With property values predicted to fall by half, Alun Thorne talks to Edwin Bray from Drivers Jonas to ask where the light is for market correction.
The collapse of Lehman Brothers in September and the subsequent carnage in the banking system has undoubtedly impacted upon the local marketplace.
In this fast-moving and uncertain landscape, business confidence in the region has been shaken and while there appear to be some green shoots of hope, companies are still finding difficulty in acquiring finance and support from their banks.
According to Edwin Bray, valuation partner at Drivers Jonas in Birmingham, there is still finance available; it’s just knowing where and how to approach it. “Having a solid, well-researched business plan is increasingly important for opening up streams of funding,” he said.
“Naturally, the greater the reward for financiers, the more likely they will be to invest.
“However, one has to be realistic; people should be prepared to pay more for the capital than they have done in the past, as the risk for lenders is far greater than previous times.”
Indeed, banks are under greater pressure to reduce their exposure to certain types of property lending, due to the combination of Basel II capital requirements, falling valuations and distressed assets and falling loan-to-value ratios.
Focused on their existing loans, many may not have the capacity to fund new loans. Less capital also means lender credit committees are more selective in how they assess property risk.
Drivers Jonas believes that a targeted strategy will help to overcome some of these issues. Mr Bray said: “What may have seemed like an unattractive deal two months ago may now be the only option available, so companies will need to reassess their position.
“Those seeking finance have to be prepared to constantly adapt their strategy as the reality is that revenue streams are closing and changing shape every day. It’s imperative in these turbulent times that businesses have the capacity and confidence to make quick decisions to pursue the right avenues.”
The changing debt market means forging and maintaining relationships with funders is more important than ever. Businesses need to actively invest in strengthening relationships with their lenders and learn to negotiate on covenants to secure the required credit.
The current climate will continue to put downward pressure on values, but by ensuring that there are strong relationships in place, companies will be more likely to weather the storm.
Drivers Jonas remains positive that capital is still available and believes that Birmingham businesses must remain active to keep the local market moving. With wide-ranging real estate expertise, DJ Finance is increasingly becoming a resource for clients seeking independent advice on loan and JV equity needs.
Mr Bray added: “It is now widely accepted that companies are having to pay higher fees and margins for finance and that it is necessary to approach a broader group of borrowers in order to meet financing needs. A number of companies have been coming to DJ Finance asking for help in identifying potential lenders and finding the best deal.
“Being independent, DJ Finance is not conflicted by acting for a lot of borrowers, therefore clients are assured that we will speak frankly about trajectory of value.
“We can also supply a broader base of expertise covering lettings, planning and development to ensure clients receive advice on all aspects of their business and are equipped with sufficient information to secure the right credit and make quick decisions with confidence.”