Banks seen back in property lending, for some

LONDON (Reuters) - Commercial banks' recovering appetite for real estate lending will not extend to everyone, forcing many developers to seek alternative finance and consigning weakly-capitalized companies to an uncertain future, the head of British Land (BLND.L) said on Monday.

Chris Grigg said some banks were moving out of a self-imposed mortgage market exile but not all borrowers would be able to access the more expensive and selective credit on offer.

"Since the turn of this year our sense is that the number (of active lenders) has gone up into double figures and arguably into the 20s ... albeit at higher spreads," Grigg told the Reuters Global Real Estate and Infrastructure Summit on Monday.

"The larger companies will be OK ... we will tend to see the market concentrate on those guys. But other companies will have to be more equity financed than before. I don't think that is a surprise nor do I think that is a bad thing," he said.

The credit crunch triggered an unprecedented slide in British commercial real estate values, forcing several large property lenders to seek taxpayer bailouts and sparking the creation of bad banks to house troubled loans.

Grigg said that the banks' ability to lend was being compromised by cyclical and structural pressures -- the first stemming from the pains of massive overlending and the latter from regulatory demands to set aside more capital to offset riskier projects.

As a result property companies would need to be more nimble in their approach to funding in the future, tapping alternative capital sources to reduce dependence on fickle, nervous banks.

"Over the next couple of years we will look at whichever market looks most attractive to us at that time," Grigg said, without ruling out possible bond issues or share sales to finance opportunities.

Despite calls from some commentators to speed up asset sales to promote lending, Grigg said the British government should resist imposing schedules on state-backed banks to dispose of troubled property assets which could jeopardize the full return of funds to the public purse from the bank bailouts.

"I would have thought the people in those banks are best positioned to figure out what is best - holding or selling. It is a very conscious decision in many cases that it is preferable to own the property and take the income rather than suffer the hit."

VALUATIONS

Grigg said British Land was comfortable tying up most of its ready capital in long-term real estate development projects because he saw little value in today's ultra-competitive commercial property investment market.

Latest monthly valuations data published on Monday by the Investment Property Databank showed the commercial property recovery was fast running out of steam after rebounding more than 10 percent since hitting a floor in August last year.

Average values rose by 0.5 percent in May, a further slowdown from the 0.8 percent growth seen in April and 1.6 percent rise seen in March.

"We're not in the double-dip category but we do recognize that the progress of growth is hard to predict ... we do think that, particularly in secondary assets, we have got some way ahead of ourselves," said Grigg.

Free from any major debt maturities until 2012, Grigg said British Land was sufficiently well capitalized to pursue the speculative development of its Leadenhall Building skyscraper in London's City financial district without a partner, although a joint venture deal remained the preferred option.

"If speculative means doing it without a pre-let, then for sure we'd be perfectly comfortable doing that," he said. However, he was less confident about a swift start on redevelopment plans at its flagship retail asset, the Meadowhall mall in Sheffield, northern England, where tentative plans for an extension were running into planning difficulties.

"There are concerns in Sheffield itself about the town center being blighted if we extended Meadowhall," he said. "We looked quite carefully at developing offices on the site but we don't see a lot of demand for large out-of-town offices right now," he said.

(Additional reporting by Daryl Loo and Steve Slater; Editing by Greg Mahlich)

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