End of an era in the commercial development sector, as Lehman’s failure takes down interiors contractor

Property Week ran an emotive head line this week – Game Over. As the magazine reports, the era of banks’ willingness to lend developers up to 9 times the equity they were investing in projects is now over, and fundamental changes will follow.

One developer, Ian Coull of Segro, explained the situation in simple terms: “What happened over a 15 year period was that banks simply forgot how to price in risk.”

David Camp, chief executive of Stanhope, said: “Once confidence has been as battered as it has been, the recovery will be slow and tortuous. What looked like wonderful opportunities in the past are now horrendous liabilities.”

The magazine reports high-profile casualties of the failure of Kaupthing UK, a division of the Icelandic bank forced into administration. It had been financing Noho Square, the Candy Brothers’ £175m plan to redevelop London’s Middlesex hospital.

Meanwhile, Building reports on the administration of TDA Interiors, forced to the wall by the collapse of American bank Lehman Brothers. The company had been working on a contract for the bank in Bletchley, Buckinghamshire.

On a slightly happier note, the magazine also reports on the banks’ attitude to refinancing struggling housebuilders, such as Taylor Wimpey and Oakdene. Taylor Wimpey has announced that its rescue talks are being extended into 2009.

The view is that banks would rather cut housebuilders some slack – perhaps by offering interest and payment holidays – than be forced to take ownership of them.

“We have little expertise is managing landbanks and developments, and our own capital ratios will be damaged by taking them on to our balance sheet,” a senior banking source told the magazine.