought STP, I've taken options, I've done JVs. As long as there is a planning angle or I've lined up an exit then I'm flexible on structure.

Options are obviously the preferred route as they minimise capital expenditure and exposure.

My particular expertise, over the past few years, has been working with LPA Receiverships. I've helped a few clients tie up these kinds of deals. In fact, the project that I am currently working on with my building partner is one that we are buying off a Receiver.

 

[Stan]

If you want to look at it that way.

I've known this particular chap for quite a while, and we'd spoken on several occasions about us doing something together. He does all the building, so it's only fair that I do something. I do put some cash in, of course, but it's not that much in comparison to what we borrow.

Well if the returns are tenfold as you put it then he should be running Barratt Homes as there's not a developer in the country who is getting 10x equity. Nowhere even close in fact.

 

[Hoddle is a god]

By the way, my building partner has just reminded me that, on our latest project, the new-build cost is £100 per sq ft, and the conversion of the existing building is £60 per sq ft.

I seem to recall that our last project (new build) was around £75 per sq ft.