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Merchant bank fills finance gap left after crash

THE reluctance of high street banks to fund small-scale residential developments has been credited with propelling the growth of Close Brothers' property finance division in Scotland in the past five years.

OPPORTUNITY: Director Stuart Anthony says the sector is bright
OPPORTUNITY: Director Stuart Anthony says the sector is bright

The merchant bank set up the Edinburgh operation at the height of the Great Recession in 2009.

And director Stuart Anthony said the timing proved to be ideal, with Close Brothers stepping in to provide the type of finance the mainstream banks have shunned since the financial crash.

The Edinburgh office specialises in backing private developers, typically to fund residential projects but also commercial property ventures.

Mr Anthony said: "It's probably the sector the banks have had the least appetite for in the last five or six years. We have been backing more than £100million [of] new development projects every year over the last five or six years, so I think really we have managed to fill a gap in the market that most of the big banks have stopped lending [to] or shown very little appetite [for].

"With the three main Scottish banks continuing to manage their historic loan books, as opposed to writing new business - or, in the case of Clydesdale, having withdrawn completely from commercial [real estate] lending - this has created some excellent opportunities for Close Brothers.

"Indeed, as a bank, this five-year period has seen the size of our UK loan book more than double."

Mr Anthony, who is from Fife, returned to Scotland to head the launch five years ago, after spells with Royal Bank of Scotland (RBS), Deutsche Bank and Merrill Lynch in London. Since then, he said, a "prudent, considered approach" has allowed Close to grow "sustainably, good times and bad".

Among the projects it has backed are a range of new-build residential developments with Westpoint Homes in the Glasgow suburbs of Bearsden and Newton Mearns.

It recently funded a mixed residential and retail scheme on the site of the former service station on Great Western Road, in Glasgow, where 50 apartments and a Tesco store have been developed following a long-running planning battle.

It has also worked with the Chris Stewart Group, which converted Advocate's Close in Edinburgh's Old Town, and Sundial Properties, which specialises in converting listed buildings into residential accommodation in the Scottish capital.

Other clients include Eastacre in St Andrews, although the bulk of the projects it backs are in Glasgow, Edinburgh and Aberdeen.

Although the economic recovery is showing signs of gathering pace, Mr Anthony said there was no indication that mainstream banks were moving back into the kind of deals Close specialises in.

Noting they are more likely to back high-volume housebuilders which operate around the UK than developers looking to borrow £1 million, he said: "They still have massive property exposure they are dealing with, so to lend on new projects ... they are not showing much enthusiasm."

Asked for his views on the economy, Mr Anthony noted the property sector is looking bright, aided by the Help to Buy scheme.

He said: "Interest rates are still low and even if they go up, they will still be historically quite low, so I think that the property industry is very positive and the economy certainly seems to be on the up.

"The referendum might slow things down a bit in the summer, but we will see what happens there.

"All the schemes we are funding are generally selling off-plan. By the time construction is finished, the majority of units, whether it's blocks of flats in the city centre or family housing, are generally all sold, which is very positive."

Asked if the uncertainty brought by the independence debate had caused any uncertainty in the market, he added: "I suspect August or September will probably be quite quiet. But at the moment, things are fairly normal.

"Certainly commercial property, a lot of London-based funds are probably not looking at Scotland at the moment until post-September, as you can understand."

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