What to do when a development doesn't go to plan

We all know property development is a business where lots of variables exist and, where there are variables, there’s the capacity for something unexpected to happen.

A scheme can be viable, appropriately funded and ready to progress, only for circumstances to change along the way. Construction costs can rise, markets can move, contractors or subcontractors can go bump and unexpected issues can emerge once work gets under way.

Unfortunately these risks are a fact of life, so much so, that in development you have to get comfortable with some level of uncertainty. When the plan falls apart for reasons outside your control, despair and panic are not the options. The first priority should be a conversation with your funder.

The earlier you can speak to your lender, the sooner everyone can understand what has changed and start working out what can be done about it.

That’s where a genuinely relationship-led approach to development finance can make a significant difference.

Let’s explore it in this short article.

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Start by understanding what has actually changed

There are lots of possible changes that can lead to a rethink.

Take a construction budget that was prepared 12 months ago. If updated monitoring suggests the development now requires significantly more equity, there’ll naturally be some concerns that spring to mind for you and your funders. Before making any major decisions, it’s worth establishing whether the original budget still reflects the reality of delivering the scheme today.

• Has the market moved?  

• Have construction costs changed?  

• Is the scope still the same?  

• Are there opportunities to value engineer elements of the project without compromising the overall quality of the development?

Before you make any snap decisions, these are all important questions to know the answers to. To wrap your head around them, it’s a good idea to get everyone around the table including your lender and relevant professional team. With everyone’s input you’ll be better placed to understand exactly where you are.

Depending on the issue, that might mean involving the monitoring surveyor, project manager, contractor or another specialist. It may also mean getting everybody together on site so the problem can be understood in context rather than simply through a spreadsheet or report.

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Communicate clearly and early

The benefit of a relationship with your lender that’s based on honesty and trust is that you can be open with them at the first sign of stormy seas. An issue addressed early is much easier to find a solution to than one that’s sprung on your team at the last minute.

It just gives you more options.

It’s also important to note that that openness works both ways. Relationship-led lending means you get direct access to people who understand your project and can have a practical conversation about what’s happening. At VM Finance, our clients have direct contact with members of our team rather than being pushed through a central system every time they need to discuss an issue.

That relationship becomes particularly valuable when something doesn't go according to plan.

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Get the right expertise around the table

Not every problem on a development is purely financial.

Planning, construction, legal and technical issues can all affect delivery, and sometimes solving the problem means finding expertise outside the immediate project team. This is where a lender with a strong professional network can help.

If a specialist issue emerges on one of our clients’ projects, we always look to introduce them to somebody with the experience to understand it if we’re able.  

We’re not saying we have the answer to every question, but as relationship-led lenders, we do everything we can to work with our clients to find solutions to problems. It’s that willingness that’s important to the project and to our clients.

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Look at the options available

Once everyone understands the problem, you can move the conversation towards what needs to change. The bad news is that there isn't a universal answer to every problem. Every development and every challenge is different so it stands to reason that every solution will have its own idiosyncrasies.

It could involve revisiting the construction budget, value engineering elements of the scheme, bringing additional equity into the project or reconsidering aspects of the delivery programme.

In some circumstances, additional time may also be part of the solution, but extensions aren't something that should simply be assumed or treated as standard. However, where there’s a credible route to completion and additional time can help get a viable project delivered rather than allowing it to stall, it can be worth having that conversation.

The important point is that any solution needs to lead somewhere. Providing more funding or more time without a clear plan for delivery doesn't create financial wellbeing for the borrower, lender or anybody else involved in the development.

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Keep everyone focused on the same outcome

When a project hits difficulties, the interests of the borrower and lender are aligned more often than not. Both ultimately want to see a viable development completed successfully.

That doesn't mean every problem has an easy answer or that a lender can simply provide additional funding whenever something goes wrong. You’ll still need to demonstrate how you intend to respond and follow through on the agreed plan. But where there’s a realistic route forward, lenders like VM can play an active role in helping you find it.

That’s an important part of relationship-led lending.

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