mjc
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Post by mjc on Nov 5, 2018 11:56:25 GMT
“This is a renewal of loan ref 6531593418. The interest to-date needed to extend the loan for a further 6 months has been raised by other tranches of the development.” (Today’s new loan on P*g*f**ld M*ll)
This is of course NOT fraud, nor is there any suggestion where the interest is coming Is not disclosed. Other than that there are similarities with:-
A Ponzi scheme is a form of fraud which lures investors and pays profits to earlier investors by using funds obtained from more recent investors.[2] Investors may be led to believe that the profits are coming from product sales, or other means, and remain unaware that other investors are the source of profits. A Ponzi scheme is able to maintain the illusion of a sustainable business as long as there continues to be new investors willing to contribute new funds and most of the investors do not demand full repayment and are willing to believe in the non-existent assets that they are purported to own.
Are other lenders cautious of this MO or this loan. There are 1 or 2 or more on the SM at -1%
An alternative MO would be to raise the interest to cover the loan and (some) renewals at inception. (I think Proplend may do this)
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Post by mrclondon on Nov 5, 2018 14:25:19 GMT
One of the reasons FS has the highest loan origination rate amongst similiar platforms is the very fact that borrowers pay interest 6 monthly in arrears, and not 6 or 12 monthly in advance. It is a major selling point for FS amongst its customers, the borrowers.
If a development is proceeding (more or less to plan) the value of that development will increase over time, and if FS has determined 60% LTV is appropriate for that borrower / project then the increased valuation allows scope to increase the total value of loans advanced against that project. Take two examples that are very clear in this regard - Wes**n R*** is a development of 3 detached houses, the first is virtually complete and is capable of being sold as is at full GDV. Similiarly the Wakefield project which is two pairs of semis, the first pair are virtually finished and ready for occupation. There feels to be minimal risk in additional loans being raised against the increased site value when at least part of the site valued at full GDV (which includes profit margin).
You specifically mention P*g*f**ld M*ll. The above argument should still apply, that the development works that have taken place should have increased the sites value thereby allowing additional loans to be drawn whilst maintaining LTV. The fact the additional loans will in part be used to pay finance costs is immaterial - they are a cost of the project alongside the bricks and labour. I've not been following this loan in detail for two reasons. The first is I felt the scope of the project was rather extensive and I worried whether FS lenders will have pockets deep enough to reach a sensible conclusion. But the bigger concern is this borrower doesn't have a good track record of actually getting projects over the line and redeemed (Lendy Warringon, MT Storage, COL Doncaster). With funds in 2 of those 3, I'm sitting this project out for now. Whilst I managed to exit the MT loan, I am rather non plussed at the asset stripping that has gone on behind the scenes. I also speculate about the extent to which the borrower is merely a figurehead / frontman rather than necessarily the "brains" behind the projects.
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trium
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Post by trium on Nov 6, 2018 7:53:03 GMT
Tranche 4 of Y*rk Place Bath is currently listed for investment and in the loan description FS say "We have withheld funds from this loan to renew tranches 1 and 2." The LTV is 69.7%. There remains within the facility nearly 200k available for draw down should the value increase sufficiently.
FS originally lent the money for purchase of the plot of land. Tranche 1 of the development facility was used to repay that loan plus interest as well as to start work on the development. That tranche was renewed in May when the loan was increased to cover the interest and is apparently about to be renewed again using further borrowings.
I share the OP's concerns where developers appear to have no "skin in the game" and just keep borrowing more and more, and I worry about the impact of FS's high rates on margins, but so long as the valuation at each point is realistic there seems no reason not to increase lending against increasing value.
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Post by investor1925 on Nov 6, 2018 8:21:24 GMT
Tranche 4 of Y*rk Place Bath is currently listed for investment and in the loan description FS say " We have withheld funds from this loan to renew tranches 1 and 2." The LTV is 69.7%. There remains within the facility nearly 200k available for draw down should the value increase sufficiently. FS originally lent the money for purchase of the plot of land. Tranche 1 of the development facility was used to repay that loan plus interest as well as to start work on the development. That tranche was renewed in May when the loan was increased to cover the interest and is apparently about to be renewed again using further borrowings. I share the OP's concerns where developers appear to have no "skin in the game" and just keep borrowing more and more, and I worry about the impact of FS's high rates on margins, but so long as the valuation at each point is realistic there seems no reason not to increase lending against increasing value. And your last para says it all. The valuation has to be realistic & this is where others have failed
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arby
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Post by arby on Nov 6, 2018 8:22:24 GMT
Tranche 4 of Y*rk Place Bath is currently listed for investment and in the loan description FS say " We have withheld funds from this loan to renew tranches 1 and 2." The LTV is 69.7%. There remains within the facility nearly 200k available for draw down should the value increase sufficiently. FS originally lent the money for purchase of the plot of land. Tranche 1 of the development facility was used to repay that loan plus interest as well as to start work on the development. That tranche was renewed in May when the loan was increased to cover the interest and is apparently about to be renewed again using further borrowings. I share the OP's concerns where developers appear to have no "skin in the game" and just keep borrowing more and more, and I worry about the impact of FS's high rates on margins, but so long as the valuation at each point is realistic there seems no reason not to increase lending against increasing value. I also wonder about developer's skin in the game. If the original loan is 70% of the purchase price, then they do, but it's also possible it's 70% of the valuation, while the actual price paid is much less resulting in little of the developer's money being in the project. Either way, it all comes down to the accuracy of the valuation....
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adrian77
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Post by adrian77 on Nov 6, 2018 9:43:35 GMT
Agree with all the above - to be fair I would say the estimated build costs seems reasonable if not on the high side (unless I am missing something) and Bath is a very desirable area. However this one is nowhere near complete and if I had borrowed nearly £1m at about 20%
at this stage I would be booking a one-way ticket and taking retirement in my Spanish home!
If this one is finalised in 12 months time that is over £200K (including prior renewals) in interest alone and what happens if the market cools due to Brexit which I am convinced it will.
I also think the valuation is over optimistic (always a first time!) as these units are tiny at 67m2 -69m2 i.e. each floor is the size of my office!
update - just read the excellent DD by mrclondon - there seems to be a lot of outstanding
charges for companies directly or indirectly related to these directors...
Sleeper alert - I am in this one (not sure how I managed that) so no need for personal attacks...
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