Pipeline Loans - PBL009

IIRC, when this loan first appeared in the pipeline it was for £353k.  (See this post in the Bourne 43 thread.)  Then it was revised down to the current level of £312k, presumably because the borrower decided they didn't need such a big loan.  If the LTV has increased from 60% to 65% after that then either it was a correction of a wrongly-stated LTV or -- perhaps more likely -- a change in the security value from £520k to the current £480k, though this loan has been at Stage 4 for a while and therefore shouldn't be subject to valuation changes unless there was a revision to reflect a more restricted marketing period.  Until we see the Valuation Report, we won't know what assumption was used for sale timing.

In any case, since this loan is still in the pipeline we shouldn't be surprised by changes in either the amount requested or the security value.

I also note that since this loan originally was brought to SS because the borrower wasn't in a position to settle the Bourne 43 loan, the Bourne 43 loan by Lendy probably still is outstanding.  I think it's quite likely that savingstream closed out the Bourne 43 loan because there were comments in the Bourne 43 thread from SS investors noting that the loan was well past its expected maturity date, and SS thought it better to settle that loan earlier rather than waiting until the replacement PBL was in place.  If that's what actually happened, I really do appreciate SS doing that, and think SS have made the right decision in terms of providing their investors with a loan that did pay out near its maturity date rather than dragging on for an uncertain period.  It's obviously easier to do this with a small boat loan than with a large PBL, so the really testing times for SS still are ahead, but at least they're off to a good start.

People are piling in, but I have some reservations about this one. How is the loan to be repaid? I presume from a sale of the property, but the valuation report indicates that this might be difficult within the loan period. Is the current owner planning to convert to flats as recommended by the valuer or does he intend to sell to a developer? He has already failed to repay his boat loan and rolled it into this one.

Am I being over-cautious?

I expect those that buy long will be last out, and SS have some expectation of the proportion who may buy long. It's also Grade 11 listed, it may be split, and winter on the seafront is coming, I can see a roll ahead rather than early repayment myself, even though there is the potential BTL mortgage promise for the units.

I also was confused by the option to get 6-months' interest up front when the borrower would be paying some of the capital back as the converted units are sold or remortgaged.  And by the stated 6-month minimum loan term, since that seems inconsistent with the option for the borrower to repay early.

I don't have experience with property refurbishment, but six months seems a rather short time to do the necessary design, obtain the necessary planning permissions, and complete the work.  I suppose that since it's only Grade II Listed, and the work will be internal, the Listing will not mean even more permissions are required, but six months still does seem rather quick.

I also think the LTV is higher than indicated.  The valuer put the current value at £890k and suggested that with additional permissions obtained to divide the property into two separate properties and doing the necessary work to achieve such a separation, the value might be increased to £960k.  SS/Lendy appear to have used the higher value to calculate the LTV but that doesn't seem -- to me, anyway -- to be appropriate without making some sort of allowance for the cost of the separation work.  Using the £890k valuation, the LTV would be 70%.  Even that, no doubt, presumes lenders will wait around until a buyer appears who really wants to buy the building rather than a sale at auction after a relatively short marketing period.  I'd expect the latter to result in a price significantly below the 'valuation'.

But perhaps we need not worry about such matters if SS/Lendy can stick to their stated policy of protecting lenders in case a security sale does not produce sufficient funds.  There's also the possibility that the refurbishment work planned for the property might increase its valuation.  While that should help if the property were to be sold as a going concern, I'm not so convinced of any value increase on a 'bricks and mortar' basis.

Finally, I'm a bit unsure about how the security being a 50% interest in the property would work in the case of a default.  Does the borrower own the property jointly with someone else who doesn't have a mortgage on it?  If so, does the owner of the other half have to give their consent to a foreclosure sale?  Is that consent built into the loan from the beginning?  Or would that have to be negotiated after a default had occurred?  Would the owner of the other half willingly accept the result of knock-down price an auction sale might produce?

I'm afraid it all comes back to the issue of whether the return from an investment in PBL009 depends solely on the performance of this project, or whether that is of concern only to SS/Lendy, and all PBL009 investors need concern themselves with is the overall viability of SS/Lendy.

This property was on the market earlier this year and didn't sell.
I note it was offered for sale by auction thru Messrs Clive Emson with a guide price of £180k-£200k. But it didn't sell.

www.kentonline.co.uk/deal/news/grade-ii-building-is-to-11581/

www.cliveemson.co.uk/listing_view.asp?Lot=19&Auc=167

Results - Unsold - www.cliveemson.co.uk/past_results_display.asp?Auc=168

savingstream please comment on the guide price for the auction of the property and the valuation that is being used for this loan. 

Thanks,

Mike

I can find no evidence that planning permission (+ listed building consent if required) has been granted for change of use to residential flats. I have checked the Dover Council website and there is no record of such a planning permission being granted? Based on the auction particulars for No.19 (half of the asset) it appears no such planning was in place in Feb/march this year as the auction particulars state "may offer potential for conversion into apartments, subject to all necessary consents being obtainable.".  A telephone call to Dover District Council's planning dept. ought to be able to confirm the planning situation if an investor has concerns on this point.

In addition the auction particulars state the basement flat at No.19 has been sold off on a long lease - so that would presumably only be producing a small ground rent and have little value to the freeholder. However the valuation prepared for Lendy values both the basement flats assuming vacant possession. Another discrepancy. Either the auction particulars or the valuation must be incorrect in this regard.

The higher valuation figures (we have figures of £800k, £890k and £960k) must all be Gross Development Values (GDV) and indeed the loan particulars state this to be the case - "GDV of the project is c£800k.."