Housebuilders’ head office operational costs have invariably been funded by the business owners, project profits or third party investors. Current market conditions favour housebuilders, but as ever it's about maximising the opportunity when it presents itself.
Most development finance lenders allow a level of management team overhead to be run through the SPV cashflow, but it's usually not enough to fully fund a growing business.
The availability of growth capital for this purpose has improved, and recently there have been individual investors and established private equity funds investing in this sector.
Striking a balance between access to capital and maintaining control is key.
These investments are being used by developers to open up new sites, amass land banks for a consistent pipeline, or to act as the equity needed to access cheap 60% LTC senior debt.
It's also useful to be able to pre-fund a growth in full-time head count, to lead to more development activity.
Investment amounts vary, from a few hundred thousand pounds, into the millions, with investment terms ranging from 1-5 years.
Investor expectations consist of two components:
1. An annual coupon or interest rate, which can be serviced monthly or rolled up.
2. Capital return, which can be an IRR or multiplier based model, depending on the profitability of the business.
The investment partner doesn't have to be a friend for life, but just for a defined period. Ensuring that their role and input is clearly defined is crucial, as the primary role of the capital is to grow the business, not to run it.
If this sounds like a means which could help you grow your business, then get in touch to discuss specific figures relative to your business, and your aspirations.
Jamie Davidson, Managing Director
07919 863 034