Property firm trying to circumvent need for bank finance to restart Hammersmith scheme after announcing £14.4m half-year loss

Work on the Hammersmith Grove office development nicknamed “the Strawberry” has been halted because of an inability to obtain bank financing for the project in the face of the credit crunch.

Development Securities said it was attempting to refinance the London scheme, as the property company announced to the City a £14.4m loss for the past six months.

The 30,000m2 office scheme, directly opposite Hammersmith tube station in the UK capital, gained planning permission in November last year and was designed by architect Hamiltons.

Development Securities said in a statement that while it had assembled long-term equity partners willing to finance the transaction, the “lack of any currently available bank finance for the development stage left our original equity co-investors unable to proceed with the project as originally planned”.

It added: “Constructive discussions are now taking place in order that the development can proceed without the need for banking finance.”

The firm said it had also shelved construction work “in recognition of current challenging market conditions” on the 4,600m2 second phase of its 70,000m2 Cambourne Business Park development outside Cambridge.

It said it was negotiating an extension to its existing 10-year deal with partners to develop the site, which would otherwise come to an end this year.

Development Securities cited the bleak state of the market as the reason behind the £14.4m half-year loss, compared with a £1.3m profit after tax for the same period a year earlier. It had to write down £18m of the value of its property and land portfolio, and shareholder equity reduced to £213.6m, a decline of 6.7%.

However, the company said that its success in selling Kirkby Shopping Centre for £65m in May had meant it was able to limit the impact of the downturn on its balance sheet, and enable it to offer a 2.5p dividend to shareholders.

David Jenkins, chairman of Development Securities plc, said: “The difficulties in the financial sector remain and property values are likely to fall further with little prospect of immediate recovery.

“The impact of the economic slowdown, about which I expressed concerns when reporting our 2007 annual results in April, has been deeper and speedier than envisaged. The difficulties within the financial sector remain, with little prospect of immediate resolution.”

Jenkins added that wider economic pressures such as high energy and food prices were likely to undermine confidence and increase unemployment, bringing further pressure on potential occupiers.

However, he said that next year he expected “suitable sites to come forward for large-scale development at realistic values” and that the firm was “preparing ourselves accordingly”.