You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. Today, we begin to blur the lines even further as we start migrating into more creative or hybrid financing methods. To some extent we already blurred the lines, for example with angel finance coming in the form of debt or equity and the multi-layers of senior debt, equity, mezzanine, JV money and private funding.
Today’s discussion with Thor Portess from Develop With Us is another very interesting one, as he shares how we can work with existing land and property owners in partnership along with other developers and investors too.
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Interested in development and conversion projects with a JV partner…sounds familiar doesnt it?! A great opportunity in the current climate I would say, so make sure you have a chat with Thor to get the low down from his perspective…or have a chat with me about some of our development opportunities if you like as well.
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Transcription of the show
Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and it’s a pleasure to have you join me on the show again today.
You have probably spotted that over recent weeks in this series that the range of financing options is becoming increasing more diverse, niche and…well decidedly alternative really. As a financial services guy by training or profession, I have been fascinated with the sheer variety that is open to us as property investors and developers I can tell you.
Early in the series, we discussed some of the institutional forms of property financing solutions, such as BTL, bridging and commercial loans. More recently we have discussed what I have labelled alternative financing methods, such as peer-to-peer and crowdfunding, development finance and angel finance among others.
Today, we begin to blur the lines even further as we start migrating into more creative or hybrid financing methods. To some extent we already blurred the lines, for example with angel finance coming in the form of debt or equity and the multi-layers of senior debt, equity, mezzanine, JV money and private funding.
Today’s discussion with Thor Portess from Develop With Us is another very interesting one, as he shares how we can work with existing land and property owners in partnership along with other developers and investors too. He talks about how best to structure the deal and determine who does what, with clear expectations, possible outcomes and exits all discussed and documented. So, let’s have a listen to my rather excitable discussion with Thor know and we shall draw some quick conclusions at the end.
Richard: Hi again, everybody. I’m very pleased to have another special guest with me again, on the podcast this week. I’m really enjoying this series, because I’m getting to talk to so many interesting people, about so many different, interesting topics. And, today is no exception, I’ve got Thor Portess on the phone with me today. Hi Thor, how are you?
Thor: Hi Richard, hello everyone. I’m well, thanks, and yourself?
Richard: Yeah, I’m absolutely great, thank you very much. We could talk about a lot of things, in fact we already have, but I think what I would really like to pick your brains on, if I could today, is about Development Joint Ventures. And I know we could talk about a wide range of different financing options—this series is all about alternative and creative financing in property. When we spoke, this one really struck a chord with me. Perhaps, you can set the scene a little bit, just tell us a bit about yourself, your background and effectively I have got you in this chair as a Subject Matter Expert, just give us a quick outline about yourself.
Thor: Yeah, brilliant Richard. So, hi everyone, I started investing when I was 19, so that’s about 18 years ago now, in Australia, using the conventional way of buying property. So, obviously, I have come to the UK, I have been here about 10 years now. And been actively investing in London for the last 7. So, I have mainly used alternative methods to finance deals and to get deals across the line. I started off just after the recession doing Vendor Finance deals, because obviously, it was hard to get mortgages, so, we used Vendor Finance, and then as the market has gone on, and the market has gone up in the last few years, we have typically done Joint Ventures with sellers, also investors, to bring in equity for deals. So, I have personally done over 40 deals so far, and counting. We have done a few more in our company, so, Crowd With Us and Develop With Us, and that’s where we are at today.
Richard: That’s fantastic. Yeah, we could talk about the crowd funding side of it. I don’t know if you have been tuning in, you probably haven’t because you are a busy man, but, over the last couple of weeks we have done a bit of peer to peer and crowdfunding, and that’s one of the reasons why I was going to go into the whole Development Joint Ventures piece. In fact, why don’t we just do that, before we came on air, we started to talk about the different angels, didn’t we, of Development Joint Ventures. Why don’t you just give us a bit of a snapshot into what those are, and maybe how they fit into the overall, I call it financing landscape, because it’s a kind of alternative form of financing potentially, on both sides. So, why don’t you just give us a bit of a lowdown on the different flavours, that we spoke about earlier?
Thor: Yeah, that’s right Richard. So, when someone talks about a Joint Venture, we would think of that in two different contexts. So, one is a Joint Venture with the land owner or the property owner, so, you as a developer, would come in with the finance, the funding and you know, the resource and the knowledge to develop a site. And then, the land owner would stick the land or the property in, and that constitutes a Joint Venture. So, that’s direct with the seller, or the owner of the property. The more sort of, conventional Joint Venture for developers like yourself Richard, like I am sure some of you guys that are listening and their selves, that we would typically bring in finance, so, outside finance for the equity required to either buy a site, or to buy and or develop it. And we do a Joint Venture with the investors.
Richard: Very succinct explanation. So, there will be terminology like, Assisted Sale and this sort of thing. In other words, partner with the land owner, they bring some skin to the game, in terms of the land, so to avoid necessarily purchasing that, that could be a collaboration. But, I think the alternative could be, as you said, the more conventional finance route. So, you in this case, or any Joint Venture partner, could bring money to a project that is viable and got some legs. So, we will maybe keep that in mind, as the discussion unfolds, we could flip flop between the two. But, I guess for the purposes of this conversation, we will probably focus more on the second point, which would be the Joint Venture finance angle. So, just talking about that side, how does it work? How do Development Joint Ventures work, in general terms, certainly from your experience?
Thor: Yeah, so you mentioned Assisted Sale, Richard. You know, there are various terms that are bantered about in the property world. So, the contract we use, we do actually call them a Joint Venture. So, a Joint Venture, is basically, the contract is a legal framework, which sets out who is going to do what and when by. And if you don’t do that, or one party doesn’t do, what they are obliged to under the Joint Venture of what happens in those cases. So, you would typically have a framework of basically, which option you want to talk about where, you, or your listeners or us, we are going in as a developer, and we bring in investors, to finance the deal. And talk about a Joint Venture in that context. So, basically, you would bring in, you mentioned that…and I have heard you talk about in recent discussions, your podcast, peer to peer finance and equity finance. The benefit of doing a Joint Venture with investors, is, if the market turns or whatever, incidentally it probably is right now, it’s more secure for you as an investor, not to be tied into paying a fixed coupon, on the money. So, a coupon is basically an interest and may sort of, turns for everyone who is listening. For example, if you bring in investors, and you say, right, you are going to promise to pay 10% per annum. If for whatever reason, your costs go over budget and the market drops, and you can pay that 10% per annum, it is actually more advantageous to just do a Joint Venture with the investors, as equity partners. So, that means, if the deal goes well, they might make a 20% return, on their monies, because they are getting half of the profit from the deal, for instance, and it might work out at those sorts of returns. And then, similarly, if the market turns, they will get a lesser return, but that’s better for you because you are not obliged to pay them a fixed return.
Richard: Yeah, so you minimise the downside if you like, if the market turns against you, by having an equity sharing arrangement. But, of course, you end up giving away a bigger slice of the pie, either under normal circumstances, or if the market goes ahead. But, I can see where you are coming from, it takes the downside, in case the market turns. I talked before we came on air about tangents, and things, but you just talked about the market potentially turning, I can’t let you make a statement like that without probing a little bit. I’m pretty sure I know what you are going to say, but curious to know why you would say that, why is the market turning right now?
Thor: Yeah, I mean, we are selling properties ourselves, you are in the market yourself Richard, for your listeners, we all can see what’s happening, if you are actively involved in the property game right now, and the market has definitely slowed. So, you know, there is a lot of opinion out there as to why things have slowed down, and potentially where it’s going. We think that it was going to happen anyway, regardless of Brexit. But, Brexit has happened, much to our surprise incidentally, we think that’s actually just compounding, what was inevitably going to happen anyway. We have had such growth over the years, it had to slow down, or top out eventually.
Richard: Yeah, if you follow property cycles, or any kind of economic cycles, it’s exactly that. It goes in a wave, it goes in a cycle, and I guess we were due for some sort of wobble. You know, we obviously had one, I’m sure it’s still in peoples’ memories, even though it was what….2008-2009, we have had a period of growth since then. You probably heard of this specifically, the 18-year property cycle…
Thor: Yes, I have. And there are quite a few different cycles, depending on which analyst you listen to, they talk about it.
Richard: That’s right. But, the bottom line is, things go in cycles, and perhaps, we are due for some sort of, stabilisation, correction, whatever language you want to use. But, Brexit hasn’t helped, you are right. And it was a surprise.
Thor: Yeah, it was. And, its interesting times, on the flipside, the market definitely has slowed down. So, when we are appraising deals, and I’m sure your listeners and you mentioned in our conversation, we have to be cautious when analysing deals in this market. On the other hand, there is still a lot more demand, than there is property.
Richard: Yes, exactly, the fundamentals are still there aren’t they.
Thor: And finance, the cost of finance, actually for Buy to Let finance and Owner Occupiers, you know, getting residential mortgage, I don’t think it’s ever been cheaper really. Has it?
Richard: No, it’s one of the cheapest forms of finance you can get. And as you say, historically low, for quite some time. Yip, there are a lot of drivers there that are pushing people into property. And the need for housing is very, very real. Let’s see what happens over, I don’t know…however long the fall-out from Brexit takes, but certainly in the short-term, it’s going to take some time before that demand dissipates anyway I’m sure. I was going to say Thor, just talking about Development Joint Ventures, generally speaking, fits in. do you think it’s a big opportunity right now, not necessarily right now, but perhaps in the few years ahead?
Thor: Yeah, definitely Richard. I mean as the market has slowed down and turned…we started in the last recession so we know how to operate in this market and im sure, for many of your listeners, they will be thinking the same thing, that if the market is slowing down, it actually creates a lot of opportunity. So, it’s basically a time to be gearing up. That’s why, for any of your listeners, who actively want to be buying, the key thing is to look at raising finance, to get that cash lined up. So, that when you do find a deal, you can execute, and either exchange and do a Joint Venture or whatever you want to do, or buy the property outright.
Richard: Yeah, and I was talking…it’s a well-oiled phrase, banks will lend to you when you don’t really need the money, type of language, you know. If you can prove that you don’t need the loan, they will give you it. So, I think, what I’m driving at there, of course, having access to alternative funding streams, funding routes, as a property investor, property developer, is a good thing. It’s part of the point of this series actually, is to make people aware of what else is out there. And I guess, you provide one of those sources of funding, you know, alternative funding, for developers.
Thor: We do, Richard, yeah. It’s just been a progression of how we have done deals over the last few years, but increasingly, more and more developers…we are all in the same boat, we are all out looking for deals, and we are all out looking for finance. You need both to do the deals, and if you are doing enough deals, you eventually run out of your own cash. So, this is why we have gone off and built our fintech platform and FCA regulated, Crowd With Us, is to raise the equity finance, that’s needed for developers to do deals. There are a lot of members out there that do the 70%, you know the senior debt, but no-one really does the equity, because that’s the most at risk money in a deal, if things go pear-shaped.
Richard: I’m glad you said…well not glad you said the last bit because I was thinking about what I was about today, but, I was just glad you said the whole 70/30 split, you know, it’s relatively straightforward, certainly when you have got a tangible property, to secure 70% Loan to Value, type of lending on short-term loans, or long-term loans from financial institutions. But, it’s that extra 30%, that’s just the deposit on the property, and then of course you have got the cost of development works etc. fees, anything on top of that. And that’s a big gap, and it can amount to quite a considerable part of the overall project expenditure, couldn’t it. We are driving into some of the benefits, I guess, of somebody providing equity as well as debt finance. So, maybe you could help me elaborate that list a little bit…what are the potential benefits to a property developer, of having some kind of Joint Venture arrangement, we have kind of touched on a few already, but, if we can get our shopping list out, it would great…
Thor: Yeah, so obviously if you are a developer, and you have got more deals on the table, than you have cash, then obviously, its beneficial to team up with someone who can provide the equity, to do the deals. So, you know, a lot of developers Richard, we discussed this, a lot of developers will do this themselves and raise the finance, but obviously, it’s time consuming. There are only so many hours in the day. So, we have done and we are continuing to do, we are building a platform, to assist developers, by spending the time to go out and raise that finance, to bring into developers deals and provide the equity for developers, to keep doing deals.
Richard: So, basically, provide the equity funding and reduce the time in doing so, I guess. It is time consuming, you are absolutely right. And, also, we will come on to evaluation later probably, but, there are a few frogs to kiss, like we were saying earlier. But we will come back to that maybe. So, I have been talking a lot to people who are operating finance in various forms, to property investors and developers. And, I use the phrase bankable, but I use it in a very general sense. How do you get yourself for investment of, whether its equity, or debt, or other forms, I guess I pose the same question for you? More from a, if a developer is presenting themselves to a potential Joint Venture partner, i.e. someone with the money, what’s the best way to prepare themselves, so that they have got the best chance of success in raising that money, would you say?
Thor: It’s a good question. So, obviously, you want, if you have got experience as a developer, you want to be able to show that, very succinctly and transparently to any investors. And it is all about sales, and we always use the idea that a good salesman, never has to lie, or tell a mistruth, obviously, you have got to sell the sizzle, but I find that the most successful method, is just being transparent with your investors. If you are not that experienced, let them know. If you are not that experienced, but you are also not confident enough to do the development yourself, bring in some outside experience with another developer, or consultants, or whoever you need to fill that gap. And then present solid numbers. That’s the biggest thing. So, it’s the numbers, about how you are going to make that profit, your contingencies, also, what’s the security for your investor. How is their money secured against the property?
Richard: Yeah, there are quite a few things in there, actually, that I’m scribbling down as well, the exit strategy, or actually more than one. Invariably, you need more than one exit from your deal. Knowing your numbers and providing contingencies in case things go wrong. I quite like what you said about partnering up and being transparent, even if you don’t necessarily have the experience, I’m really interested in that because you can be a relatively inexperienced developer, but you can still take on a project, by bringing in people who have the experience and still make it viable, still make it work for everybody, would you say that’s fair?
Thor: Yes, I think so, it’s case of also being fair. So, you know, we do Joint Ventures, with sort of, novice investors. But we get people with a name and a phone number sometimes, saying we want 50% of the deal. So, we have to politely just educate people in that situation but, there’s more to just a phone number and an address. The deal negotiation and the structure is a big part of how you make the money. You make the money on the day you buy it, ultimately, its tying up a good deal. But, if you have managed to do that, then that’s half the battle, then you have got to get the finance and do the development. So, you know, like you say, can just bring in architects and builders, just do a Joint Venture with a builder. Or, if you are confident enough, we only on very large stuff, we were looking at a Joint Venture with a developer, in Whitechapel, where he gets basically, a fixed return. So, he doesn’t have to worry about building in a margin and contingencies for materials and labour, you know, it’s probably about 5 million GDV. So, if he is doing that on a fixed price, well he is going to work in a few hundred grand as contingency, a buffer. So, on that one, we are confident enough with the materials and the labour, how much that’s going to cost, and we will just pay him a fixed management fee. And in that Joint Venture with him, we will say, look, you are basically working on this site, and we will allow for him to run two other sites. Which will be sort of, maxed out, in terms of his time and how he can commit to each deal. Yeah, I have sort of gone off on a tangent there. That’s the fixed management fee, to manage the deal, as the builder, the main contractor.
Richard: In that example, would he be charging costs of materials and labour, and then just take a management fee off his profit effectively?
Thor: Yeah, he will have a fixed management fee, let’s just say for arguments sake, its £100000, I’m just using that as a simple number, and then he would simply pass on the cost of materials, you know. So, we would run all that through our accounts, and the cost of labour and simply pass that on, and we would pay the invoices.
Richard: So, generally speaking, you mentioned a couple of opportunities, or projects already, but what sort of things are crossing your desk as Joint Venture opportunities? What types of project are out there at the moment, that would lend themselves particularly to, this type of solution?
Thor: Yeah, so the benefit of doing Joint Ventures is, obviously, the benefit of scale. So, we are not as bolshie as some other developers, who have made, some massive success in the last few years. We have taken the cautious and stead approach, because we don’t need to go bankrupt and lessons in this development landscape, we want to be cautious and it’s all about risk mitigation. So, the types of deals we are seeing right now, which the risk is mitigated, to the max and the profit is leverage for the amount of cash we are putting in. Typically, Joint Ventures with land owners, and land owners that actually want to keep some of the properties.
Richard: So, you are seeing a lot of that. People who are sitting on land themselves, who perhaps, don’t have the either, finance or the capability to develop that opportunity, partner with you, they will bring in the land, you will bring in the money, the expertise, to get it delivered. Would that be fair?
Thor: Yeah, and they are actually quite savvy people usually. So, if they are sitting on land that’s worth, £2-5 million, it hasn’t landed on their lap through chance. They are usually savvy business people, who have grafted away, they have ended up with property that’s quite valuable, but they generally don’t have the time and/or the inclination, and sometimes the cash, you know, liquid cash, to actually do the development. That poses a great opportunity for you listeners for property developers.
Richard: And what about the conversions type of landscape, ground up development, i.e. building new stuff on existing land, kind of fits a little bit, into the example you just have just given. But, what about converting brown field site, office space, this sort of thing, are you seeing a lot of interest in that sort of area?
Thor: Yeah, I have got colleagues that have done a lot that, I think it worked well, 3-4 years ago, before it became a well-known, sort of angle, to do developments, but it seems to have been maxed out. And it’s very competitive in that space right now. Or it certainly has been up until now, and pre-Brexit, its more straightforward, whereas if you need to go for planning, and you know, really think about how to structure the deal and the design and max out how many units, the massing on the site. It tends to be more upside on those deals, because they are less straightforward, and also, if the owners want to retain most of the site, all of it if they could, then that’s sort of an angel, that most developers wouldn’t be used to approaching.
Richard: Yeah, that makes a lot of sense. The land owner can still have an ongoing interest, potentially in the project, doesn’t have to give it all away. You also, talking of tangents, when you said something earlier about—you have got this sort of, land available, this property available at their disposal, they are usually quite savvy people. I guess by definition, they are also, high net worth people too, and that takes me into…it’s a bit of a leading question Thor, to be honest, but I guess, you are in the landscape of the high net worth and sophisticated investor, more so, aren’t you with this type of arrangement?
Thor: You are, and people sometimes, think that it’s harder to deals with people who have got high net worth or you know, more assets. But we find that actually, people who are doing well, they understand that, as a developer, you are a business as well, and you need to make money. So, sometimes it’s actually a lot easier to sit round the table and strike a deal that’s mutually beneficial for both parties.
Richard: That’s right. But, it does draw me a bit into the downside risks, of this type of opportunity. I have been speaking with other people as I mentioned, and I’m sure you are aware, with anything to do with finance in property, there are risks. You have already mentioned a couple as we have been talking—for example, if you are lumped with a fixed coupon, or fixed rate of interest in a downturn, that kind of thing. But, what would you say would be the potential downsides to watch out for with Development Joint Ventures?
Thor: Well, one of the obvious risks, is the market… the GDV, the gross development value of the site, so, that’s an obvious risk. The deal appraisal and the structure, you need to work that in, you know, what happens, if the exit is to sell the properties, at a certain margin, if you can’t sell the properties at that price, is there a second exit? So, that’s a risk to manage, and an obvious way to get around that, is to have, instead of 1 year money or 2-year money, have 5-year money in the deal, where everyone is of the understanding that if we don’t achieve a certain return, that the properties get rented and get sold at a future date when it hits that trigger value. So, that’s an obvious risk. And then, I think probably, the next biggest risk is not meeting peoples’ expectations. So, that could be investor partners, or if you are doing a Joint Venture with a land owner, you don’t want to be in the situation where you haven’t met someone’s expectations.
Richard: Which obviously stems from setting the right, or agreeing on the right set of expectations, right at the beginning, doesn’t it?
Thor: It does. And I think that’s where the transparency really comes into play. It’s just being open and upfront with people at the start and not leading people up the garden path, in terms of ramping up their expectations, for something that’s unrealistic to achieve. So, we tend to use the conservative approach. We will say, look, this is the conservative level that we are looking to achieve. Because it’s pretty much guaranteed, you can’t say guaranteed of course, but 99.9% certain we will get this because of all the planning constraints or whatever constraints you are working with. Then you say, look, this is the potential upside and this is what we are aiming to get. But, its clearly illustrated and outlined in your Joint Venture contract, that that’s what you are aiming for, but worst case scenario, this is you would potentially be left with, if you didn’t get that best-case scenario, or its going to be somewhere in between.
Richard: You have made a lot of good points, I think—talking about transparency and good sales people don’t have to lie, be open about what you are aiming to achieve and have alternative exists, different scenarios…if it goes well, if it doesn’t go so well. There is a lot of ethics actually, in what you have been speaking about. I think, in a landscape, where ethics can be thin on the ground…we haven’t had a long conversation about this, but it strikes me that that’s important. You see that as an important ingredient, in terms of developing, long-term successful partnerships, in this type of venture. Am I right in thinking that?
Thor: Yeah, 100%. I think we are—you mentioned something in the conversation we had off line, Richard…that this is a people game, we are dealing with the property, but it’s really a people game. And if you can good deed, by someone or with someone, then that will lead on to more business. And we have had a lot of sellers, where we have done Joint Ventures with sellers, or we have taken Options to buy properties or whatever, got the outcome, that we were setting out to achieve for the sellers, and they come on as Joint Venture partners, or Angel Investors, in future deals. So, you know, I mean, that’s a brilliant result to aim for.
Richard: Yeah, I think, I might be at risk of taking us down a tangent here, but I think it’s a long-term game. And there are lots of people with money around, but if you don’t nurture them, nurture the relationship, deliver on your promises, all of that, demonstrate good values and ethics in the way you operate. You probably won’t deal with them beyond the first opportunity, if you don’t look after them. You might not even get to the first opportunity, of course, if you don’t display some of these characteristics. But, of course, if you do, and you deliver on what you say, and even if, let’s face it, things can also go wrong, but if the way you tackle things that go wrong, is transparent, and ethical, and you open communication etc. chances are you will get a lot of respect, and you will get a lot of repeat business with them, as you kind of alluded to.
Thor: Word of mouth is the best form of marketing. If you have got repeat business, and your previous clients are selling the virtues of working with you, then less resources need to go into marketing to raise finance and find more deals, which are the two big things that all developers are doing constantly.
Richard: Yeah, I want to talk about resources in a second, because, I think there is something interesting there to talk about. Maybe before that I just wanted to ask, is there anything I haven’t asked you that you are thinking, Richard, I wish you had asked me this question, this is so relevant, its burning in my head, is there anything like that that you want to get out there? There might not be, by the way…
Thor: I think there is a lot of uncertainty in the market right now. But the smart money has probably anticipated this, you know the large investors. It’s probably been on the cards, for the last year or two. There are going to be some great opportunities out there, so it’s time to get ready, to capitalise, to basically do some great deals, but also to be cautious. Because, the finance world is changing, although the interest rates are quite cheap, there is talk of the deposits, that are needed for Buy to Let mortgages, being quite significant in the next year or two. This is just what I have heard from brokers that we are speaking to, who speak to the banks.
Richard: Oh, there is definitely a tightening up, certainly in conventional Buy to Let, isn’t there? I think with affordability checks coming in and the rent coverage percentage is going to be increased, the stress testing level is going to be increased. It all points towards a stricter regime for the lending. But, I’m wondering therefore, if development is a better avenue?
Thor: Yeah, potentially, so long as the numbers are right. I mean, if a developer is working on 20% margins on todays’ values, it might not be enough. If the market does turn, and it has slowed down already. And if you need to get stuff shifted, then the only way to shift it is to drop the price…
Richard: Yeah, I think a lot of people lose sight of this. They think 20% is a pretty decent margin, but as you rightly say, you can be in a development for a couple of years, so to some extent. And it could turn against, and 20% could be gobbled up quite quickly.
Thor: Yes. And the cost of your senior finance, that can rack up quite quickly, so you don’t want to be hanging onto properties unless you have got some long-term finance in there as a back-up.
Richard: So, as Buffett says, I’m not sure which way round he said it, off the top of my head, but be greedy when others are fearful, and fearful when others are greedy. But, you were saying it’s a time for opportunity…providing you have a conservative type of approach.
Thor: Yeah, when all the amateur investors are running for the hills, it’s time to go and start doing more deals, like Warren Buffett says.
Richard: Fair enough. Sounds good to me.
Thor: My business partner has met him on a couple of occasions actually so…
Richard: So, thanks for that little anecdote, of where you see the market. It’s been really fascinating. What I tend to ask, some of our Subject Matter Experts, of course, like yourself Thor…is there anything special, or unique or some kind of offer that maybe you could make available to listeners of The Property Voice, is there anything in that regard that you have in mind?
Thor: Yeah, as we mentioned earlier Richard, we don’t have any sort of sales and brochures or anything like that, or information on things, it’s all on our website. But in terms of, if one of your listeners is, or some of your listeners are not massively experienced, in terms of property development, then we have a very systematic way of appraising a deal. So, if one of your listeners has a prospective lead, that they are looking to do themselves, we are quite happy to do to run through the numbers and do a 5-minute desktop appraisal. So, that basically looking at your, reverse engineering method, which most developers do. So, you look at your Gross Development Value of what you expect to achieve, your development cost, which is the cost of developing the site, obviously, then you have got your deal costs, which we break down separately, to development cost. And that’s typically, your Stamp Duty, your finance, which is the one, and then your entry cost into the deal…you know, your legals, insurance etc. And then, your exit costs, which the main one is your estate agents’ costs, and your exit of the finance, if there is a redemption penalty there. And then, you obviously, work out your profit margin that you need, or you are comfortable with, and then looking at all of that, you end up with your Residual Land Value, which is the amount that you would willing pay for the land, or the property, to do a viable deal. So, yeah, we can send a spreadsheet of to any of your listeners and run through it. As I mentioned, it probably wouldn’t make much sense if we just sent them the spreadsheet, because our guy who analyses all the leads, he is an ex-banker, and he is a bit of a master on spreadsheets, so they can, be a little confusing, on the bigger ones. But the 5-minute desktop is straightforward, and basically enables you to analyse a deal in 5-10 minutes.
Richard: Oh, that’s great. So, basically, I guess what you said there is, you have got a spreadsheet which allows any would be developer to appraise a site. But equally, if I understood what you said correctly, you would help alongside them, to guide them through that process, is that right?
Thor: Yeah, we would run through them, the analysis, with the listener, who is analysing their lead, or their deal, if they think they are going to go and buy it. And as I mentioned to you before, we have an in-house programmer, who we employed full-time to build the fintac platform with us, he has developed some…we use APIs to pull down Land Registry data, so if we have got the address and we know the type of properties that we going to building. you know, it could be houses, we will run a search within a quarter of a mile radius of the house, to pull down all of the sold prices, within the last 12 months. So, that used to take us hours, probably 3-4 hours, to go after Rightmove, Home Track, Zoopla, Find a Property, and Land Registry has some data there, that takes us about 5 minutes now.
Richard: Very good. Well I’m sure a lot of people will find that valuable. So, it’s probably the natural question, as to how can people get in touch with you Thor, what’s the best way for people to get a hold of this spreadsheet and start talking to you about some Joint Venture Development Opportunities?
Thor: Yes, our website Richard, is the easiest way. So, its developwithus.london and our phone number, emails etc. are there. That’s the easiest way to get in touch.
Richard: That’s developwithus.london, ok. I guess there is the crowdfunding one, do you want to just mention it just in case people have got an interest in that?
Thor: Yeah, if people are interested. We are actually still building that, we have spent a lot of money on it. But its crowdwithus.london and we are just working with a principal firm right now to get some interim permission before we apply for our own. but yeah, we have a lot of off-line investors, that’s how we have traditionally funded deals, and we are still doing that. But we are looking to use tech to bring all of that online and systemise and optimise it.
Richard: That’s brilliant. So, developwithus.london and the offer of the desktop appraisal development spreadsheet and maybe a little bit of guidance along the way and even potentially I suppose, partnering up on a potential development opportunity. So, there is quite a lot there I think.
Thor: Yeah, we always love to share information and help people do their own deals. But you know, you never know where things go and you sometimes end up doing a deal with people.
Richard: Exactly. I think it’s about reciprocity, giving and you get back. Thanks for your giving today. I appreciate that. It’s been really good to talk to you. Both, during the formal interview process and obviously beforehand as well. And I hope we carry on talking afterwards. It’s been very interesting, very fascinating.
Thor: Likewise, Richard. Thank you for putting in the time and I think it’s great what you are doing. Providing valuable content to your listeners and I am sure everyone is very appreciative.
Richard: Thank you very much for that final note. I shall definitely make sure that stays in the edit!
Thor: Exactly.
Richard: Thanks Thor and I will speak to soon. You take care.
Thor: Brilliant, Richard. Thanks for that. Thanks everyone.
Property Chatter
Interview with Subject Matter Expert: Thor Portess.
To receive a copy of Thor Portess’s development site appraisal model and the offer to be guided through it on a real opportunity, visit www.developwithus.london/contact and mention The Property Voice when asking to receive a copy of the development appraisal spreadsheet.
I really enjoyed the discussion with Thor as it was clear that he has an alternative approach to doing deals rather than just the conventional approach. JVs with land and property owners and partnering with existing developers to provide much-needed equity as well as debt finance being just some of the angles he raised with his brand of Development JVs.
There was a lot of ethics that came out in our discussion, which I won’t labour here too much. However, it is extremely relevant I think as JV partners are not like London buses unfortunately with two a minute turning up. This means that we need to act with integrity and transparency as Thor said and this not only helps to convince at the outset but can also help to ensure an enduring and repeating business relationship spanning several projects too.
I also appreciated Thor’s conservative approach. In fact, Damien and I were just laughing at how miserable we are when it comes to projecting the end values on projects just before I recorded this. Miserable could also be translated as conservative and so that means protecting the downside when it comes to doing a development appraisal…which is doubly important when working with a JV partner and their funds.
This may not be the last time we talk about joint ventures in this series, however, I am sure you found this discussion to be a very worthwhile one if ever you find yourself in a position of wanting to scale, or having more deals than your funding allows.
It seems to me that this series has been the one you have enjoyed the most, certainly judging by the download numbers…would that be right? If it is, then please do me one small favour, would you…just pop over to iTunes right now and leave a nice little review for the show, would you? That would be great if you could. But even if you don’t, just take a look at the one left there by PontesValter, which pretty much made my year! That certainly helps me to keep going I can tell you 😉
One last thing before I go, Damien and I are running a Property Business Planning Workshop in London on 26th November. We are sharing over 30 years of experience for the benefit of your property business in just one afternoon. There is a link in the show notes with full details of the event. Tickets are very limited and as the event is being run on a cost-recovery basis only, we expect them to sell out fast. We will be walking through our property business planning tools and templates with the aim of making YOUR next year in property the best one yet. And if nothing else, you can meet us face-to-face and have a bit of a laugh after the event at a sociable Happy Hour as well.
As always, do email me personally if you want to talk about anything from today’s show, for more info on our workshop or more general in property investing to podcast@thepropertyvoice.net, the show notes will be over at the website www.thepropertyvoice.net
Now all that remains is to say thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.