30th April 2024

Profiting from Residential Development Investment.

The key to investment success is spreading risk.

A thought-leadership advertorial written by Steve Chambers and featured in Blue Bricks March / April 2024 Edition.

I started my career in banking, as a graduate trainee with Natwest, followed by Hill Samuel and Lloyds.  25 years later, having funded the original MBO, I joined Barwood Developments in 2000 as finance director to source funding for the business.  Barwood Developments was a commercial property developer (now known as Tritax Symmetry and became a serious player in the ‘Big Box’ sector of the real estate market).  I am now a board director and head of residential for Barwood Capital, known as Barwood.

Throughout my career and together with the colleagues I have met on the way, there has always been one common goal; to make profit from property.  And there are many ways in which to do that. 

One of the obvious ones is buying direct property, often a single residential property, refurbishing it, and either selling for profit or keeping it as a rental property for income.  Some people will go onto build a portfolio of rental properties, dealing with tenants and councils and maintenance costs.  Others will ‘flip’ their property and immediately invest the proceeds into another renovation project and the cycle of renovation starts again.  Another way, is to invest in a single development, possibly having a share in the land cost and then a profit share with the developer at the end when the properties/homes sell.  This can be timely and costly; and may include navigating the very complicated and antiquated UK planning system, as well as subcontractors, estates agents, the list goes on. 

During my time at Barwood Developments and subsequently Barwood, the company raised investment Funds and funded residential developments.  Through my relationships with lenders such as Close Brothers and UTB to name just two, it soon became apparent to me that there are a huge number of SME housebuilders needing equity for some excellent projects of between 2 and 25 homes.  Unfortunately, the number of SME developers has declined markedly over 30 years and now deliver far fewer homes since the 1980s.  This is a pity because they can contribute significantly to the national housing targets.

One of the main problems for SME developers is the availability of equity.  They were having to invest all of their available equity into a single scheme, source senior debt, build out the development and sell the homes before being able to release their equity for the next project.   This was seriously hampering their growth aspirations.  We recognised this at Barwood, so I set about creating an equity funding model for SME developers. 

Barwood had a pool of High Net Worth (HNW) Investors always keen for new investment opportunities and here we had a growing number of developments needing equity.  And so, in 2018, the Barwood Residential Investment Platform (BRIP) was formed.

We were able to bring together HNW investors, who wanted returns from property development, without the hassle, and SME developers who wanted 100% equity to enable them to realise their growth aspirations.  We now create small Funds regularly, typically £5 million at a time, to invest in four or more schemes.

BRIP is unique in that it only funds developers whose projects are built for sale and we work with three or four developers on their projects per fund, giving an investment risk spread of developer, geography and house type.  In this way, a single investment of £100,000 is usually spread across 40 homes, meaning an investor typically has £2,500 in each home.  I believe that risk mitigation is the key to investment success.

BRIP works across all of the UK, (but not central London) and our typical location is what I like to call “family homes in leafy lanes”; four and five bedroom homes with plenty of outside space in sought after green suburban or edge of village locations.  We carefully select our projects, the same as we do with our developers.  Both of which go through a stringent process and financial stress testing.  The average sale price of the homes funded is £650,000 and the average buyer profile is a second home owner, retiree or downsizer and typically the mortgage loan to value is less than 50%. 

A single investment is typically committed up for around 30 months, however as the projects in each Fund complete and the homes sell, the proceeds are paid back to investors, so investors can start to see returns from month 18. 

Unlike many other funders, we are property people and Barwood successfully invests and manages commercial investments as well, by way of its Growth Fund series and separate mandates.  We look to establish long term relationships with our approved SME developers, indeed one such developer has just started its tenth project funded by BRIP.  We have over 50 approved developers and they like that we ‘talk their language’ when it comes to development.  And sometimes, when things don’t go to plan, we have the expertise to step in and help get the project back on track.  The banks like this too.

To date we have raised ten Funds totalling £47 million of equity.  Of the three Funds that have completed, we have delivered on average 1.33x equity multiple to investors, net of fees.  We target a 1.30x equity multiple.   We have 160 HNW investors at present and our repeat investor rate for BRIP is over 65%.  Barwood is FCA regulated and the registration process for investors is straightforward and unique.  The documentation is signed once, and this enables multiple subsequent investments by email alone.  Once registered, there is no obligation to invest.

When you are looking for your next residential investment opportunity, why not consider a Fund type investment to spread your investment risk and let someone else do the hard work, whilst you reap the rewards.


NB.  Past performance and historic data are quoted.  This is no guarantee of future performance.  Your capital is at risk.