UK commercial property investors must think beyond the traditional bank funding in order to receive finance for investing in the UK market says Andrew Smith, partner, Bircham Dyson Bell LLP but in doing so they need to take care that they avoid the pitfalls.
"The banks will tell you that the vast majority of applications for loans by small to medium sized businesses are being approved, but where property lending is concerned it is still incredibly difficult to get finance for commercial property investment and development," explains Andrew Smith.
"The banks are still over exposed in property. Whilst there was £1bn worth of 'distressed' investment transactions in the second quarter of this year there is still a long way to go before the banks' over exposure to property is cleared. Looking at this in more detail total investments transactions in the quarter stood at £6.6bn and of those more than half of the distressed sales were located in the regions, but 90% of the value of total sales came from London".
"Its clear that London is a very different market to the rest of the UK, but even in London investors must look to more creative ways of finding finance for commercial property".
"With the latest Lloyds Commercial Property Confidence Monitor indicating that only 45% of medium to large companies plan to use the bank to fund investments - down from 80-90% three years ago - things are rapidly changing and commercial property investors must keep apace.
"Joint ventures are as popular as ever but investors are being more creative in terms of how a project can work without the requirement for the bank to be involved. Informal funds are the flavour of the month but these can bring their own pitfalls for the unwary. The FSA takes a dim view of investments being promoted by people who are unregulated; investors need to be clear that there is an exit strategy and the tax consequences of the wrong structure can be horrendous.
"There is money out there to fund commercial property investments but it's a case of having to be creative in matching the money with the opportunities - it's a fundamental shift away from the usual way of doing things and getting it right from the outset is key".
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