FEBRUARY 2012 |
www.opp.org.uk WORDS | John Howell
BUSINESS Thinking money
Even the most respected of fi rms with fantastic track records in putting together successful developments are fi nding it diffi cult to get their projects off the ground due to a lack of available fi nance. What is happening and what are the options?
O
ver the last few weeks I have spent a lot of time thinking about money. Quite
a number of clients seem to be having diffi culties when it comes to fi nding funding – whether for developments they are contemplating or simply to buy a property as a holiday home or for investment. Strangely, they seem surprised by this. Clearly, they have not read the newspapers or listened to the news for the last couple of years. However, their requests have caused me to revisit the question of how you
“Turkey is neither an EU or Euro member yet it is still blighted by the current crisis”
can fi nd funding in these diffi cult times. By one of those coincidences that make life so interesting, a couple of days ago a story popped up which puts this whole situation into sharp focus and prompted me to put fi nger to keyboard. Turkey has cancelled the tender to build the third Bosphorus Bridge. Perhaps not the most exciting piece of news but it speaks volumes about fi nding funding in 2012. Just a reminder. The third Bosphorus Bridge is part of a huge highways programme designed to bypass the bottleneck of Istanbul for road traffi c going from Europe to Asia and to provide another way across the Bosphorus for those who live on one side and work on the other. Those of you who have been to Istanbul will know that the traffi c is truly horrendous and that action is urgently needed. Since I fi rst went to Istanbul the population has increased from about four million to about 13 million without (or, at least so it seems) much
improvement to the road system. But is this all down to the cost involved? The Bosphorus Bridge project is valued at somewhere between €5 and €8 billion. It is being promoted by the Turkish government. Turkey is a country which, really, should be there amongst the BRIC nations. It has a multi-trillion dollar economy (which grew at about 8% last year) and a reputation for being a safe and stable place to invest. Yet, even they could not attract
any interest at all in bidding for this massive project.
18 major construction companies
there is another explanation. The project is just too dammed big for today’s climate. And I think this is also true of most of the projects about which I receive telephone calls from people with funding diffi culties.
If you want to develop a project anywhere in the world and need €150 million to do so you are going to fi nd it diffi cult to fi nd that money, even if you have a fantastic track record of successful developments. If you have no such record you have almost no chance at all. Even if you are prepared to put in millions of your
John Howell of John Howell & Co is a specialist in international legal and property advice. Email:
john@jhco.org Tel:+44 845 676 9195
a problem, but I am amazed by how many people still think that they can get 80 or 90% mortgage funding. In most places, this is just impossible. Yet all is not lost. Large projects (well, perhaps not a bridge across the Bosphorus) can often be broken down into a much more attractive series of smaller projects and there are still lots of people about who are looking for somewhere to invest a million or two in a way that is going to generate them a bit more than what they would get if they left it in the bank.
These people tend to like projects of
a modest size because they see them as being less dangerous. It is much easier to fi nd half a dozen investors to fi nd the cash needed to fund a €30 million project than it is a €300 million project – particularly if the project funding is clever and fl exible so that it can use buyers’ money to the greatest extent possible and some bank funding to fi ll the gaps. Of course size isn’t everything. The
Up in the air | Financing across the world is proving diffi cult for larger projects
from all over the world paid good money for the opportunity to tender but not one of them could fi nd a way of putting the fi nance together. They are all reputed to have pulled out because of the fi nancial diffi culties in the euro zone. Turkey, of course, is neither a member of the European Union nor a user of the Euro and yet it is still blighted by the current crisis. I think
own money you will fi nd it diffi cult to raise the rest.
If you are trying to run the
development with little or no money of your own…well, good luck. And, of course, the same is also true if you want to take advantage of some of the amazing deals now available to buy a holiday home or a property for investment. Also, if you are going to put in 50% cash you may well not have
project must be viable. I have said many times that I think, in today’s climate, that you will only be able to sell in volume if you are supported by a known and trusted brand and can show a well argued case that suggests a good, secure and stable return on your investment. Investors will only stump up the cash to help build your project if they can see a strong stream of potential sales.
One last point. Most investors will not
invest unless you have quite a lot of your own cash in the deal.
This has always been the case for the
sensible investor but now it is almost universally so. My advice is keep thinking money.
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