Close Brothers steps into loans breach

Published on Monday 22 June 2009 22:52

FOUND in Edinburgh – a merchant bank keen to lend to the commercial property sector.

Close Brothers, with no fanfare, has opened in Edinburgh the second office in the UK of Close Property Finance and it is starting to pick up business, with Stuart Anthony, Scottish director, stating: "With the other banks in such a mess at the moment, now is a good time for us to be here."

Kirkcaldy-born Anthony joined Close from Merrill Lynch having cut his teeth in London with Royal Bank of Scotland and Deutsche Bank. He has started to lend to commercial and residential developers, anything from 100,000 to 5 million.

He says: "The credit crunch is good news for us. All the mainstream specialist lenders are in a difficult situation and they don't have much appetite for lending for new developments whereas property is only a small part of the Close Brothers business and we don't have huge exposure to property.

"So we do not have a lot of competition from the banks. Since opening in Edinburgh, we have funded close on 20m of developments, including residential, retail and industrial sheds. We are picking up the business while the other banks are fire-fighting.

"A couple of years ago Scotland was a difficult market to crack; you had to get crumbs from the mainstream lenders. Not now."

The latest Close Brothers client is a small Edinburgh-based builder, Anthony Houldsworth & Co, which has received funding to build eight homes at St Fillans.

Chairman Richard Riegels says: "Close Brothers has been a real breath of fresh air in the banking sector up here. Most of the big retail banks were so foolish in the last few years that they will now not touch anything no matter how good it is.

"This is after having spent years pumping money into developments that should never have been thought about, let alone built."

While Close might feel it is ploughing a lone furrow in Scotland, the UK picture is different. Savills has identified 22 organisation that it says have an appetite to lend – ten are German, eight from the UK and four international. And it says it can name at least another 22 with the stated ambition being to lend to new customers.

In its latest annual commercial property survey, the De Montfort University in Leicester came up with 60 lending organisations and found that the total amount of outstanding loans to commercial property has gone up from 220.4 billion to 243.3bn at the end of last year, caused largely by the calling down of previously committed facilities and the re-structuring of existing loans.

During the next five years, between 2009 and 2013 inclusive, 69 per cent of all outstanding debt is due for repayment – a property industry time-bomb ticking away.

Dominic Reilly, a partner and head of property finance at King Sturge, one of the survey's principal sponsors, said: "The commercial property industry is acutely aware of the issues caused by the high outstanding debt burden – which is why we have seen a range of measures, principally rights issues, aimed at refinancing the balance sheets of the major companies.

"The problems of loan to value covenant breaches, caused by the fall in commercial property values, have not had the serious impact that might have been expected since the lenders and borrowers have in been able to come to a sensible arrangement. With the deepening gloom in the wider economy in 2009, we are now seeing interest cover come under growing pressure, posing a new challenge to the delicate balance between occupiers, landlords and lenders."