Games Monitor

This extract from the (uncorrected) evidence given before the House of Commons Select sub-committee for [the Department for] Environment, Food and Rural Affairs on 18 March 2008 gives some insight into the difficulties which British Waterways are experiencing in their role as property developers.

Mr Evans (Chief Executive British Waterways): The Chairman chairs a property sub-committee of the board, and we are very lucky to have some eminent property people on the board, and about six months ago, right from the very start when the credit crunch started to come in after the summer, we began talking about the risks and we began to look at our positions, we began to look at what we were going to put our capital into and what we were not. We reassess our position monthly and we reassess what the likely returns are going to be. We are very fortunate, we have some cracking projects on some cracking sites, and there is no question that they will be developed and they will be built and there will be profits coming back to BW; the issue is when? In a really fast-moving, go-ahead market, if you can get planning permission, you can build a building and you can find someone to occupy it in a relatively short time. In the current market getting planning permission is difficult, as always, but then putting the funding package together is very, very difficult, so what we are doing constantly is pushing out those returns over a long period.

Mr Hales (Chairman British Waterways): I think in the short term most of our commercial income is pretty predictable. Most of our commercial income today is coming from boaters, mariners, utilities, standard income from property.

Q66 Michael Jack MP (Cons) subcommittee Chairman; When you say short term what do you mean?

Mr Hales: I am talking about the next three years, so we are fairly predictable for most of our commercial income over the next three years. We then have a chunk of it, which is the piece that Robin [Evans] was talking about, which is our joint ventures which is property development as opposed to commercial income, coming in from our existing investments, and that is the bit that is more uncertain. We are pretty confident with Gloucester Quays. We are close to getting 15 per cent let and that is a very key figure for us down there. It is being built. We have blocks of flats in Manchester and Leeds which are certainly speculative at the moment and that will depend on the housing market in 12 months' time. We have a major scheme down in Brentford where again an underlying amount of that is predictable. The cream on the top is unpredictable, it is not just commercial housing.

Q67 Chairman: So in terms of impact, it is the regeneration projects which may start to slow down simply because the deal rate cannot be done?

Mr Hales: Yes. Specifically it is regeneration, property development.

Q68 Chairman: Do you think that one of the issues that will come out is a reappraisal of the rate of return which will have to be earned on your projects simply because capital is going to be available but for less risky projects, and one way to de-risk it is to be able to offer an enhanced return to an investor?

Mr Hales: Sorry, push it again please.

Q69 Chairman: I suppose it is trying to get some feel that as capital becomes more scarce, as investors in property projects become more risk averse, they are only going to go to the things which give them the best rate of return, and bearing in mind investment in property is a competitive activity, what I am not an expert in is to know how attractive investing in some of these canal side developments is. I remember when you took us around, you said, by and large, prices were 20 per cent higher for comparative properties located alongside your canals but you also made the point that the things you are really interested in are the things you can have a stake in where you have got the land. Inevitably, outwith the canal network there may be even better opportunities but there are a number of those opportunities that people under the current circumstances may not even have the money to contemplate.

Mr Hales: What we are looking for is to get a 15 per cent return on our development capital. Given the current more difficult circumstances we may be more inclined to stay with some of our steady eight per cent returning income for another year or two rather than to risk it to get that 15 per cent because clearly the higher return is there because there is a much higher risk.

Q70 Chairman: And in terms of going forward, I presume that one of the jobs you are going to do is to re-evaluate the list of possibilities, going back to what the Walsall Regeneration Company for example have on their list of projects. I do not want you at this stage to comment because we have not the time nor the detail but I presume some of those things become less likely to happen given the scenario you have just outlined?

Mr Hales: Yes.

More at: Oral evidence