Finance markets

Navigating the ever-changing insurance and finance markets with J3 Advisory – Show House

Advisory J3, the insurance against structural defects and specialists in structured real estate finance, are revolutionizing the advisory market by combining their valuable knowledge with a refreshing, consistent and truly impartial approach. Managing Director, Jack Bristow, and Trustees, Johnny Leadsom and James Mole, are committed to providing transparent, non-confrontational and pragmatic advice, not only to save homebuilders valuable time and money, but, perhaps most important of all, the peace of mind that the advice given is the best for each development, with no hidden agenda.

We spoke to J3 Advisory about the current state of the collateral and finance markets, and what to consider when sourcing building collateral and finance.

Evolution of the warranty market

Johnny – “With the current volatility in the insurance and finance market, it is becoming increasingly difficult for homebuilders to find the right warranty coverage and financing for their developments.”

“We are seeing a number of market-leading insurance providers used by some of the most prolific homebuilders losing capacity, which means they are unable to write new business.”

“This is where working with an advisor can be vital as we can guide developers to corners of the market that have sufficient levels of capacity and appetite. developer was used effectively.

Jack – “Generally insurers’ appetite has waned and fewer providers are looking to write about what they consider to be riskier projects, such as partially completed or completed projects.”

“We constantly monitor the market and at present there are only a handful of insurers who are willing to underwrite on partially completed or completed projects. Homebuilders can easily waste valuable time talking to uninterested insurers, while an advisor can save that time and remove unsuitable or unavailable insurers from the table.

“We think our free construction warranty calculator can be particularly useful for companies that have a partially completed or completed program, as they need to be able to act quickly and understand the costs involved. Once they have that initial information, we’re here to help them get things done on their behalf and help them get the right policy.

Evolution of the financing market

James – “We are also seeing a similar change in the appetite of some funders. In particular, a handful of lenders who have particular lines of funding overseas are starting to feel a bit more nervous about certain areas of UK lending at the moment.

“We are currently seeing a withdrawal of some lenders from the conversion and renovation markets in particular. This is likely because both of these sectors tend to rely heavily on current market value during the initial underwriting process and appraiser jitters make things difficult.

“Another interesting trend we are starting to see is the rush to fixed rates from lenders who have historically offered floating facilities and then conversely those who were already offering fixed rates have now started offering floating rates. Both have advantages and disadvantages and should be carefully weighed alongside other associated clauses.We spend a lot of time modeling different financing structures for our clients to determine which combination of debt instruments provides the best overall solution. our customers to make better, more informed, faster decisions.

“Finally, the more cautious approach that lenders are now taking is also reflected in their security packages. Asset and liability controls are increasingly stringent and with more due diligence for the parties involved. Entrepreneurs involved in developments, for example, can expect their balance sheets to be scrutinized in much greater detail.

What to consider when looking for a construction guarantee

Jack – “There are a number of considerations for developers when choosing a construction warranty provider. First, we would always recommend developers to ensure that the recovery cost and policy compensation limit reflect each other.

Johnny – “You will also want to check that the insurers underwriter has a financial rating from one of the UK rating agencies. While no one can completely guarantee an entity’s creditworthiness, these ratings assess and assess a company’s creditworthiness and reassure their network that it is a reputable company on a solid financial footing.

Developers should be aware that insurers not backed by A-rated underwriters will have a shorter list of accepted lenders in their panel, which will negatively impact unit sales.

“Finally, demonstrable experience is essential. Real estate professionals and developers need to understand insurers’ appetite and experience for similar sized projects. »

Considerations when seeking funding for programs

James – “A common situation we see is that developers rely on existing relationships, for convenience more than anything. is always the right one or not.. If these funders are unable to offer attractive terms on a particular site, it may make sense to find a more suitable funder.

Jack – “It’s helpful for developers to have a balanced approach between having trusted vendors and alternative options so they’re not tied to one or two vendors no matter how relevant. We can find those options alternatives that customers can consider instead of spending time cultivating new relationships, and also provide market insight to act as a sounding board and independent advisor to help them understand what they need and where they can find it. “

James – “As an example of the difference this can make, one of our clients, an SME developer, approached us looking for alternative financing arrangements after receiving uncompetitive rates from a lender with whom he had worked for many years. They had been offered a floating rate of 8% whereas we were able to find them a rate of 6%, which represents a saving of around £200,000 over the period and gave them a contribution to their cash reserves needed to continue and buy other sites.

“Smart structuring is also becoming more important and something developers need to consider when seeking funding, especially now that interest rates are rising and developers are getting less ‘day one’ money. For example, with a multi-phase program, it is often possible to use the residual value of land from later phases, thereby minimizing a developer’s “cash” input into the transaction”.

“Smart structuring is something we particularly focus on and advise our clients on, as it is something that can make a big difference in terms of freeing up funds so they can be used elsewhere.”

The importance of independence

Unlike many brokers, J3 Advisory offers advice guided by common sense and truly independent. Everything is done in the best interest of their clients, without affiliation with insurers or lenders. This means that by working with them, home builders can rest assured that they will receive the best recommendations for each specific project. As a result, developers will most likely save money, but certainly time, and have a reliable source of expertise and advice they can rely on to guide them in the right direction.

Jack – “We all know that thorough research and shopping will find the best deals, whether a company is looking for a building guarantee or financing. No one would expect a home builder to spend all that time researching multitude of quotes across the whole of the market, but it needs a trusted partner who has access to all of them.That’s where we come in and, combined with our independent approach, can open up the entire markets of insurance and financing to our customers to find them the best solution.

As part of their transparent approach, J3 Advisory has launched its completely free Construction Guarantee Calculator. It allows developers to instantly get an idea of ​​their expected warranty costs, with no commitment or obligation.

Learn more about Board J3 and the services they offer on their website, or by contacting them on 0203 096 0718.

You can find the free version Warranty Calculator here.

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