The evolution of development finance marks a significant shift in the UK’s property sector, allowing SME developers to meet crucial demand
In recent years, the landscape of development finance has undergone a significant transformation. Small and medium-sized enterprise (SME) development companies are increasingly raising funds from individual investors, thereby bypassing the traditional bureaucracy associated with conventional senior lenders. This shift has been particularly pronounced in the UK’s property market, where the persistent housing supply shortage has driven rental yields to new heights, particularly in prime locations.
Meeting unprecedented housing demand in the UK
The UK has been grappling with a severe housing shortage for years, leading to soaring property prices and escalating rental yields. Prime locations, especially in major cities like London, Manchester, and Birmingham, have seen unprecedented demand for rental properties. This scenario has catalysed the growth of “build to rent” (BTR) development schemes, where developers opt to retain completed projects for long-term rental income rather than selling them outright. This model not only provides a steady income stream but also offers potential for capital appreciation over time.
SME developers embrace alternative funding
Traditionally, property developers relied heavily on senior lenders such as banks and large financial institutions for project finance. However, the stringent lending criteria and extensive bureaucratic processes of these institutions often results in delays and inflexibility, which can be detrimental to project timelines and profitability. In response, SME developers have increasingly turned to alternative funding sources, particularly from individual high-net-worth (HNW) and sophisticated investors. Oakridge Property Group was founded in 2023 to introduce HNW and sophisticated investors to proven SME developments companies. Since their launch the company has successfully raised over £25m in structured unlisted corporate bonds. The company operates as a boutique property company with offices in the UK and UAE. Oakridge has registered over 150 individual investors in the first year of trading offering bank-beating returns and facilitating the funding of four proven UK SME development companies.
This approach allows developers to access the necessary capital more quickly and with greater flexibility. Moreover, it provides investors with the opportunity to achieve higher returns compared to traditional investment avenues, albeit with higher associated risks. This mutual benefit has fuelled the trend, creating a robust ecosystem where SME developers and individual investors thrive.
Unveiling new sponsorship banners at a local community day is, (left to right) Tommy Burslem Bishop Stortford Community Sports Club Captain, Sam Bright Managing Director of Oakridge, and Peter Burslem Chairman of BSCC
Oakridge Property Group: A case study in alternative funding
Oakridge Property Group exemplifies the success of this alternative funding model. As a boutique property company, Oakridge has positioned itself at the forefront of this trend by establishing a highly lucrative development finance department. This department specialises in earning arrangement fees for introducing HNW and sophisticated investor clients to developers in need of capital with all fees secured from the developers profit upon completion of any funded project. This fee structure ensures there is no conflict of interest representing individual investor clients with compliance paramount for any non-regulated investment activity.
Oakridge’s approach is distinguished by its strict criteria for raising capital. Before committing to any project, Oakridge conducts thorough due diligence to ensure that the developer’s project is viable and has a high probability of success. This includes evaluating the developer’s track record, the project’s location, market demand, and financial projections.
Additionally, Oakridge provides ongoing governance on the projects they fund, thereby protecting their investor clients’ deposits. This governance includes regular project monitoring, financial oversight, and ensuring compliance with agreed-upon timelines and budgets. By maintaining such rigorous standards, Oakridge not only mitigates risks but also builds trust with their investors, fostering long-term relationships and repeat business.
A win-win proposition
The shifting landscape of development finance has been a boon for both SME developers and individual investors. By bypassing traditional senior lenders and embracing alternative funding sources, developers can expedite their projects and achieve greater financial flexibility. For investors, this model offers an attractive opportunity to participate in high-yield property investments that were previously accessible only to institutional players.
Oakridge Property Group’s success illustrates how SME developers can leverage this trend to fuel their growth. Their stringent criteria for capital raising and ongoing project governance ensure that both developers and investors reap the benefits of their investments. As the UK’s housing market continues to evolve, the role of alternative funding in driving property development is set to become even more pivotal, providing a sustainable solution to the country’s housing challenges.
In summary, the evolution of development finance marks a significant shift in the property development sector. As SME developers and individual investors continue to navigate this new landscape, companies like Oakridge Property Group will play a crucial role in bridging the gap between ambition and achievement, ensuring that quality housing supply meets growing demand.
Further information
oakridgepropertygroup.co.uk
