ozboy
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Mine's a Large One! (Snigger, snigger .......)
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Post by ozboy on Aug 1, 2017 12:29:02 GMT
Thank you mrclondon, very good reporting and very worrying, SO glad I'm not in this. And why am I not in the least surprised. In fact, it's all fully expected and "Situation Normal", particularly regarding my Hobby Horse - "Professional Valuations." Folks, you just gotta Complain about these "Valuations" - to The Platform, RICS and The FCA. EDIT: Your MP
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Post by badboyyardy on Aug 1, 2017 15:36:29 GMT
Somewhat mixed news from my visit to the development yesterday lunchtime. The good news is work continues (at least for now) despite the administration. The bad news is its not going to be easy (in my non-expert opinion) to achieve sale prices that cover all the debt. Location is 1.25 miles from Raynes Park station. There is a bus route that covers slightly over half that distance running every 12 minutes, and a Waitrose and Coop near the station. The properties are overlooking the local Rugby club's grounds, the far side of which is the A3, a motorway standard dual carriageway. The road out front is quite narrow, and match day traffic and PA noise nuisance is inevitable. The properties appear structurally complete, but the small front gardens are still a mess of earth, rubble and building supplies. The properties are separated by a fairly narrow shared drive sloping down to the lower ground level parking. There appears to be very narrow rear gardens. I talked to the site manager posing as a potential buyer, he seemed really cagey and evasive in most of his responses. He claimed they will be finished in 4-6 weeks but his body language suggested otherwise. I asked about layout - 4 or 5 bed ? (remember the loan details say 5 beds) After a bit of pressing I established that they are actually 4 bed - one bedroom on the lower ground floor that they prefer to call the cinema room, lounge/kitchen on the ground floor, 2 en-suite bedrooms on the first floor, and a bedroom in the loft they prefer to call the study. A builder sat outside munching his lunch, helpfully added that the loft room could if needs must be divided into two to make a 5th bedroom. Which feels somewhat at odds with what the Savills valuation report (pre-build) suggested. I asked which estate agent I should contact. The best I could achieve is a mumble that estate agencies have been approached. OK, maybe the administration of the borrower was on his mind, but if the properties are indeed 4-6 weeks off completion, now is the time they should be heavily marketing them. From what I could see from the outside these do not feel to be especially big properties, they share a driveway / entrance gate, the location whilst reasonable is a bit far from the station, and there will be disturbance on rugby match days. Looking at what other properties on this road have sold for, some as recently as 2016, and looking at the photos of said properties, the valuation of £3.8m each for these two properties is pure fantasy. Number 54 (which must be close by), a 5 bed sold for £1.7m in August 2015. In my non-expert opinion I would say these two properties will achieve £1.8m to £2m at best, and possibly as little as £1.6m. It feels an awful long stretch to reach the £2.6m each needed to cover the combined debt, and I can't see the 1st charge holder could justify waiting for offers at a level so far above the immediate area's ceiling. And two identicals coming on the market at the same time isn't going to make it any easier. There are relatively few for sale boards in the area, so priced correctly they should sell fairly quickly. My conclusion, hubris by the borrower, egged on by "valuers" who don't seem to inhabit the same planet as the rest of us. The grim reality is this 3rd charge loan is potentially a devastating result for FS lenders, and one which could possibly have been avoided if FS had commissioned their own independent valuation of the part built property before becoming involved. I hope I'm proved wrong. Great DD - too late for some. Now if Carlsberg made FS do DD of this details
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Post by mrclondon on Aug 21, 2017 15:06:35 GMT
A few key points from the administrators initial report:
- The administrators initial report is dated early May 2017 and has been available at companies house since mid May 2017 - One of the 2 directors of the borrowing company (described as the "main operational director") was made bankrupt at beginning of March 17 - The 1st charge holder then lacked the confidence in the management team to complete the project, and appointed administrators 1 week later, in mid March 2017 - Prior to the appointment of administrators, it was agreed between the 1st charge holder and the then prospective administrators that build out to completion was the best strategy, and the 1st charge holder agreed to fund all costs to completion (seem to have been estimated at c. £600k) - The plan (as at the beginning of May) was to complete the properties asap, targeting end of June 2017. Three estate agents had been approached, and the values suggested were MUCH higher than the range I had in mind when I wrote the above post. (Its probably best I don't quote the exact figures mentioned on an open forum), and the intention was to appoint 1 of the 3 estate agents by the middle of May. - The land registry title still needs splitting, specialist solicitors identified for this task.
Based on this it seems the properties have to realise well over £3m each to cover the combined debt, all accrued interest, and fees. Probably c. £3.15m each. And clearly the ongoing work is way behind the schedule the administrators had in mind at the beginning of May.
In the meantime I note FS have recently decided to commission their own valuation on the properties to validate any marketing approach adopted by the administrators.
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mikes1531
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Post by mikes1531 on Sept 12, 2017 11:20:52 GMT
A few key points from the administrators initial report: ...which raises a few questions... The first charge holder called in administrators in March, the administrators' report was on public view by mid-May -- and it took fundingsecure until the end of July to let their investors know? If the bank has advanced the £600k needed to finish the project, where does that come in the repayment queue? Can a first charge holder significantly increase the size of their charge without obtaining the consent of lower-ranking charge holders? Or does that additional lending from the bank rank after the FS loan? If the latter, why did the bank bother to make the advance? Couldn't the 'nearly complete' project have been sold for enough to cover the first charge? If so, why would the bank put more money at risk by advancing a third-ranking charge? (ISTM that FS would be the ones to benefit most from the completion of the development, so I would have expected it would be them that needed to come up with the extra £600k.)
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Post by mrclondon on Sept 12, 2017 18:51:38 GMT
A few key points from the administrators initial report: ...which raises a few questions... The first charge holder called in administrators in March, the administrators' report was on public view by mid-May -- and it took fundingsecure until the end of July to let their investors know? If the bank has advanced the £600k needed to finish the project, where does that come in the repayment queue? Can a first charge holder significantly increase the size of their charge without obtaining the consent of lower-ranking charge holders? Or does that additional lending from the bank rank after the FS loan? If the latter, why did the bank bother to make the advance? Couldn't the 'nearly complete' project have been sold for enough to cover the first charge? If so, why would the bank put more money at risk by advancing a third-ranking charge? (ISTM that FS would be the ones to benefit most from the completion of the development, so I would have expected it would be them that needed to come up with the extra £600k.) Administrators report para 6.7: All invoices are settled by {first charge holder} on the instruction of the Joint Administrators. The further liabilities incurred by {first charge holder} shall be discharged under their fixed charge over the property and the Company. [...]Which looks pretty clear cut that the extra funds to complete are part of the first charge. I think that would be the normal expectation of all parties unless a deed of priority had been agreed between the 3 lenders to cap the amount each charge holder could recover. There is no deed of priority noted at companies house, but it would also need sight of the land registry title to be sure there was no deed of priority. Administrators report para 5.2: [...] no purchaser was found to acquire the business and assets of the company. [...]
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mikes1531
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Post by mikes1531 on Sept 12, 2017 23:07:17 GMT
Administrators report para 6.7: All invoices are settled by {first charge holder} on the instruction of the Joint Administrators. The further liabilities incurred by {first charge holder} shall be discharged under their fixed charge over the property and the Company. [...]Which looks pretty clear cut that the extra funds to complete are part of the first charge. mrclondon: Thanks for finding that. It does seem rather clear, but it seems a bit unfair that the first charge holder could be paying for gold-plated taps and the cost to complete could be allowed to increase to £1M and, when the property finally is sold and the proceeds aren't enough to repay all the chargeholders, the extra costs effectively will come out of the pockets of the lower-ranking chargeholders. But perhaps it isn't that bad because it isn't the first chargeholder that's making the decisions. It's the administrators, and maybe they have some responsibility towards the lower-ranking chargeholders. OTOH, if the administrators responsibility is just looking out after the failed business of the borrower then in the case of insufficient proceeds the borrower is going to end up with nothing in any case so they might not care about how the pain is spread among the various chargeholders. This all reinforces my feeling of wanting to avoid any loan that doesn't hold a first charge.
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Post by mrclondon on Sept 13, 2017 10:57:01 GMT
A few key points from the administrators initial report: ...which raises a few questions... The first charge holder called in administrators in March, the administrators' report was on public view by mid-May -- and it took fundingsecure until the end of July to let their investors know? I didn't comment on this part of your post yesterday as I was still framing in my mind how to respond. Its perhaps worth a reminder here that I have never been in this loan, and my focus here is on evaluating the situation to inform my thinking as to what role (if any) the regulatory bodies should have in being more proscriptive in their guidance to platforms. Maybe I'm the only one who is actually concerned about the free reign us lenders are giving the platforms. Anyone following this loan at companies house (which is trivial, just hit the 'follow company' button on the company's web page at companies house to get an email whenever anything changes) would have known on 27th March that Administrators had been appointed, and on 16th May after reading the administrators report would have guessed the loan was in very deep trouble. With trading still allowed by FS right upto the 5 month mark (c. 20th June) everyone had around a month after reading the administrators report to exit from the loan via the SM. Or put another way, FS have probably not exercised a duty of care to any lender that has purchased on the SM after FS received their own copy of the administrators report (and possibly since March when the administrators were appointed). Doesn't this concern anyone ? Obviously a lot of forumites would like me have never touched this loan and therefore would not be following it, but nevertheless I still find the lack of discussion on this loan a bit surprising. (This recent post of mine on the general board explains the google search syntax needed to locate the relevant page at companies house)
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mikes1531
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Post by mikes1531 on Sept 13, 2017 12:16:51 GMT
Maybe I'm the only one who is actually concerned about the free reign us lenders are giving the platforms. Anyone following this loan at companies house (which is trivial, just hit the 'follow company' button on the company's web page at companies house to get an email whenever anything changes) would have known on 27th March that Administrators had been appointed, and on 16th May after reading the administrators report would have guessed the loan was in very deep trouble. With trading still allowed by FS right upto the 5 month mark (c. 20th June) everyone had around a month after reading the administrators report to exit from the loan via the SM. Or put another way, FS have probably not exercised a duty of care to any lender that has purchased on the SM after FS received their own copy of the administrators report (and possibly since March when the administrators were appointed). Doesn't this concern anyone ? Definitely not! and Definitely yes!
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adrian77
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Post by adrian77 on Sept 13, 2017 16:15:14 GMT
Nice move!
Very interesting post thanks. The photos seem to show that the house is not that large as you suspect. I think the use of several smallish windows on the first floor against the single dormer is a common architectural trick to make the house look bigger than it is (imagine the windows replaced with the front door - not so big is it now!) I know London prices are stupid but I agree not that stupid.
Thanks to this and other similar posts I am very careful when investing in FS properties.
Looks to me as if FS and FC both seem to have moved into this market and the complete lack of experience it in is self-evident. Glad I missed this one and most of my money is in Rolex watches, established works of art etc.
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adrian77
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Post by adrian77 on Sept 16, 2017 20:13:00 GMT
done a bit of research - you can get a very nice 5 bed-roomed house in the area for £1.8-£2.5m so maybe £3m tops as per prior post is about right,
Granted the agents report is higher but it is inside the realms of possibility they were inflating the price to get the business - never! That said 4000 ft2 is a very large house and these specifications seem very high (expensive!)
Given that the total lent is just over £5M to date then I can see the 2 properties not even covering this when finished and that is before all the rip-off legal and administrative fees etc and the overdue interest to all the charge holders. Also finishing these house to the specifications e.g, granite worktops and floors etc will not be cheap. Also if these houses are dumped on the auction market to clear then the price will probably be even lower.
I can see why this borrower offered a bonus - 'owt for nowt' comes to mind
I can see this one possibly returning exactly zero to the 3rd charge lenders - anybody think this is unreasonable? Also I think it is possible FS could be pursued by the second charge holder if they are not fully repaid - well that one would be interesting!
If the market cools when they are finished they how much will it cost just to service the debt (and pay rates etc) for 3 months - believe me property dealers will smell blood here!
Be interesting to see if this one performs worse than the wind turbine...shades of Knaresborough?
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Liz
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Post by Liz on Sept 20, 2017 16:35:57 GMT
"We are expecting a full update from the administrators this week and will report back once received. In the meantime we have spoken with local agents who believe that a realistically achieveable selling price in current market conditions is £3.2m to £3.4m."
Not looking good!
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IFISAcava
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Post by IFISAcava on Sept 20, 2017 17:09:25 GMT
"We are expecting a full update from the administrators this week and will report back once received. In the meantime we have spoken with local agents who believe that a realistically achieveable selling price in current market conditions is £3.2m to £3.4m." Not looking good! a reminder to avoid third charges even at normal LTVs! You take all the shortfall.
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james21
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Post by james21 on Sept 21, 2017 18:41:22 GMT
lenders will get most of their investment back; my guess is about 70%, the first charge holder is interested in one thing; only its own investment
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Post by mrclondon on Nov 9, 2017 19:47:33 GMT
A copy of the administrators progress report (dated 10th Oct) has been available at Companies House since late October.
The main points are - properties are due to be completed, and on the market with 2 agents this month, November. (para 3.5) - work has taken longer than expected due to remedial work needed to fix design & construction flaws that pre-date the appointment of the administrators (para 3.3) - realisations may be lower than originally envisaged due to market weakness at this price range (para 3.4) - May be possible to make an insurance claim against the previous main contractor, will be pursued further once the works are completed (para 4.2)
A link to the report is available on DD Central's FS DD board.
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adrian77
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Post by adrian77 on Nov 9, 2017 20:00:59 GMT
interesting so thanks for that. This could have been mega-expensive depending on what it was. However this really should not happen with a properly run development - it is not rocket science to appoint a MS and get the work signed-off before it is paid for! Looks to me as if FS have just lent the (our) money and put their faith in providence...
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