Context - the effect of the downturn
Andrew Screen, director, GVA
Tue 27th March 2012
The collapse in the funding markets has left many investment assets and development projects in need of refinancing, or seeking new sources of finance.
Since the collapse in the financial markets, funding for property development has become severely restricted, with only extremely low risk projects obtaining development funding.
The primary reasons for the reduction in debt funding for development projects are as follows:
- The collapse in Monoline security (rating wrap) for funding PFI projects;
- The fall in favour of PFI projects, due to concern over value for money to the public sector of this structure;
- The collapse of the securitisation structures including, Collateralised Debt Obligations; Residential Mortgage Backed Securities, Commercial Mortgage Backed Securities;
- The shortage of bank debt funding due to the lack of liquidity in the banking system;
- The reduction in bank debt funding due to declining levels of risk that the banks are willing to undertake;
- Reduction in covenant strength of developers and occupiers has resulted in lower levels of debt funding from banks and investment by pension funds;
- Lower levels of mortgage funding available, preventing home purchasers from buying property off-plan.
However, the public sector (primarily local authorities but also JESSICA funds) can provide equity, debt, mezzanine finance and guarantees to enable these projects to reach fruition.
GVA Financial Consulting can determine if a property development is suitable for local authority financial assistance and discuss your options and commence discussions with the local authority and funders.