Developer Jeopardy

We were saddened by the news that Simons Developments have been placed into Administration – especially as it came so soon after the same fate had befallen other established regional players; notably Pochins and The Marcus Worthington Group.

At some point or other, Cheetham & Mortimer had worked with all three companies. All three had proven to be valued clients. They acted with integrity. They were professional. They got the job done for their customers. They will be missed.

Their demise will undoubtedly be also felt by the communities they served and the wider market. All three companies had strong and proud links to their local communities – not only providing jobs, but also their support for local charities and projects.

All three were recognised as mid-market operators. All three operated a Developer/Contractor model with a varying degree of emphasis. Perhaps, that sowed the seeds to their failure? It was apparent that the construction machines needed feeding and there was a persistent pressure to source new development projects. Perhaps, that caused a distraction and a movement up the risk curve into unfamiliar territory?

Construction has become more complicated. From the outset, the legal agreements have become more complicated and possibly lack the flexibility to address the inevitable unforeseen practical problems that often arise only after works commence. Parties enter these agreements in good faith but when things start going wrong, the blame game begins and that can be costly and time consuming to resolve.

Construction has become more costly. Wage costs have risen. The pool of available talent is possibly declining with the prospect of Brexit and requirements around Health & Safety and staff welfare add further cost. That’s before the rising cost of raw materials. Managing cash flow is a nightmare.

Despite all these rising risks, developers and contractors have been forced to operate on lower and lower profit margins. Clearly, in respect of our former clients, the return wasn’t sufficient to justify the risk.

Hence, over time, it is within the wider commercial market where their demise will perhaps become most apparent. These companies didn’t just build commercial projects such as Grocery Stores and Distribution Warehouses. They built hospitals, education facilities and care homes. The loss of their skill and experience will be to the detriment of such users. Perhaps the days of the Contractor/Developer model are limited but like everything else in life, it will be the forces of supply and demand that will prevail. Those contractors that survive will be able to command a higher risk premium for their services and the cost of development, especially in the Regions, might have become a lot more expensive.