Urban Living webinar: The unknown GDV (Gross Development Value) and its impact on funding new development projects

In the latest IHM Urban Living webinar, guest host Bethany Fisher explored how real estate construction has been affected during the crisis.

Joining Fisher in the discussion were: 

  • Emma Burke, Deal Origination, Maslow Capital LLP
  • Andrew Hosford, Managing Director, Pure Structured Finance
  • Russell Kett, Chairman, HVS, London
  • Patrick Smith, Investment Director, Frogmore

Fisher kicked off the discussion enquiring whether residential and commercial properties are experiencing the predicted drops in valuation that are reported in the national press. Speaking about the hotel sector, Kett claimed that hotel values are down because their perceived future earnings have been hit. The majority of hotels have witnessed a drop in value between 10-20 per cent, which Kett maintains is “midway between the best and the worst case”.

Smith contends that the press is more negative than it needs to be, stating that: “Transactions are coming through, the comparables are now being done, and mortgages are happening which is enabling schemes to come through, which is positive. Long may it continue.”

Burke added: “What we’re finding is the more affordable the stock, the less impacted the GDV is. The more tricky or more bespoke a development is and the more difficult it is to value, then there’s a lack of transactional evidence… you’re then having to ask the client what they’re doing to overcome this. You really need development expertise to shine through in the next couple of months to overcome those issues.”

Following this comment, Fisher asked to what extent is a lack of transactional data impacting the viability of new developments. Hosford concurred that it’s key to have the right professionals around on projects. He said: “Whereas before we might’ve been able to sway a lender towards using a certain valuation, I’m sure now you’re probably focusing on working with those you truly trust. It’s all about pulling together now.”

Whilst Hosford specifically noted that big single units in central London will now be “even tougher”, Kett added that any new development scheme will likely to come under much closer scrutiny. Some will not even come to light and some will be abandoned, with overall supply of hotel accommodation somewhat reduced compared to pre-COVID levels.

Smith described the problem as being unlike any previous recessions, which were more rooted in supply and liquidity issues. “Ultimately, this is going to be about speed and how quickly confidence can rebuild and how quickly we can go back to relative normality and functioning how we used to,” he said.

Fisher then asked whether loan to GDVs have been capped as a result of it being difficult to ascertain, and what developers options are if this is the case. Burke admitted that at Maslow, the company shied away from announcing that loan to GDVs are capped, instead favouring to assess each opportunity on its own merits. She also warned that lenders and borrows should bear in mind Brexit as well as coronavirus, and the likely impact this can have on supplies and labour.

Hosford added that the rebirth of the mezzanine lender into the market is helping to achieve the level of loan to value that the client needs. “It remains to be seen whether that’s sensible long term,” he said, “as we don’t know what it’s going to sell for. If we get a second lockdown or further restrictions are put in place, then what does this do to the timescale of a development? That said, it creates opportunity for mezzanine and equity lenders if the scheme is right.”

The full recording of the webinar can be watched here. 

This week’s webinar, on Wednesday August 12th at 2PM BST, will focus on money v meaning (social purpose) and the role of ESG in the investment case mix. Hosted by Adam Maclennan, managing director and head of UK and Ireland, PFK, hotelexperts, the session will feature:

  • Richard Berridge, Blackbird Real Estate Advisory
  • James Fry, Founder, Beyond Aparthotels
  • Leslie Gent, Head of Responsible Investing, Coutts
  • Josh Littman, VP Development – Europe, SH Hotels and Resorts

Registration is available here.

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