The "Game-Changer Product" with Savoys, Octane Capital, CPC Finance & Ronald Fletcher Baker LLP
We list and explain thechallenges investors are facing in their development journey:
1). A Broker that Understands an Investors Needs
When both myself & Sanjaystarted in property investing, we tried to avoid brokers as we assumed we wouldget the best deal whilst saving potentially on additional fees. As we progressed on our property journey, werealised how essential brokers were to us. It wasn't necessarily aboutachieving the cheapest rate; however more to do with the quickest access to fundsas deals were often time-critical. We believe that an independent mortgagebroker is likely to be the most important person in your property power team.
The most common responses frominvestors who have reached out to us were that they struggle to find brokerswho can understand their needs and requirements and a broker who can offer themthe personal service they require during the buying process. Sometimes thebroker-client relationship can purely be a transactional one. However, from ourexperience, it adds a lot more value building a more robust understandingbetween you and the broker and aligning your long-term goals. This way, you candevise strategies to accelerate your growth plans when you are both working onthe same page.
2). Lack of Experience
Lack of experience is astraight no from all lenders where an investor requires finance even though theinvestor is using a developer with a proven record. For example, if you are aninvestor looking to develop your first 'back-to-brick' HMO refurbishment withsignificant works and alterations, i.e. adding space through extensions andloft conversions, the lenders will require you and your JV partners to haveprior experience in similar projects. They will typically request a previousproject list where you will need to detail (a) address of the property; (b)date of purchase; (c) purchase price; (d) details of works undertaken; (e) ifplanning permission was required; (f) costs of works; (g) end value after works& details if the unit has been retained or sold. Without this experience orlack of sufficient evidence to demonstrate your experience, most lenders willnot entertain your application for this type of lending.
Previously, Shawbrook Bank offereda product where investors could borrow funds with minimal/no experience as longas they had a reputable and reliable developer. However, they removed thisproduct from the market following the initial lockdown in 2020. This leaves investorsin a predicament and a Catch 22 situation, as they cannot initiate theirproperty development journey without the necessary experience required fromlenders. On the other hand, they cannot gain experience as they have not beenpresented with a feasible financial option to start their journey.
3). Commercial Valuation
When investors take Short Termor Bridging finance, they want the Valuation Report to give the property'scurrent market value and a Commercial Gross Development Value ("GDV")rather than a Bricks & Mortar GDV to maximise the end value. A commercialvaluation method is whereby the valuation surveyor assesses the incomegenerated from the asset if it was fully let, with an allowance of expenses(typically 10-25%) multiplied by a yield the surveyor deems acceptable for thearea. The yield can vary between surveyors as it's derived from variousfactors, i.e., rental demand, transport connectivity, nearby amenities, etc.For example, with a valuation of an HMO, there are more things to consider andfewer comparables than a more "standard" property; therefore, acommercial valuation is ideal for the investor.
A specialist commercial valuationon an HMO will deliver an accurate market value for the property in itsproposed use by factoring in all considerations mentioned above. This valuationmethod does come at a premium, with higher valuation fees and increasedinterest rates. For investors looking to build their portfolio as we have, itis paramount to get the correct valuation for your project. Therefore theamount of money you can pull out of a deal outweighs the higher percentage ofinterest you have to pay back on it, as long as you use the funds you recycleto good use.
Our feedback from Investorsonce they complete their HMO's is that they struggle to exit their Short Termor Bridging finance. The main reason isthe Lender they approach provides a Bricks & Mortar GDV rather than aCommercial based on the income the property is generating. As a result, the investor struggles to exitthe deal or leaves too much money in, impacting further investments.
4). Lender & 100% Build
We believe we will see a moveaway from traditional HMO's to more Co-Living properties. What's the differencebetween HMO and Co-Living, we often get asked. By its very definition, HMO's isabout the property itself and the people who live in it; these can quite easilybe developed as long as they meet the criteria of the local authorities youoperate them in. However, co-living is more about the social and community in ashared house. It uses good design, quality craft and creative style to developa co-living space, and the spaces tend to have all larger and en-suite roomswith a shared space for housemates to get together.
Our feedback from investors isthat creating these types of properties requires a significantly largerpot/budget for the refurbishment and makes it unfeasible. There are few lendersthat, coupled with the above points, would lend the funds for the refurbishmentto the investor. The ones that do will often require a large upfront deposit tospread their risk or have security in the uplift GDV from an initial valuation.In our experience, these refurbishment loans aren't easily accessible eventhough they are widely advertised. They also contain many caveats andconditions in order to use them.
5). Reliable Developer
To qualify for lending for more significant developments such as HMO's /Co-Living, you must employ a reliable developer to undertake the refurbishmentworks. The work involved in undertaking these projects requires far more skilland expertise. On top of that, you have the added time pressures to complete toensure you don't overpay on your finance costs. There aren't many developerswho are specialists in producing HMO / Co-Living projects. Generally, they relyon heavy input from various other parties, i.e. the client, architects andproject management teams, to complete on time and within budget (if they aremanaged well!). It can be tricky ensuring you keep on top of each of yourstakeholders as they are so many moving parts when you are in the constructionstage of your project.
The feedback we received is that investors, in the past who have used"reliable" developers, perhaps focused on the wrong things, such asthe lower price or were convinced with promises of completing in an unrealistictimeframe. The same investors were stung with either cost increases due toscope gaps and an undefined schedule of works from the outset or impacted withthe quality of workmanship required in these specific projects.
Your Solicitor can make orbreak your deal. Myself & Sanjay have used various solicitors since westarted investing in property, with varying experiences, good and bad. We havehad several sales that have almost fallen through because the solicitors havenot been very good. In a recent issue, we wrote an article about the keycriteria we set in selecting your solicitors, which were (a) they must befriendly and contactable with a good response rate; (b) proactive, rather thanreactive, which is what most solicitors can be; (c) able to carry out alltransactions over the phone and by email for speed, or proactive where this isnot possible by booking in advance for in-person meetings; (d) able tocollaborate well with the other solicitors efficiently involved in the saletransactions & (e) cost-effective for the service they provide.
We received an overwhelmingresponse from investors who have had bad experiences with solicitors. Many ofthe reactions were mainly on the subject of responsiveness and beingcontactable. When dealing with such high-value transactions, especially inauctions where you have a short period to complete, you need to have comfortthat the solicitors you are dealing with are up to the task and can pullthrough when you need them. We received other responses based on dealing withthe stakeholders, i.e., sellers solicitors, finance solicitors, and brokers.Again, the solicitors acting on your behalf must have the ability to work wellwith others and handle the relationships of each stakeholder well.
7). Guaranteed Exit & Low Refinance Fees
Various lenders in the marketprovide short term finance. Many fewer lenders offer specialist mortgages tothe end product you have created, and there are even fewer lenders who allowyou to term out on these specialist mortgages who use the commercial valuationmethod we mentioned earlier. You can be nearing completion of your HMO /Co-Living refurbishment project and think you can quickly refinance onto a termmortgage. However, this can sometimes be tricky, and in some cases, no possibleat all.
Myself & Sanjay opt for "bridge to term" products where weknow from day one, the Lender we chose our bridge product with will be the sameLender we term out with. There are many benefits of having this guaranteedexit, as you go into deals with your eyes wide open and have no surprises whenit comes to refinancing. There are many other added benefits of choosing thesame Lender to term out with, such as the valuation holding up for the termout, as long as works are done within a specified period (typically within sixmonths or less) to the same standard as you proposed from the outset. Anotherbenefit of this is that you will not be required to 'double'up' on lenders'legal fees by approaching different lenders at the beginning and end.
Feedback from our investorsshowed that they had funded their deals using a lot more of their own money topay for the deposit on the property. They would initially take out a bridgingloan and pay all of the associated fees, including arrangement fees,application fees and the lender legal fees. Once the works are complete, theywould then revert to a different lender to term out.
Nowtime for the Game Changer. After reviewing the many frustrations and concernsfrom investors, Savoys Properties have exclusively teamed up with our businesspartners CPC Finance, Octane Capital and Ronald Fletcher Baker in offering anexclusive product to the market that has never been available to investorsbefore until now.
The Savoys team had countless responses from a wide range of individuals.The majority of them were new and potential investors of ours. We listened carefully, and as investorsourselves, we understood their concerns first hand and sought to find aresolution, which we now believe we have.
· Bridging loan with a 25% deposit for the purchase
· Up to100% loan of the Refurbishment
· No Experience needed
· CommercialValuations on HMO's
· Dedicatedand Exclusive Power Team includes the Savoys Group, CPC Finance, Octane Capital& Ronald Fletcher Baker LLP.
From the seven challenges we listed, we will now provide the solutions toeach of them with this new and exclusive product: -
1). A Broker that Understands an Investors Needs
We have teamed with ourbusiness partner CPC Finance in bringing to market this new product. CPCFinance is a UK finance broker and packager that specialises in sourcing andpackaging a range of property funding. This includes buy-to-let &commercial properties, auction investments, property developments and securedloans. Finding the right property finance starts with understanding everythingabout the application, from the amount requested to the assets and liabilities.They undertake an in-depth analysis of the funding available from our range oflenders and identify the best deal for your requirements. With a longstandingrelationship with the Lender of choice for this product, CPC Finance will beleading all new enquiries to ensure that our investors will have each of theirproperty finance applications are processed quickly and efficiently until thefunding is in place.
CPC Finance is a member of theNational Association of Commercial Finance Brokers (NACFB), the UK's trade bodyfor business finance brokers. The Association exists to establish measurablestandards of professional practice among commercial finance brokers. This is notonly in the best interests of brokers & SME customers but also vital to theintegrity and future well-being of the industry. As a member of the NACFB, CPCFinance adheres to its Code of Practice, ensuring that it operatesprofessionally and in the best interest of its clients. This means that you canrest assured that they will always be committed to providing high-qualityservices with transparency whilst following industry standards and bestpractices.
Karl Griggs, the director ofCPC Finance, commented on the launch of this product "These types ofproducts where an investor not only gets an initial bridging loan but aguaranteed exit with no experience required are unheard-of, that's why we aregenuinely really excited in collaborating with Savoys, Octane Capital and RFBLegal to introduce this product to newer investors."
2). Lack of Experience
One of the most exciting partsof this product is that even if you are a first-time buyer or just starting onyour property investment journey, we have created a product that doesn'trequire the investor to have any prior experience.
This is only available wherean investor uses the Savoys Group through our development and managementservices in undertaking the project. With over 20 years of experience, we havebuilt our own extensive property portfolio and have grown a team to help expandour investor's portfolios.
3). Commercial Valuation
Getting a commercial valuationis almost unheard of if you are undertaking your first project with 0experience. We ironed out with our business partners that attaining commercialvaluations is crucial for building a portfolio for investors. It allows you toeffectively undertake the Build, Refurbish, Rent & Refinance("BRRR") strategy and pull out the majority of your funds, with theremaining funds left in the deal working hard for you.
4). Lender & 100% Build
We have joined forces with apowerhouse lender, Octane Capital, to launch and deliver this unique "GameChanger" product to the market ready for investors. Launched in May 2017,Octane Capital arrived backed by years of experience. Octane has this yearpassed over £1bllion through 1,375 loans complete for their clients. We teamedup with them to talk about the issues from the feedback we received. Octanelooks at each deal with a wide lens and holistically to come up with a bespokesolution. Rather than be constrained by a restrictive price to Loan-to-Value ("LTV")matrix, they recognise that LTV is only one dimension. Every loan is different,so Octane does not have a product sheet. Instead, they look at all aspects todeliver the best solution for our clients and investors.
Mark Posniak, ManagingDirector; Matt Smith, Director of Credit and Risk & Justin Cooper, SeniorBusiness Development Manager, spearheaded this exclusive product and werethrilled with its launch. "We are excited to team withindustry-leading, disrupting and innovative partners with the Savoys Group andCPC Finance in introducing to market this exclusive product only availablethrough them. We look forward to building a strong working relationshiptogether and are excited to welcome new investors."
5). Reliable Developer
Consistency, quality and reliability are the primary responses from thefeedback we received of what investors have lacked from their developers in thepast. We all know how the build of a project can be a considerable obstacle. Itis not easy to find the right developer with the right quality and relevantexperience, especially when developing a premium high-end HMO. Fortunately forour existing and new clients, that's where we come in. We at Savoys Developmentsrefurbish and manage properties across the UK to provide high-quality homes forprofessional tenants. We specialise in setting up the property for you, so youdon't have to. We have developed thenecessary experience, team and tools to execute projects effectively.
We will meticulously plan and manage the entire planning process fromPrior Approval to a complete Planning Application on your project. Ourspecialist team can fully manage any project from start to finish, from a lightrefurbishment to an HMO conversion or commercial to residential. We have a vastamount of experience in designing and building all types of property projects,and with our expertise, we aim to maximise the end value. We source propertiestailored to your specification, whether for an HMO property or a commercial toresidential conversion.
Since scaling our own property business, we have built strongrelationships in our power team. As mentioned above, one of the fundamentalmembers of our power team is our solicitors. In the launch of this new product,we have exclusively partnered with Ronald Fletcher Baker LLP. Ronald FletcherBaker LLP has been providing expert advice from its offices in the City ofLondon, the West End, Manchester for over fifty years. They understand thattheir clients have built their reputation, and as such, they centre everyaspect of work on their client's experience. Foremost in achieving this are theirthree fundamental tenets always to be professional, responsive and competitive.
Leading this exclusive product launch is Paul Cain, a Partner in the RealEstate department, a Legal 500 recommended Lawyer for many years. Paul dealswith all aspects of Property work, including residential and commercialtransactions, the acquisition of development sites and plot sales, thenegotiation of leases, and advises clients on purchasing and selling propertyat auction. On the launch of the product, Paul stated, "We have beendealing with Malkit & Sanjay and the Savoys team for several years now, andseen first hand the property transactions they have concluded for not onlythemselves but their clients also. When we were made aware of this exclusiveproduct launch, it sounded like a complete no-brainer. You have some of the toppeople and companies in the industry delivering a product made for newerinvestors."
7). Guaranteed Exit & Low Refinance Fees
This product provides thecomplete package. An investor can take out a bridging loan and term out at theend of the loan with Octane Capital. This reduces the risk of finding anotherlender willing to provide a long term mortgage on your new development. OctaneCapital will use the initial pre-commercial valuation from the beginning of theproject as the basis for the valuation of the term product. Therefore youbenefit from not having to pay more fees on additional valuations. This processis much easier and cheaper, where the original valuation surveyor re-inspectsat a reduced cost. Another fantastic benefit of this is that you will not incuradditional legal and high refinance fees as the term product is through theinitial Lender, Octane Capital. Octane Capital provide competitive and bespokelong term products with 2, 3 and 5-year products with low ERCs and just a 3year tie in for their 5-year products. Loans start from £150,000 up to £15m “Withour flexible interest only Buy to Let products we’ve removed the stress fromBuy to Let by requiring just 100% rental cover. No stress testing, no stress.”
For further information about how you can accessthis new and exclusive product, please contact our team on firstname.lastname@example.org or through CPC Finance at email@example.com.
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