Newcastle Development (2119926755) DEFAULT (FS)

no and ....no.

Somebody has a £115,000 in that, at least two with £50,000. Ah, those bonuses, eh?

I'm not in this one, sorry that you are, but I am interested in it as a case study for what happens when a typical development project doesn't get off the ground. Here's my view, I'm sure the more learned members of this forum will correct me where I'm wrong and perhaps add crucial costs + local area knowledge

1) The 90 day valuation for this one has been stated as £1m in the VR, so we should probably start there rather than the face value of £1.2m. So our LTV is actually 86%, which obviously gives us very little leeway.

2) The valuation has been done on a Residual Value basis, which essentially takes the GDV and subtracts an estimate of the build costs to arrive at a valuation. The problem with using this method is that it's highly susceptible to relatively small changes in the parameters. So if another developer takes this on and feels the build costs are £100k higher, and/or the end value £100k lower, that might be an issue for the profitability of the whole scheme. So, we're very dependent on the validity of the numbers in the VR, on which I personally have no clue.

With these two factors plus the inevitable piling on of additional costs that comes with defaulting, I personally wouldn't immediately be holding out great hopes for a full return of capital and interest. My expectations would range from very bad to perhaps capital returned if a buyer is found swiftly.

As to the question of when - god knows, but I'd dig your heels in the for the long haul. It really depends on the current desirability of the project or the reusability of the land for something else failing that. There's been an awful lot of student development projects recently in P2P land, but there might genuinely be the demand for more accommodation in the local area.

The big hope would be that FS's comment "The properties have already been pre-sold, subject to contract, to a large investor looking for a longer term investment in student accommodation", still holds, in which case it might be a lot easier to engage another firm.

Would be interested to know if others agree or take a different view.

Edit :  Just noticed I missed out FS' re-valuation at £2.3m which is, needless to say, quite a remarkable uplift and perhaps highlights what I was saying about the volatility of residual valuations. Still, some more cause for a little optimism at least 

Ongoing

I'm no expert, but AIUI if the proceeds from the recovery are more than enough to cover investors' capital and accrued interest, FS's interest/fees/costs, and all the costs of the recovery receivers/legal/auction/estate agents/etc. then the surplus goes back to the borrower.

Considering how all those cost components add up -- and continue to increase as the recovery process grinds on -- I doubt that borrowers receive much back.

I invested in this on the first outing, but dodged the renewal due to no evidence any work had begun.

adrian77, i'm no expert on valuations nor am I a developer, but as I understand it pricing on developments over multi floors are priced differently to sites which would be used for say general housing. If a site has planning for 9 storeys with 10 units per storey, then it would be valued based on 90 plots, hence the escalated value. For reference I spotted 0.1 acres of land for sale recently with potential for student accommodation, guide price £750k (£7.5 million per acre).

That is interesting and I hadn't thought of it. Are you saying that for example, a half-built high rise development is obviously more valauable because it is closer to its target than just the land itself say, but the issue is a new builder might not want to take on a site that has been partly built by another one because he can't always be sure of the quality of the foundations and other structural work done? So that factor might actually be a depressing factor on the valuation?