oldgrumpy
Member of DD Central
Posts: 5,087 
Likes: 3,233
|
Post by oldgrumpy on Feb 15, 2016 15:20:22 GMT
I wonder if the buyer could sell, at a reasonable price, individual fields to neighbouring farmers who had neither the desire nor wherewithal to buy the whole farm, but who wish to increase their own estate.
This can be done at any time the borrower chooses (subject to SS agreement) to repay parts of the loan.
|
|
webwiz
Posts: 1,133
Likes: 210
|
Post by webwiz on Feb 15, 2016 15:23:56 GMT
It's true that developers do buy up land with no short term possibility of development just to add to their land bank. Provided they can lease it to a farmer for a reasonable yield they are happy to hang on to it indefinitely. However I would not expect them to need to borrow at 18% for this purpose. If the borrower is a developer he may have a short term cash flow problem which would account for it. Or he might know something that neither we nor the vendor knows on the planning front.
|
|
SteveT
Member of DD Central
Posts: 6,875
Likes: 7,924
|
Post by SteveT on Feb 15, 2016 15:26:29 GMT
savingstream, given that the secondary security on these loans is "PGs, Debenture", can you please give us some indication of what stands behind the PGs and what the Debenture is attached to (just the farm P&L or a larger business)? Thanks.
|
|
mikes1531
Member of DD Central
Posts: 6,453
Likes: 2,320
|
Post by mikes1531 on Feb 15, 2016 15:27:36 GMT
I can't believe that the interest rates they are paying are sustainable on the income from the farm. It won't take all that much of an overrun to eat away the margin on the security. So I want to know what the exit strategy is. If it is a developer, like SteveT suggests, and I think he is right otherwise I do not think that a farm owner would need a loan from SS, we are not looking at the income from a farm but the income from all his investment. No income is required for the first 12 months. If, at that point, the town has expanded far enough that building houses on this land has an increased probability then this would be reflected in the price the land would fetch. If there's been no change in the situation by then, the buyer owns a farm, and they have to decide whether to inject another £1.5M or so to hold it for another year and see if the development prospects improve, or they decide that things aren't going to get better so they'd want to sell out. The latter case could mean some considerable time spent waiting for a buyer to come along -- IIRC, someone said the property has been for sale for nearly six months up to now. SS lenders holding loan parts during that period would see their interest accruing rather than being paid monthly, and the LTV will be rising steadily.
|
|
ablender
Member of DD Central
Posts: 2,204
Likes: 555
|
Post by ablender on Feb 15, 2016 15:38:02 GMT
If it is a developer, like SteveT suggests, and I think he is right otherwise I do not think that a farm owner would need a loan from SS, we are not looking at the income from a farm but the income from all his investment. No income is required for the first 12 months. If, at that point, the town has expanded far enough that building houses on this land has an increased probability then this would be reflected in the price the land would fetch. If there's been no change in the situation by then, the buyer owns a farm, and they have to decide whether to inject another £1.5M or so to hold it for another year and see if the development prospects improve, or they decide that things aren't going to get better so they'd want to sell out. The latter case could mean some considerable time spent waiting for a buyer to come along -- IIRC, someone said the property has been for sale for nearly six months up to now. SS lenders holding loan parts during that period would see their interest accruing rather than being paid monthly, and the LTV will be rising steadily. But that is easy to achieve. We should all transfer to that town - thus increase the demand for houses. 
|
|
paulg
Member of DD Central
Posts: 312
Likes: 189
|
Post by paulg on Feb 15, 2016 18:48:25 GMT
As a loan against a farm it looks like a good one to get into, but I'm concerned about it on three issues. 1. The loan summary and particulars tell us nothing about the borrower or his development experience / expertise. 2. The exit strategy doesn't look achievable within the term of the loan. 3. The loan summary and particulars do not tell us what will be happening to the farm during the loan period. Given that "This is a strategic land masterplanning project to re-zone the usage of the land from agricultural to multi-purpose residential and commercial development", that suggests that it is not being bought to be farmed. So will it be farmed and maintained? Will it just be left to stand, with empty buildings? If that's the case will that affect saleability / value of the farm if the project fails? I'm sure savingstream have all this information, and it should add confidence to the loan if it was included in the loan summary. |
|
|
|
Post by savingstream on Feb 15, 2016 19:14:49 GMT
As a loan against a farm it looks like a good one to get into, but I'm concerned about it on three issues. 1. The loan summary and particulars tell us nothing about the borrower or his development experience / expertise. 2. The exit strategy doesn't look achievable within the term of the loan. 3. The loan summary and particulars do not tell us what will be happening to the farm during the loan period. Given that "This is a strategic land masterplanning project to re-zone the usage of the land from agricultural to multi-purpose residential and commercial development", that suggests that it is not being bought to be farmed. So will it be farmed and maintained? Will it just be left to stand, with empty buildings? If that's the case will that affect saleability / value of the farm if the project fails? I'm sure savingstream have all this information, and it should add confidence to the loan if it was included in the loan summary. We have said on here a few times, that this loan should be considered just a loan against a farm. The strategy of the buyer (which is different from SS strategy) is to increase value through holding onto it whilst the area gets re-zoned in time. There were a number of potential buyers for the site hence why it has been bought over the Rightmove price. The buyers are actually very wealthy and have sufficient cash reserves to purchase this site without our assistance entirely; sometimes it makes good business sense to borrow as the rate of return on capital deployed will be significantly higher and they have quite a few other sites that they are land banking at the moment; leverage helps them increase their overall holdings and SS are providing an element of that. There is a fund behind them who will be paying the planning fees over the next couple of years and if necessary pay our interest and fees in 12 months time if they want to keep our expensive debt on board. More likely, they reallocate cash internally to us or get cheaper term debt on the site depending on various factors at the time. It is one of those prime examples of why we exist, to provide capital where it is needed in a timely fashion for a short period of time whilst water loving fowl are ordered into their requisite straight lines.
|
|
ablender
Member of DD Central
Posts: 2,204
Likes: 555
|
Post by ablender on Feb 15, 2016 19:29:27 GMT
...... It is one of those prime examples of why we exist, to provide capital where it is needed in a timely fashion for a short period of time ...... And we are happy to help with this. Thanks savingstream.
|
|
cooling_dude
Bye Bye's for the PPI
Posts: 2,853
Likes: 4,298
|
Post by cooling_dude on Feb 15, 2016 19:30:22 GMT
As a loan against a farm it looks like a good one to get into, but I'm concerned about it on three issues. 1. The loan summary and particulars tell us nothing about the borrower or his development experience / expertise. 2. The exit strategy doesn't look achievable within the term of the loan. 3. The loan summary and particulars do not tell us what will be happening to the farm during the loan period. Given that "This is a strategic land masterplanning project to re-zone the usage of the land from agricultural to multi-purpose residential and commercial development", that suggests that it is not being bought to be farmed. So will it be farmed and maintained? Will it just be left to stand, with empty buildings? If that's the case will that affect saleability / value of the farm if the project fails? I'm sure savingstream have all this information, and it should add confidence to the loan if it was included in the loan summary. We have said on here a few times, that this loan should be considered just a loan against a farm. The strategy of the buyer (which is different from SS strategy) is to increase value through holding onto it whilst the area gets re-zoned in time. There were a number of potential buyers for the site hence why it has been bought over the Rightmove price. The buyers are actually very wealthy and have sufficient cash reserves to purchase this site without our assistance entirely; sometimes it makes good business sense to borrow as the rate of return on capital deployed will be significantly higher and they have quite a few other sites that they are land banking at the moment; leverage helps them increase their overall holdings and SS are providing an element of that. There is a fund behind them who will be paying the planning fees over the next couple of years and if necessary pay our interest and fees in 12 months time if they want to keep our expensive debt on board. More likely, they reallocate cash internally to us or get cheaper term debt on the site depending on various factors at the time. It is one of those prime examples of why we exist, to provide capital where it is needed in a timely fashion for a short period of time whilst water loving fowl are ordered into their requisite straight lines. I think the problem is, a lot of new investors who eager to benefit from a 12% return, dive straight in and don’t understand the concept. I think they confuse your service for a bank loan, and don’t realise (or don’t know) what a bridging loan is. Anyway; thanks again for the update savingstream
|
|
|
|
Post by sunspot on Feb 15, 2016 19:38:12 GMT
I'm no expert in planning law, but it seems to me that there's some confusion...
The plan is to "rezone" the area. This is a necessary first step and merely opens the door to planning permission being granted in the future. In practice, in order to rezone the area, the owners may need to submit outline plans, but it's still not the same thing. In other words, there's no contradiction between the valuation report and the stated intention of the buyers.
Of far greater concern to me is what will become of the farm in the meantime, for there's potential for a major conflict of interest. Specifically, sharp owners may let the farm fall into disuse in order to strengthen their argument for rezoning - which is very much at odds with our interests! Moreover, the revelation that the buyers don't actually need this loan to complete, suggests to me that they may be very sharp indeed!
For this reason, I think we need to know EXACTLY what provisions are set out in the loan agreement to ensure that the farm is run productively.
|
|
|
|
Post by savingstream on Feb 15, 2016 19:45:54 GMT
How about we have their PG so they are personally on the hook...
|
|
cooling_dude
Bye Bye's for the PPI
Posts: 2,853
Likes: 4,298
|
Post by cooling_dude on Feb 15, 2016 20:18:47 GMT
I'm no expert in planning law, but it seems to me that there's some confusion... The plan is to "rezone" the area. This is a necessary first step and merely opens the door to planning permission being granted in the future. In practice, in order to rezone the area, the owners may need to submit outline plans, but it's still not the same thing. In other words, there's no contradiction between the valuation report and the stated intention of the buyers. Of far greater concern to me is what will become of the farm in the meantime, for there's potential for a major conflict of interest. Specifically, sharp owners may let the farm fall into disuse in order to strengthen their argument for rezoning - which is very much at odds with our interests! Moreover, the revelation that the buyers don't actually need this loan to complete, suggests to me that they may be very sharp indeed! For this reason, I think we need to know EXACTLY what provisions are set out in the loan agreement to ensure that the farm is run productively. I think you didn't read savingstream post properly. This, as with all of the SS loans are bridging loans; they are short-term funding options used to bridge a gap between a debt coming due and line of credit becoming available (this is me parroting my post earlier on in this thread). It makes no difference what happens to the land in the next year, only that the land (with buildings) exists as security against the loan. If then the borrower is planning on letting the land fall into disuse, then this would be sad, but it does’t affect the loan or the security (certainly not in the year that the loan runs for). However; if your moral fibres are sounding alarms, then simply don't invest in the loan. Personally, I can’t envision your scenario. There is no way the entire land is going to be allocated PP (ever!). It is much more likely that over many years, some parts will gain PP and likewise it will become apparent which parts have no chance of gaining PP. These no chancers would be sectioned and sold back as agriculture land (which remember; still carries considerable value). As such it makes sense to keep the farm running to keep the condition of the agriculture land up to standard. Lastly, in the many years that it would take to run agriculture land into the ground, do you really think the local authorities would look favourably when the owner applies for PP?
|
|
cooling_dude
Bye Bye's for the PPI
Posts: 2,853
Likes: 4,298
|
Post by cooling_dude on Feb 15, 2016 20:24:50 GMT
How about we have their PG so they are personally on the hook... Words fail me. What... why  ? This isn't savingstream being sarcastic; a personal guarantee is a genuine backup, provided by the borrower if a loan defaults and assets don’t cover the debt? For more info read here
As savingstream have mentioned “The buyers are actually very wealthy”, so this guarantee should carry some considerable clout.
|
|
adrianc
Member of DD Central
Posts: 10,014
Likes: 5,143
|
Post by adrianc on Feb 15, 2016 20:26:02 GMT
How about we have their PG so they are personally on the hook... I used to be Fairly Convinced when I heard that...
|
|
cooling_dude
Bye Bye's for the PPI
Posts: 2,853
Likes: 4,298
|
Post by cooling_dude on Feb 15, 2016 20:49:49 GMT
What... why ? This isn't savingstream being sarcastic; a personal guarantee is a genuine backup, provided by the borrower if a loan defaults and assets don’t cover the debt? For more info read here
As savingstream have mentioned “The buyers are actually very wealthy”, so this guarantee should carry some considerable clout. Some of us think about a PG the same way most would think about a chocolate teapot. So... would you rather there be none at all? Come on now; It's there as a last resort, and better than nothing at all.
|
|
?