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Post by Ace on Oct 10, 2019 11:44:00 GMT
ablrate , can you please confirm whether the "first loss portion" funded by P* Investments Ltd is £375,000 or in fact just £87,500 (ie. 10% of the Loan Amount of £875,000) " P* I********** Ltd Amount: initial subscription £375,000, min first loss portion 10% of Loan Amount" (page 9) We are putting together clarification on some points above. For this particular question, Steve, they have deposited £375,000 to be bid in the loan (which is what they have done) and they cannot sell it on the secondary market for at least 4 months (and then only at par) and they cannot have less than £87,500 in the loan if they do. They have said that they don't envisage selling it down. ablrate , would they not be forced to keep at least £157k in the loan to keep the LTGDV to 80%?
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SteveT
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Post by SteveT on Oct 10, 2019 11:44:31 GMT
Because they are not developing properties themselves. They are providing mezzanine finance to other property developers who need to raise more money than their principal (1st charge) lender is prepared to lend them at a good rate. Hence the developers are paying a very high rate on an extra slice of borrowed money. Hi SteveT , I appreciate they are not doing this development themselves, I was using that as a general description of their line of business. My point was that if you are going to provide high tier financing over uncertain time scales that doesn't to me make sense if you are yourself having to borrow at penal rates to fund it. If you look at the marginal cost of capital and the inherent risks in property development I really don't see the attraction. But the financier behind this operation (see page 14) is not "borrowing at penal rates". He's setting up JVs that allow property developers to obtain mezzanine finance (over and above their primary borrowing) for their developments from HNW investors and (now) Ablrate lenders. From the developers' perspective, it's cheaper to borrow £3.11m at an attractive rate from P****** at 65% LtGDV and then raise another £875k via this investment JV (effectively giving up some of their future equity return) than it is to borrow the whole £4m from someone at 80% LtGDV at an inevitably higher rate (assuming they can find someone willing to do so). Their £5m net worth is likely the equity in their own houses (property around Winchester is seriously expensive, believe me) and value attributed to equity stakes they hold in other developments. It's also very likely already staked as guarantee against other loans too (in particular, the big one from P****** !)
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Balder
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Post by Balder on Oct 10, 2019 11:51:59 GMT
My concern is if any of the borrowing is immediately being taken as profit.
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macq
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Post by macq on Oct 10, 2019 12:00:25 GMT
I did not join but for anybody who was/is in L***y - is this the sort of deal that they used to do?
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SteveT
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Post by SteveT on Oct 10, 2019 12:04:35 GMT
I did not join but for anybody who was/is in L***y - is this the sort of deal that they used to do? No, they provided 1st charge finance (like P****** in this case), albeit mostly at wildly optimistic GDVs
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criston
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Post by criston on Oct 10, 2019 12:07:54 GMT
With borrowing at £4m surely the initial LTV is a minus 63%
'P******, which valued the site at £ 1.57m in its current condition and as £4.785m upon completion.'
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Post by Ace on Oct 10, 2019 12:13:39 GMT
With borrowing at £4m surely the initial LTV is a minus 63% 'P******, which valued the site at £ 1.57m in its current condition and as £4.785m upon completion.' A valid point, but technically it would be an LTV of 255%
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Post by Badly Drawn Stickman on Oct 10, 2019 12:16:02 GMT
With borrowing at £4m surely the initial LTV is a minus 63% 'P******, which valued the site at £ 1.57m in its current condition and as £4.785m upon completion.' A valid point, but technically it would be an LTV of 255% On the plus side Lenders will benefit from a comprehensive security suite to be shared with all future loans. Or should that move to the minus side? Given this is intended to be the start of an ongoing relationship.
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macq
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Post by macq on Oct 10, 2019 12:16:40 GMT
I did not join but for anybody who was/is in L***y - is this the sort of deal that they used to do? ok thanks for that
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criston
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Post by criston on Oct 10, 2019 12:17:38 GMT
Can't see tranche draw downs anywhere. This is getting more ridiculous.
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criston
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Post by criston on Oct 10, 2019 12:27:19 GMT
So the site & works done to date is valued at £1.57m & they are borrowing £4m outright. Wheres the bricks & mortar security in that.
Come on, tell me I have missed something !!!
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Oct 10, 2019 12:38:08 GMT
I did not join but for anybody who was/is in L***y - is this the sort of deal that they used to do? Actually closer to MT/BPF structure where BPF advanced the loan and then refinanced with sub-charges/SOAR to MT lenders.
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macq
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Post by macq on Oct 10, 2019 12:43:14 GMT
I did not join but for anybody who was/is in L***y - is this the sort of deal that they used to do? Actually closer to MT/BPF structure where BPF advanced the loan and then refinanced with sub-charges/SOAR to MT lenders. thanks - may help me get my head around this deal(punt)
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petrichory
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Post by petrichory on Oct 10, 2019 12:50:24 GMT
What I like: - Planning permission in place with long expiry (March 2022)
- Reasonable plan and spacing 8 houses, previous developers in the mid-90s applied to build 29 and then 25 x 3- and 4-bedroom dwellings but were refused.
- Conversion of "managed care" facility into residential, which is always more desirable for a quick exit on a high-interest bridging loan.
- "Desirable" location - as much as I loathe that word, it appears to be accurate. Not an outstanding but certainly a good primary school within walking distance.
- Two separate valuations were undertaken - ABL covering their bases here and getting a second opinion.
- £475k for a 3-bedroom house on what is effectively a private estate with private driveway in this proximity to Winchester is a very reasonable valuation.
- Developer only needed to provide 10% as a first-loss portion of the loan according to the contract. The fact they are providing 43%(!) is a very good sign.
- Developer appears to pick desirable suburban properties (Winchester, Farnborough, Henley-on-Thames, Surbiton) - ie. not converted churches, water towers, etc.
What I don't like: - Effectively a second or perhaps third-charge loan, large first charge lender ahead in the queue.
- The "LTV" of 75% is very high for a residential development but that doesn't mean much in the opaque structure. This is largely outweighed by the massive 43% first-loss injection but still very speculative.
- Not amortising so effectively untradeable on the SM.
- Low rate. For what is effectively a second or third ranking loan, 15% would be more appropriate.
- Not sure how the borrower was appointed a director of seven different companies within the span of a year - just an observation.
- This appears to be by far the largest project in the borrowers pipeline. Both the planning application process and the company itself only started in 2017 = lack of track record.
criston - interesting choice of username for this thread
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blender
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Post by blender on Oct 10, 2019 12:51:35 GMT
So the site & works done to date is valued at £1.57m & they are borrowing £4m outright. Wheres the bricks & mortar security in that. Come on, tell me I have missed something !!! The bricks are in the future, as are our repayments. I doubt the £4m will be drawn down on day1. At least Ablrate are being relatively modest in their fees, at 1.9% up front and 4% pa. I've seen at lot worse propositions than this. No-one has commented on the bid limit of £5k. That means that Ablrate think it will be popular and it may go quickly. So it must be good and I have a spare £5k from SM sales waiting for 2pm. I may not hold to term, though.
Edit: Witnessed by a hairdresser? That changes everything!
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