Capital for commercial development 'still available'

Wednesday, 23 April 2008 10:51 AM

While banks have become more cautious about financing commercial property in recent months, capital is still available suitable developments.

The credit crunch has had a detrimental impact on the financing of commercial developments across Europe, but money is still there for the "right developer in the right location", according to real estate services adviser CB Richard Ellis.

The main negative consequences of this shift for developers are higher lending margins, lower loan-to-value (LTV) ratios and increasing pre-let requirements as a condition of lending.

While in developed markets, such as the UK, Spain and Germany banks were willing to offer LTV ratios of 80 per cent of more in mid-2007, few will now offer over 60 per cent.

Similarly, willingness to lend on predominantly speculative schemes has tightened sharply in previously buoyant markets, such as the UK and France.

"It has become clear that European banks have become more cautious about development finance, but this caution is manifested in different ways in different markets," said Richard Holberton, director of CB Richard Ellis' EMEA Research.

"Local market conditions and lending practices matter greatly. For instance, in some markets such as some of the Nordic countries, bank attitudes to real estate lending were already relatively cautious, often to the extent of excluding speculative development lending."

In other areas lenders have responded by restricting lending to the best developers in areas of proven success - not necessarily altering the terms of lending.

"In favouring long-standing existing customers with good track records, lenders are increasingly cutting off the flow of finance to marginal development schemes," explained

"This will reduce the number of new construction projects and the one that are brought forward will be of higher average quality."

Chris O'Toole

Tags:
• uk property news