mikes1531
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Post by mikes1531 on Jul 14, 2015 15:06:46 GMT
New loan to be posted at 3pm Tuesday 14th July Secured against a first charge on a Scottish Boatyard £250,000 13% pa LTV 62.5% There is no bid restriction on this loan : I note that the valuation is over a year old, and the valuer commented that the boatbuilding industry was in decline. Has any attempt been made to obtain an updated valuation? At the time of the valuation the tenant was in administration, and it has been stated that the company has been dissolved since then. Is it fair to presume that the former tenant has vacated the premises by now? If so, when did that happen? Has a new tenant been found? Or is the property currently vacant? If the latter, if there's no tenant with a 'full-repairing' lease, is the property being maintained appropriately? The valuation seems to depend very much on finding the right buyer, and the valuer seems to suggest that it might take some considerable time to achieve a sale at the £400k valuation. The '90-day sale' valuation is just £250k -- making the LTV 100% -- and seems to suggest that if it is necessary for FS to sell the security then lenders are unlikely to receive any of the accrued interest and likely would incur a capital loss. Please comment, FS. Has the borrower given any indication regarding what they intend to do with the proceeds of the loan? It's one thing if they're going to use the money to redevelop the property, and a very different situation if they're going to use it for something else entirely.
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Post by fundingsecure on Jul 14, 2015 18:14:09 GMT
MikeS
As this is an open forum there are certain aspects that cannot be directly discussed, but hopefully I can provide sufficient information to alleviate your concerns.
I note that the valuation is over a year old, and the valuer commented that the boat building industry was in decline. Has any attempt been made to obtain an updated valuation?
Although actual boat building may be in decline the property includes a number of buildings on the site which are suitable for offices, warehousing and workshops, with all necessary permissions. In addition the planned reinstatement of the RNLI (as stated in the valuation) will ensure rental income which will potentially increase the value. Anecdotally the number and availability of this type of facility is limited - resulting in an increase in the potential value.
At the time of the valuation the tenant was in administration, and it has been stated that the company has been dissolved since then. Is it fair to presume that the former tenant has vacated the premises by now? If so, when did that happen? Has a new tenant been found? Or is the property currently vacant? If the latter, if there's no tenant with a 'full-repairing' lease, is the property being maintained appropriately?
The former tenant no longer exists - as indicated by the valuer the property is vacant. Due to a strange quirk in Scottish law it is theoretically possible for the company to be resurrected which would affect the status. At the recommendation of our Scottish solicitor we have therefore taken specific indemnity insurance to cover this (very unlikely) eventuality. There are currently no active leases although a number of companies have expressed interest and discussions are currently taking place. The owner is therefore ensuring the properties are maintained - the condition of which are confirmed in the valuation.
The valuation seems to depend very much on finding the right buyer, and the valuer seems to suggest that it might take some considerable time to achieve a sale at the £400k valuation. The '90-day sale' valuation is just £250k -- making the LTV 100% -- and seems to suggest that if it is necessary for FS to sell the security then lenders are unlikely to receive any of the accrued interest and likely would incur a capital loss. Please comment, FS.
As with all of our property loans we utilise the market price valuation, not the 90 day figure, as this would effectively preclude us from issuing any loans. The borrower has short term plans to tenant some of the buildings, allowing time to develop and potentially sell off part of the property. At the same time he is also pursuing the possibility of selling the facility should the terms be acceptable.
Has the borrower given any indication regarding what they intend to do with the proceeds of the loan? It's one thing if they're going to use the money to redevelop the property, and a very different situation if they're going to use it for something else entirely.
We are aware of the borrower's intention for the funds - part of which will be used for redevelopment.
I trust the above goes some way to answering your questions. As with all of our loans it is up to the individual to assess the risk versus reward.
FundingSecure
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mikes1531
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Post by mikes1531 on Jul 14, 2015 18:57:10 GMT
fundingsecure: Thank you for your very informative response. The only thing you wrote that I'd comment on is... As with all of our property loans we utilise the market price valuation, not the 90 day figure, as this would effectively preclude us from issuing any loans. I take your point, but the thing that bothers me about this case is the huge difference between the market value and the 90-day value. The 38% discount the valuer thought necessary in order to achieve a sale in 90 days is larger than I think I've seen on any other occasion -- though I don't claim to have a perfect memory. I think that's an indicator of the potential difficulty of marketing this particular property. IMHO, with a more common/popular item -- such as a car, or a motorbike, or a bit of ordinary jewellery, or a modest house in a reasonable neighbourhood -- the discount needed to achieve a relatively fast sale of the security would be much smaller, so that a loan with a LTV of up to 70% would be reasonably well secured. In those cases, taking note of the 90-day valuation wouldn't preclude FS from issuing a loan with those items for security. This case is rather different, so my feeling is that full recovery could be quite difficult to achieve if the borrower were to default. As a result, I'm not going to invest in this loan. Other investors clearly don't have the same concern -- the loan is already more than 80% funded. For their sake -- and for FS's -- I do hope this one goes well and my worries are unjustified.
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Post by fundingsecure on Jul 14, 2015 21:16:01 GMT
MikeS
for simple residential properties the 90 day price is usually close to the open market price - which reflects the fact that it is easier to sell a residential property quickly with a relatively small discount.
For commercial properties it usually takes longer (in any case) to sell. Trying to sell a commercial property very quickly would be very difficult - hence the large differential for the 90 day sale price - probably being sold to a speculator rather than someone looking to utilise the property.
Although we do not expect the loan to default -if it did, to take an extreme case:
If, for example, it took 12 months after default to sell the property and it sold for (say) only £350k, all capital and interest plus selling costs would still be recovered, illustrating the level of security for this particular loan.
I hope this helps to explain the thought processes we use when considering the fundamentals of a loan.
FundingSecure
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jjc
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Post by jjc on Jul 15, 2015 12:12:44 GMT
fundingsecureAssuming default & sale of property 1 year after default what is the minimum sales price required sufficient to cover all accrued interest, FS fees & other costs (receiver, agency/sales costs etc)? I make it 343k ie 14% below “market value” (am assuming 5% receiver, 3% agent/marketing & v probably underestimating FS costs at 5%). Any idea how long it typically takes to sell a boatyard in Scotland? Your 350k case doesn’t seem so “extreme”, & might actually be optimistic depending on typical time to sell, discounts necessary to achieve a sale within 12 months. I'd guess 1 year from default would really be max 10 months marketing given time needed to appoint receiver, make report, quick site tidy-up & decide appropriate marketing/disposal route. If boatyards aren’t easy to sell in mid-winter that could lengthen the process / make the discount required higher..
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sqh
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Post by sqh on Jul 15, 2015 13:35:36 GMT
Not sure where the 350k value comes from.
The VR states the 90 day sell value as £250k, assuming no material or essential repairs required.
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mikes1531
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Post by mikes1531 on Jul 15, 2015 17:12:51 GMT
Not sure where the 350k value comes from. The VR states the 90 day sell value as £250k, assuming no material or essential repairs required. I suspect the £350k came from a similar calculation to what jjc did above -- working backwards from what they have to achieve in order to cover all costs. What they seem to be saying is to ignore the 90-day value because they know it will take while to find a buyer willing to pay a price close to the valuation, so if there's a default investors should expect the sale to take quite a while to happen because a quick sale would be a financial disaster. I'm somewhat surprised that £350k would be enough for a full recovery a year after the default because if FS can pay us 12% they'll probably be getting something like 1.5%/mo. After 18 months, that's 27% of the £250k, or £68k. Would £32k be enough to cover the receivers' fees, legal and estate agent costs? (That's only 9% of £350k.) Perhaps. Or perhaps the 1.5%/mo is too high. We really haven't a clue.
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