To tie in with our Cambridgeshire, Norfolk and Suffolk features in tomorrow's magazine we have a guest blogger.
Patrick McMahon has been senior partner at Bidwells since the start of 2010, prior to this he was responsible for the firm's investment team in London for 16years. Today he talks about the return of the developer - something that Cambridge is starting to see again - why you should be building and how to get it rolling again.
As the debate about what to do with secondary property continues - one thing is for sure - investors are (and should be) targeting prime well let quality assets. Indeed, there is more and more of a weight of money hunting them.
Investor interest has been fuelled by domestic and overseas interest in the UK, being a comparative safe haven and the specific characteristics of these investments as a worthy replacement for gilts where yields have fallen further
Take LaSalle's recent £50 million Premier Inn leaseback to Whitbread - a guaranteed income stream for 25 years with in-built CPI uplifts a yield of 5.50% compares with index linked gilts at less than 0.5% and a recent Whitbread private debt placement at 4.8%.
It all makes sense so where is the problem?
Well there simply aren't enough of these prime opportunities available - those who have these assets are keen to keep them and very little of the stock that is being released to the markets (by NAMA and others) is of the right grade.
At least part of the solution will be development. Not speculative schemes but development that can produce long-term high quality income streams. There are opportunities out there, the money is and will be there for them - investors are already turning to development and offering traditional forward funding structures as their way to create and own these assets and we have recently seen this at the cb1 development in Cambridge with Orchard Street forward funding a £40m office development pre-let to Microsoft and LaSalle funding a £38m student accommodation scheme guaranteed by the University. Just under £80 million of new development where the investors were prepared to fund the development process in order to acquire high quality investments with long term secure income streams.
OK, Cambridge is one of the handful of regional centres with a really strong economy and active occupier demand, but I believe that we will see more investor funded development over the next 12 months in other places as well - developers should consider the following:
Which end use could attract this investor funding? Supermarkets, budget hotels, student accommodation, car dealership, DIY units and other occupiers with bespoke requirements needing pre-lets - like distribution warehouses. The key is that they are FTSE 250 or equivalent in covenant strength. For new build don't waste too much time on more marginal covenants.
Local Authorities need to be very realistic with Section 106 requirements to encourage this development - those that haven't realised yet need persuading fast if they are not to be left behind.
Site values have to have been written down to 2011 levels - there cannot be many excuses not to have already done so at this stage in the cycle.,
Learn a new set of rules and structures when dealing with equity providers Finally developers who have primarily used bank funding need to learn a new set of rules all based upon proper alignment of interests. You need advice on this but to be successful you also need to buy into the Partnering philosophy and mean it.
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