Alasdair Humphrey: New fund should boost development

Published on 25/06/2012 00:00

AT A time when many industries are facing a lack of appetite for lending from the banks, property development has been among the hardest hit. However, the £48 million regeneration fund launched last year by the Scottish Government and the European Investment Bank could make a real difference to Scotland’s development industry.

The SPRUCE initiative is intended to plug a gap in development finance by providing senior/mezzanine loans for regeneration projects in 13 local authorities across central Scotland. The key objective for the fund is to create a long-term investment vehicle which will initially focus on conventional commercial sectors, but will eventually recycle the profits generated to fund further regeneration projects. The initiative looks to deliver sustainable regeneration or energy efficiency benefits so environmental performance could be an important factor.

If developers are unaware of this opportunity then immediate action is suggested because the capital is now in place and the fund plans to be fully invested by 2015.

My suspicion is that viable projects will probably sit in the main centres of population, but a unique advantage of this funding is that it could cover projects which banks aren’t currently capable of supporting. It is also likely that the terms of lending will be flexible and tailored to the particular needs of a project. This could be a great step forward with the potential to unblock stalled projects and to start rebuilding confidence in the development arena.

The main challenge for the fund is to ensure that politics do not interfere with lending decisions and that schemes are assessed on their own merits. The appointment of a third party asset manager, Amber Green Fund, should go a long way to achieving this goal.

The arrival of the fund has not only presented a viable alternative to conventional banking, but has offered firms including ourselves the opportunity to engage in longer term investment with finance that is ring-fenced from proceeds of successful ventures. Taking on development risk can be fruitful when properly managed, which might give UK banks a hunger to return in a measured way once they sort out their balance sheets.

• Alasdair Humphrey is head of Jones Lang LaSalle Scotland