Bank lending drought creates gap for developer

Grant Prior 12 years ago
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Development Securities is still looking for new schemes to spend £100m on which it raised via a rights issue last month.

The developer raised the cash to take advantage of smaller rivals struggling to get funding from the banks.

Development Securities posted encouraging interim results today and confirmed it wants to use the £100m to “to co-invest in potential large-scale development projects.”

Chairman David Jenkins said smaller developers were finding it impossible to raise bank loans which meant a shortage of property to satisfy the demands of overseas investors.

He said: “There would appear to be a not inconsiderable amount of institutional, retail and sovereign wealth money seeking to enter the prime real estate market and insufficient opportunities to satisfy this appetite.

“Banks are no longer able or willing to provide the necessary finance to many participants in the more secondary sector of the physical real estate market, which is constraining their ability to capitalise on real estate projects and creating a number of opportunities for Development Securities to deploy its skills and capital.”

Jenkins said the market has recovered from its low-point last year but would struggle to reach the highs of the boom years.

He said: “Whilst we have seen commercial property values rise by 15 per cent since the low point in July 2009, this still leaves the market some 30 per cent below the June 2007 peak.

“Realistically, given the somewhat challenging economic prospects ahead of us in the medium-term, it is going to be some time before those upper levels will be tested again.”

Development Securities is currently on -site at West Quay in Southampton developing the 57,600 sq ft second phase and has planning permission for a 350,000 sq ft office scheme at PaddingtonCentral in west London.

The firm added: “We continue to pursue, in conjunction with institutional partners, active involvement in a number of Central London large-scale developments.”

Development Securities recorded a 0.8m pre-tax profit for the six months to June 31 2010 compared to a £19.1m loss last time.

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