Bill Gleeson: Returns could flag but Irish are optimistic

Aug 15 2007 by Bill Gleeson, Liverpool Daily Post

THE past few days have seen two significant local property transactions completed.

On Thursday, after 20 years of ownership, local property developer Bill Davies has sold the last bit of the 460,000sq ft Exchange Flags. Then, on Monday, we heard that Milligan Developments had sold its Metquarter shopping centre.

Local property market players will be busily trying to read between the lines of the two deals for clues about the way prices are moving. What they are finding could be proving to be a source of some concern.

Liverpool’s commercial market, whether that be office, industrial or retail, has done well for at least five years now. Values have risen with each deal that’s been done.

But things may be about to change. Metquarter developer John Milligan said his joint venture partners, the Dudley-based Richardson twins, had probably read the market correctly when they insisted on selling the centre. It appears the pair thought now was the time to get out.

To balance that, though, the new owners, Ireland’s Alanis Capital, are not in agreement with the Richardsons’ pessimistic outlook.

They have after all just staked £85m on the Liverpool market. Maybe the difference between Alanais and Milligan/Richardsons is the Irish are prepared to be more patient and wait longer for their returns.

Every property developer you speak to in Liverpool still believes there is value to be found in the local market. In the end, they say, prices will continue to rise. They point to how Liverpool’s rents and values still lag behind other cities. They say there is no good reason for it, and believe the gap between values in Liverpool and places such as Manchester and Leeds will one day narrow.

It may be that there is still some value left for investors to extract from the local market, but it could also take a while before those investing today will be able to realise a return.

LIBERAL lending practices have come back to bite us pretty hard on the backside.

Building societies, banks and hedge funds here in Europe and in the US have lent a lot of money in recent years to borrowers they wouldn’t have touched 10 years ago.

We’ve all heard the radio adverts asking listeners whether they have a chequered credit history or County Court judgment against them. Don’t worry, they say, a mortgage can still be found for you.

Just a couple of years ago, money was cheap. Financial institutions were falling over themselves to give it away.

Today, though, money is no longer cheap. Those that willingly took out big loans in the past must now dig deep into their pockets to fund double the interest payments. Not everybody can afford to do it.

In the US, rate rises have been compounded by a fall in house prices, so many borrowers no longer have the assets to back their loans. On top of that, unemployment in the US is much higher than it is here, so there are many more genuine hardship cases.

As a result, there is a fear that the lenders will have to write off large sums from their profit and loss accounts.

The extent to which this issue has affected European banks has come as a genuine surprise to many market observers.

Yet it is hard to believe that there is so much bad debt out there that it can topple the whole global economy.

What we saw at the end of last week was a sense of panic that was out of all proportion to the true nature of the problem.

It was fortunate the panic came at the end of the week because that meant the world’s markets were forced to take stock over the weekend and get a sense of perspective. So far this week, the markets have stabilised. Let’s hope things stay that way.