The Sage of London property got it right

There it was: that the Bank of England was warning of growing risks to the commercial property market. He was annoyed that the Bank had chosen his sector, of all sectors, worried that even if property wasn't heading for a crash before, it was now.

What he was witnessing so far was a slowing down. He gave an example, a major deal he was hoping to complete where, at the last minute, the lending bank had said it wanted to reexamine the loan to value.

He was waiting to hear - at the very least he was expecting his client to have to stump up more equity; at worst, the whole thing could be off.

The reason for the Bank's alarm isn't that Governor Mervyn King and his colleagues have an unholy bias against office blocks and shopping malls. It's more that they know all too well just what a hold commercial property has over the economy.

Since the last property crash in the early 1990s, bank lending to commercial property has risen from £40 billion to more than £170 billion.

If you thought the write-offs the banks were forced to endure were bad last time, consider what they will be if the same happens again. Now you can see why King and Co are so fearful.

Somebody who survived the previous trauma is Gerald Ronson. Still going strong in his late 60s, he holds an annual lunch at the Savoy to celebrate the results of his company, Heron.

At this year's, in March, I recall sitting with a group of bankers as he warned of impending danger. The view on our table was that he was far too gloomy, that it was a typically doom-laden Gerald assessment.

Now, though, his words have a haunting quality. Predicting that the boom would soon end, he said: "We will look back and talk about how obvious the signs were."

He trained his fire on those who had rushed into his industry, saying their "analysis and management skills" were "poor" and that "I wouldn't have some of these property funds do my shopping at Tesco's."

Last month, UK commercial property funds saw their first drop in total returns for 15 years.

Those funds have attracted many private investors who thought they could cash in on the soaring prices and rentals.

They're now facing losses - if only they'd listened to Ronson when he said it will require more than the ability to write a cheque to make money in property. As far as commercial property is concerned, Ronson is the Sage of London - there's no doubt that he knows what he is talking about.

While other developers charged around, running up huge debts in order to buy more property, he kept his powder dry - Heron, unlike many of its rivals, has maintained a strict policy of low gearing.

While others charged ahead, he looked and saw that much of the market was overpriced.

One area of mounting concern today is secondary shopping centres - shops in locations away from the prime areas. "If I owned secondary shopping centres in the UK I'd be very concerned," growled Ronson. "I think people aren't reading the small print."

He ended his speech by saying "it will be experience and judgment that will sort out the men from the boys". Next year, perhaps the bankers will not be so dismissive.