Addleshaw Goddard on real estate funding risk
Addleshaw Goddard LLP London partner Peter Hardy spoke to Future Cities Forum about why investors are looking to UK regional cities, but cautioned on lack of developer awareness about funding risk, and what is required of them by the institutional funds which back many city regeneration projects.
Peter commented: 'Many overseas investors have wanted London trophy assets but pricing has gone out of control in the London office market. For instance the fundamentals on the Addleshaw offices at Milton Gate in the City have stayed the same but the building has been traded three or four times in four years. Investors now looking to the regions, where Addleshaw has a strong presence. Leeds, Manchester, Glasgow and Edinburgh will see demand for high quality offices with law firms and banks moving staff to these cities as London remains expensive.'
On the theme of property risk Peter added that 'classic property risk is planning which is very slow, but funding risk is less discussed but just as vital, as we move from pure bank debt to long term investment from pension funds. These investors require a lot from developers in terms of administration. New developers often under-estimate what these investors require in terms of protection, for instance the collateral warranties or third party rights as well as making community infrastructure levy payments on time.'
Finally, discussing the lack of affordable housing in the UK, Peter remarked that there is always tension about affordable housing. On one side developers think planners are being unrealistic on the number of affordable homes that must be presented on a scheme. On the other side of the table councils believe the developers are fixing the figures to show that the development is not viable with a higher level of affordable housing.