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Monday 20th April 2009
When the banks shut up shop in the wake of the economic meltdown of early 2008, many property speculators left the market. But, according to Commercial Property Lawyer Stephen Hodgson of Marsden Rawsthorn, cash rich investors are now returning in increasing numbers to find rich pickings amongst the post-crunch wreckage.
The lull, for it was never really more than that, is over. Investors who ran a tight ship prior to the economic crisis are returning to the market and liking what they see. Properties they sold two years ago are back on the market, via the receivers, sometimes for less than 50 per cent of the original sale price as businesses and even other investors with high debt have their credit lines removed and go to the wall.
There is some lending going on, but at a minimum ratio of 50 per cent loan-to-value. The investors picking up the best deals are the ones who can fund the entire deal themselves, have the property-awareness to make judgement calls quickly on the merits of an opportunity and the negotiation skills to do battle with receivers eager to play one interested party off against another in order to drive price up at the eleventh hour.
Speed is of the essence in doing the right deals and the current commercial property market is no place for the fainthearted. Whole portfolios are on sale at once as debt ridden speculators propped up by credit have it unceremoniously removed. The receiver wants to achieve the best price he can in the shortest time so breaking up a portfolio of properties is not his preferred option. At the same time information upon which to base due diligence is scant and aggrieved dispossessed parties lurk in the background issuing counter bids through murky third parties in attempt to muddy the waters and derail deals.
Information starvation is the greatest risk in today’s market. The receiver neither has the time nor the inclination to respond to lists of queries on issues which hitherto were central to a deal proceeding. Investors are therefore faced with a choice; take a gamble based on the overall merits of the deal, accepting there may be some tricky issues to resolve once it is done; or call the receiver's bluff and refuse to proceed without the necessary information upon which to base an assessment of the merits or otherwise of a transaction. He who hesitates is lost but he who dares will not always emerge the such shark-infested waters a clear winner.
How long will this feeding frenzy prevail? If credit restrictions are maintained the recession will bite deeper, munching from the margins of the market into the mainstream. And as long as receivers favour speed over medium term value there will always be investors with strong balance sheets open for business and savouring the scent of a bargain. The stakes are high, the rewards great, the risks considerable – and normality is unlikely to return anytime soon.
Stephen Hodgson is Head of Commercial Property and a Partner at Marsden Rawsthorn.
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