Developers in UK need to find alternative funding as banks are slow to come back onto market

Some banks are moving out of a self imposed mortgage market exile but not all borrowers would be able to access the more expensive and selective credit on offer, according to Chris Grigg, head of British Land, one of the UK’s biggest developers and investors.
 
‘Since the turn of this year our sense is that the number of active lenders has gone up into double figures and arguably into the 20s, albeit at higher spreads,’ Grigg told the Reuters Global Real Estate and Infrastructure Summit.
 
‘The larger companies will be OK. We will tend to see the market concentrate on those guys. But other companies will have to be more equity financed than before. I don’t think that is a surprise nor do I think that is a bad thing,’ he said.
 
The credit crunch triggered an unprecedented slide in British commercial real estate values, forcing several large property lenders to seek taxpayer bailouts and sparking the creation of bad banks to house troubled loans.
 
Grigg said that the banks’ ability to lend was being compromised by cyclical and structural pressures, the first stemming from the pains of massive over lending and the latter from regulatory demands to set aside more capital to offset riskier projects.
 
As a result property companies would need to be more nimble in their approach to funding in the future, tapping alternative capital sources to reduce dependence on fickle, nervous banks.
 
‘Over the next couple of years we will look at whichever market looks most attractive to us at that time,’ Grigg said, without ruling out possible bond issues or share sales to finance opportunities.
 
Despite calls from some commentators to speed up asset sales to promote lending, Grigg said the British government should resist imposing schedules on state backed banks to dispose of troubled property assets which could jeopardize the full return of funds to the public purse from the bank bailouts.
 
‘I would have thought the people in those banks are best positioned to figure out what is best, holding or selling. It is a very conscious decision in many cases that it is preferable to own the property and take the income rather than suffer the hit,’ he explained.
 
Grigg said British Land was comfortable tying up most of its ready capital in long term real estate development projects because he saw little value in today’s ultra competitive commercial property investment market.
 
The latest monthly valuations figures from the Investment Property Databank published yesterday showed the commercial property recovery was fast running out of steam after rebounding more than 10% since hitting a floor in August last year.
 
Average values rose by 0.5% in May, a further slowdown from the 0.8% growth seen in April and 1.6% rise seen in March.
 
‘We’re not in the double dip category but we do recognize that the progress of growth is hard to predict. We do think that, particularly in secondary assets, we have got some way ahead of ourselves,’ said Grigg.