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Post by scepticalinvestor on Apr 12, 2023 15:55:49 GMT
Wth is this new wheeze - 8% property bond (interest+capital tied up until property is sold) to pay off the 8.25% mortgage?
They weren't able to equity fundraise so they're trying something else to keep their cash registers ringing.
Surely the prudent thing to do in this scenario would be to sell the property, pay off the mortgage, wipe out the deficit and then return any proceeds to the SPV shareholders?
There was an issue with the lease which prevented it being sold until recently but that's now been sorted out (cost 23k which further increased the deficit).
This just smacks of kicking the can down the road.
Thoughts?
Edit: I have a small portfolio myself and asked my broker what kind of 5yr fix mortgage rate a credit-worthy portfolio landlord would get for these 3 flats in a block, and he said 5-6% with the likes of Paragon or Aldermore on a multi-unit product, assuming the rental figures meet the stress tests. He said that with the structure PP properties have (hundreds of shareholders in an SPV) it's pretty much un-mortgageable in the current market outside perhaps bespoke commercial deals at the corporate level. I guess that kind of easy money is no longer out there.
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Post by j2o on May 11, 2023 10:07:46 GMT
A friend of mine alerted me to the opportunity yesterday. I actually quite like it as a source of yield in a market where rates are continuing to rise (variable at BR+4%) It looks like the first one they did for Garden Court sold out the full allocation of £498k so replaces the mortgage and so becomes secured with 1st charge. www.londonhouseexchange.com/properties/UKMBUB77JS001#/They have another going on sale today at 11am to non equity holders for "Dutch quarter II" (4 units in a small development in Colcehster): £117k of the available £368k has been taken up by shareholders during their 2 day exclusivity period: www.londonhouseexchange.com/properties/UKMBCO11BA002#/What I like - being used to replace 1st charge mortgage (unsecured 2nd charge until mortgage repaid) - ranks ahead of equity - base rate tracker with no lag - low LTV What I don't like - uncertainty re timing: potential for early repayment as units are sold, and late if they're not - interest paid at repayment - transferable but no exchange / market provided by LHX Full T&Cs here: propertypartner-app-public.s3.eu-west-1.amazonaws.com/files/LHX-Mortgage-Bond-Terms-and-Conditions-03_04_2023.pdf
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IFISAcava
Member of DD Central
Posts: 3,661
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Post by IFISAcava on May 11, 2023 15:35:35 GMT
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Post by scepticalinvestor on May 12, 2023 10:00:43 GMT
Looks like the Dutch Quarter bond sold out in a few hours!
On the face of it, the bond is quite attractive (setting aside the fact that I'm also the equity holder on some of these!) but my primary reservation is the interest being rolled up, what incentive there is for PP to sell and repay the bond in a timely manner and what happens if PP goes into administration. I might be missing something obvious but I'm struggling to identify what PP's medium/long term business model is.
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Post by j2o on May 30, 2023 9:44:32 GMT
And another one (the third) has almost sold out with a few minutes to go www.londonhouseexchange.com/properties/UKMBSE165AD001#/Seemed like a more marginal case given potentially a quick return of funds with 1 of 2 units at the offer accepted stage, plus some EWS1 concerns. As to business case - for now it looks like living to fight another day by refinancing expensive mortgages, and thus saving equity holders from taking a bigger bath from a fire sale at auction, further challenging the viability of the platform. Still unclear what Better are trying to achieve post acquisition - I suspect for now they have bigger fish to fry at home in the USA.
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Post by c0nfuzed on Jun 6, 2023 15:03:27 GMT
I can see why the property bonds are selling well but it's ringing 'conflicting interest' alarm bells for me.
LHX appear to be offering stakes in loans on properties that can't afford to pay their mortgage. And at a very similar % which won't much help the situation. I understand that the new investors take a first charge over the property once the mortgage is transferred so what happens if the 'owners' (us) are deemed to have defaulted on payment. Or LHX can't raise enough capital to pay the mortgage by selling off units or equity raises? Can the lenders repossess the property? That seems like quite a win for LHX and the property bond holders and a massive loss for the original investors?
Who decides if the mortgage is in default? It would appear to be in LHX's interest to prompt re-possessions and follow up with cheap fire sales?
Perhaps this is the new business strategy after all?
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Post by scepticalinvestor on Jun 7, 2023 8:24:50 GMT
I can see why the property bonds are selling well but it's ringing 'conflicting interest' alarm bells for me. LHX appear to be offering stakes in loans on properties that can't afford to pay their mortgage. And at a very similar % which won't much help the situation. I understand that the new investors take a first charge over the property once the mortgage is transferred so what happens if the 'owners' (us) are deemed to have defaulted on payment. Or LHX can't raise enough capital to pay the mortgage by selling off units or equity raises? Can the lenders repossess the property? That seems like quite a win for LHX and the property bond holders and a massive loss for the original investors? Who decides if the mortgage is in default? It would appear to be in LHX's interest to prompt re-possessions and follow up with cheap fire sales? Perhaps this is the new business strategy after all? Tbh I don't think there's a plan behind it other than kicking the can further down the road given that PP properties are effectively un-mortgageable in this normal rate environment. BUT you are absolutely right that this new arrangement is adding risk to the equity holders while minimising the pressure on PP given that a commercially minded external party (the lender) is out of the picture.
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