Quantum Development Finance was born of a passion for helping the housebuilding industry and putting clients first. Rupert Bates talks to the founders about changing the face of finance.
Quantum is a Latin word meaning amount. Numbers, as with most things in life, count for a lot, and when it comes to housebuilding, they dominate the conversation.
Some numbers are made up for headlines – take 1.5 million for example, the quantum of homes Labour believes it is going to build in the current parliament. That’s a quantum leap that would clear the pigs flying overhead.
What has to add up in the residential development world is the financial numbers, giving viability to a scheme and confidence to a housebuilder, especially an SME owner-driver, that not only can new homes be built and sold, but a business constructed on solid foundations, supported by a lender, who knows what a hard hat and a hi-vis jacket looks like and is not just looking at the clock, knowing there is always a rug to pull, or a shirt to take off a back, should things not go to plan.
Well, in housebuilding, you need to start with the certainty that things will not go to plan – they might not even go to planning – and, when that happens, a computer, or a high street bank, invariably says no – about the only quick decision they ever make.
To London Bridge, to talk numbers with a new name – if not new kid – on the property lending block: Quantum Development Finance. Talking of numbers, More London does not appear to follow the normal sequence, but eventually I find the QDF offices and co-founders Rebecca Murphy and Oliver Thompson, together with managing director Richard Hemmings.
They immediately go up in my estimation, because there are three actual people, three actual faces, in an actual room, not just open for business, but open in every way.
Yes, like every lender, challenger or clearing, they are bound by compliance and the gordian knot of red tape, but this is about people and passion.
Quantum, founded in 2022, is, of course, also about creating a successful, profitable development finance business, but the immediate vibe in the room was ‘we’re part of the housebuilding industry, understanding the problems and seeking the solutions’.
SME housebuilders are Quantum’s clients, and, in hospital terms, this is the sector in A&E, not that politicians or indeed the general public ever understand their plight or have much empathy. ‘Local hairdresser goes bust’ gets the heartache headlines in the local paper. ‘Local builder goes bust’ and the response is ‘who’s going to clean up the mess?’ Bad luck hairdresser; good riddance housebuilder.
“The whole ethos of the Quantum business is about building the highest quality team, who genuinely care about our clients, offering them a best-in-class product and service to facilitate their growth,” says COO Rebecca Murphy.
“A lot of lenders say their USPs are speed, flexibility and relationships, but don’t actually execute them. For us, it is all about relationships; all clients have access to a decision-maker. We’re a small team, making very quick decisions and working to find solutions, whether it is upfront in terms of structuring the facility, or throughout delivery, with one point of contact.”
Bankers always like to promote their ‘sympathetic ear’ but often they are not listening, they are just counting. Where Quantum is unique, in my experience, is how its own back story must chime with its clients, trying, often against insurmountable odds, to get a business off the ground.
“Our story and the risks we took particularly resonate with SMEs and we have set everything up in the business to cater for them,” says CEO Oliver Thompson.
So, what’s the story? Before launching Quantum, Thompson was a lending director and part of the senior management team at Paragon Development Finance, where he built a portfolio of over £250million development finance loans. Prior to Paragon, he was at Titlestone, a stretched senior development finance lender, formed by Oaktree Capital Management, working alongside Robert Orr, with the business acquired by Paragon in 2018.
Murphy, Thompson’s partner in life as well as lending, was also a lending director at Paragon, funding a range of residential projects, from prime London homes to regional apartment schemes and with long-standing relationships with SME housebuilders. Before Paragon, she was at LendInvest, instrumental in starting its development finance team.
Another Paragon alumnus is chartered accountant Chris Proud, Quantum’s CFO and co-founder. Proud was co-founder of Titlestone, growing it to a £700million loan book, before becoming head of credit and operations director at Paragon.
The trio were keen to go it alone, knowing they had all core areas – origination, credit, finance and operations – covered and a wealth of experience and reputation built up in the new homes industry.
The fundraising journey became a long one and an unpaid one. “Our savings were rapidly running down to zero, but that at least made us even hungrier,” says Thompson, with the founders making over 40 pitches over six months to find equity partners, not to mention the infamous Liz Truss mini budget, resulting in rising interest rates and squeezed margins along the way.
“Our equity partner today was always our first choice, as we’d had a very positive experience working with them on historic funding transactions” says Thompson.
“Our funding partners are highly experienced in SME development finance, and their backing will allow us to deploy £2bn into the sector over the next five years” says Murphy.
Development finance is as exciting as it is challenging. The global financial crisis of 2008 further dulled the big banks’ appetite for risk, but it also saw experienced bankers embedded in the housebuilding ecosystem step down, along with cuts in the training and hiring of the next generation of lenders.
Murphy and Thompson are both in their early 30s, but there are older heads in the business too, such as managing director Richard Hemmings, who joined Quantum after 19 years at Close Brothers Property Finance.
“We are biased, but I think if you asked our clients and competitors, we have handpicked a market-leading team in SME development finance. The addition of Richard will be instrumental as we take the business to the next level,” says Thompson.
The team understands the business of housebuilding, but also the personal stress that takes its toll, with obstacles everywhere in an industry riddled with uncertainty – from market conditions to government policy and regulations. And that’s before you mention planning and inevitable delays for either seismic or trivial reasons.
“It is relatively simple to assess the numbers of a deal. It is much more important to understand the people involved and maintain transparent relationships. That way, when the numbers change – often for reasons outside of their control – we can be flexible and show patience,” says Thompson.
“That said, we often see examples where the numbers don’t work. Either we believe the margins are too tight, or the rewards of a deal don’t reflect the risks. In those examples, we’ll try to add value with honest and considered feedback learned from the wide range of projects we see.”
Although established SMEs and regional housebuilders are its core client base, Quantum will listen to young first-time developers bringing a good opportunity and bags of energy, but suggest they partner with experience and where equity can be brought to the table.
And with that, it was up from the table to the coat rack to put on the hi-vis and hard hat. There were clients to see – in the flesh, on the ground.
