Small and medium size property developers continue to have a hard time of it after the hammering many took during the financial crisis ten years ago.
Or at least that’s what the most recent Federation of Master Builders’ report into the sector portrays, revealing that only 23% of all stock is built by SMEs, a figure that has stubbornly refused to alter despite government attempts to give them a clearer shot at increasing volumes.
But look around and there are examples of companies doing extraordinarily well in their niches, playing the development game tactically and with plenty of verve.
Beau Properties fits squarely into this category, having been grown by founder Chris Hammond almost accidentally from a single renovation in 2010 into a fully-fledged multi-tenure property development business with a seven year plan.
It all started when he and wife Georgina were living at their parents and commuting into London-based careers to save up for their first home.
The couple realised the sales market didn’t offer what they wanted for the money they had to spend and bought a property to do up instead.
Amazed by how much more it was worth following the upgrade, instead of moving in they then carried on and completed 13 renovations in five years all around south east London.
“I worked at a sports management company and knew I wanted to work on the 2015 Rugby World Cup in London so I set my sights on that before starting up Beau Properties,” says Chris.
“I chose it because the skills are quite transferable so my previous job was running operations for the Open and the Ryder Cup golf tournaments on site, and similarly I ran the commercial operations at Twickenham including looking after sponsors.
“It’s the same on a building site – you’ve got timelines to manage and deadlines to meet, and you have multiple different stakeholders but instead of companies from the sports world, I’m now dealing with sub-contractors.
“You just have to ensure they all work together well.”
Beau Properties then moved its centre of operations to Tunbridge Wells in Kent where the pair grew up and brought friends and family on board as investors to fund growth, moving into commercial to residential conversions as well as its bread-and-butter house renovations.
Then last year they sat down and hatched a plan to increase the company’s cashflow and recently began investing in the north of England.
This includes several newbuild properties in Sheffield and a block purchase in Southport.
“We felt that now is the right time to invest having done quite a lot of research up north, which was a change in strategy,” he says.
“Georgina and I felt that yields in the South East are pretty slim compared to what you can achieve up north, but I also see potential capital growth up there too as well as the opportunity for relatively hands-off investments.
“The block purchase we’ve got going through has a lead tenant in there for three years and there’s been an agent who historically deals with the site; so it’s just a cash flow investment, effectively.
“It’s interesting though; it’s operated by a short-term Airbnb type operator and is very close to Royal Birkdale golf club. It’s designed to appeal to golfing holiday makers.”
In its bid to increase cashflow, Beau Properties is also now only flipping approximately 30% of its developments and instead adding the rest to its fast-growing rental portfolio.
“We get a feeling from projects early on whether there’s money to be made and then we run the numbers and work out how long it will take to get our money back out of the deal,” he says.
“For example, at a recent site the planning gain meant we could get all of our money out straight away, so that was an ‘add’ to our rental portfolio, where until recently we would have just sold it.”
This focus on rentals has also led it down an unexpected route; home staging, which Beau Properties now uses at both its more upmarket rental and sales sites, in partnership with an interior designer.
But what of the future for this model small developer? Chris says when he started out he was hands-on with each project.
As the business grew, he took a step back and brought more people in and, instead of moving from one project to the next with a three month wait in between, it became a continual flow because he could concentrate on teeing up the next projects.
“Soon we could run two projects side by side. Deal size and flow is therefore now growing,” he says.
Despite the growth, Chris says he’s sticking to one of his key strategies; to only buy sites that don’t have outline planning, using a team of local planning consultants and several architects to get applications through successfully.
“Planning is still a lottery, though,” he says. “We recently had an application we thought that we’d easily win but it was turned down and is currently in appeal.
“On the other hand, one of our other projects, a dentistry surgery conversion, went through first time without appeal.”
The good times are clearly rolling, but is the company ready for a potential post-Brexit downturn?
Chris says he has two strategies that may insulate the business to some degree from a severe housing slow-down.
The first is that the company takes both the planning and development gain profit from each site, widening its margins and limiting its exposure to a house price slump. Secondly, the decision to focus on rentals more means the business could easily switch wholly to being a landlord during a financial storm.
“I’ve listened to stories about the last downturn and how so many developers were horribly exposed and over- leveraged. I try to limit the downside risk while maximising the upside.” The next few months will tell if he is right.