Funding

I write this piece from a more unusual perspective than the average regeneration player.

I am managing director of KUD International, which sets out not just to develop schemes, but to fund and financially guarantee their delivery. I am also a director of the Central Salford Urban Regeneration Company, so I can approach the question of what funders want from regeneration schemes with a triple insight in mind – developer, funder and regeneration agency. Here are six points to consider:

• Return and risk

Above all, and at the risk of stating the obvious, what funders want is a sound return. However much we may all love working in regeneration, in the private sector we are all in it for profit to one extent or the other. Different funders will have their own views, though, on whether they make this return over a short, medium or long-term period, and how much of the risk they are willing to take on any given project.

This plays a big part in the funding equation. Who will take risk on, how much will they take and where will the balance lie? Funders need the comfort factor of knowing this up front and it helps if the developers know the appetite of any particular funder.

The developer needs to consider the risk that it is willing to take and what it is asking of its funding source. And of course, those that take the most risk potentially get the greatest reward.

• Funder involvement

A related question is the extent to which funders should get involved in the minutiae of projects, rather than just stumping up cash.

Some will take a hands-off approach to the physical development and delivery of the scheme, wanting to rely on the expertise of the development team to come up with the goods. Others will want to stay closely involved throughout the process, believing that in this way they minimise their exposure. It is important to get the right level of openness: building trust through transparency is one thing, airing warts and all is something completely different.

Openness is important, not because funders do not trust (well, one hopes not) the development team to deliver, but rather because they see that by staying closely involved they are more likely to deliver the scheme as originally intended. The result is that the best financial returns are generated for all involved and a scheme’s asset values are maximised.

So a main question for funders is one of day-to-day involvement. Should they be silent partners or active champions? Developers, local authorities and landowners should also consider which working relationship will suit them best.

• Doing your homework

Let us dissect a typical regeneration scheme. Beyond the obvious and immediate desire for return on investment, funders want to buy into a vision of the development you are asking them to invest in. This needs to be thought through for the long-term and sold to the funder.

Funders will want evidence of forward planning and assurances that costs are reduced where possible, that potential hazards have been identified and that routes to negotiate these are considered. Going in blindfold and unprepared is not an option. Of course, it is all about having a business plan which works, not just for you, but the funder as well. Why else will a third party part with large sums of money? And especially so when the market is as competitive as it is these days.

So, doing your research, doing it right and presenting a case is vital. Have legal frameworks been put in place to help prevent cost and schedule over-runs? Forward planning is critical and will help prevent what I call the Oliver Twist approach to development finance – “Please sir, can I have some more?” – because extra money will not always be available.

• Timing is all

You will also need to convince your funding partner that you are entering your project at the right time in the economic cycle. Ideally, this is at the early stages of an economic upturn. Funders will want to see an upward spiral, where confidence in the market is growing, land parcels and scheme phases can be released tactically and, overall, development values reach higher levels. This is vital for a developer but also for a funder, too.

• Give your funders the chance to walk away

If making the right entrance, grand or otherwise, is important for funders, so too is making the right exit when the curtain falls. Your financial partners must have an exit strategy. At the outset they will wish to consider for how long they wish to stay involved and the point at which they move on.

Will they continue to invest in the development long-term or will they want to sell and make a quick buck? Developers and landowners need to understand where the partner is coming from in this respect, and plan for life after the funder takes a bow and leaves the stage.

• The right people

Finally, let us not forget good old-fashioned human nature, and the desire to work with people whom you like and who inspire confidence – people who give reassurance. These are people who recognise the important role that funding partners have to play, not just in filling the bank account but in helping practically to deliver a scheme. They’re people who are credible and can demonstrate a decent track record.

In simple terms, it pays to think like a funder. Put yourself in their shoes, and if you believe in them as partners, more likely than not, they will believe in you.