seeingred
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Post by seeingred on Sept 12, 2017 10:56:47 GMT
There was a short period in which 3 agents were involved, including the new one who manned (or maybe personed) the showhome.
My understanding is that to save money the large agents have been de-instructed. This has pros and cons.
What matters on the money front is that the borrower reins in expenditure, gets on with the developments (if he can obtain funds to do so), and/or either rents out the DFL002 properties if they won't sell this year now. The key drain on resources may be the interest rates charged by lendy - these loans are at 12% to investors so maybe 18 or even 20% to the borrower. With a total of maybe £4m after sale of a commercial lease or two on the waterfront properties and maybe a couple of apartments (DFL002) the monthly outgoing could still be in the region of 60k+. This cannot be sustained for long.
The key calculations should centre on how much loss may be incurred if the whole of the DFL001 site is sold in a fire sale at a bad time of year. This could result in a large loss to investors - as well as of course no interest payable to investors. Again I would say I have never been clear how much extra land security is held by Lendy.
If lendy can come to an arrangement with the borrower to lend him extra money and not at a punitive rate, he may be able to finish off DFL001 and sell the houses at a small profit, even at discounted prices for a quick sale in the spring. If more land is indeed held within the loan, then even a fire sale might produce a good outcome for investors (if not for the borrower). Those are amongst the options as I see them.
Centring discussion on which agents are involved and their relation to the borrower may be a distraction - there may need to be major developments before any individual sales are agreed or completed. Meanwhile, the nights are drawing in.
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GeorgeT
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Post by GeorgeT on Sept 12, 2017 23:15:56 GMT
It seems clear that the borrower/developer has formed a virtual agency purely to market the properties without paying fees. He is obviously counting his pennies. On the (slightly) brighter side it may show that he is intending/hoping to complete the development and repay the loan rather than simply washing his hands and handing over the site to his creditors. If this is true, LY shouldn't allow it. A well known, high visibility, proven track record type of estate agency should be used for maximum reach and impact.
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mikes1531
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Post by mikes1531 on Sept 16, 2017 21:38:01 GMT
From the loan overview:
With regards to the build costs - we are providing 100% of these to the borrower. We will release these costs to the borrower in a tranched format (£500k at a time), following receipt of a report from the QS to confirm that the borrower has complied with his construction obligations. i.e he has spent £500k on the build...If anyone conducts an autopsy on this one - they will want to know where the money went with so little to show for it on site and (presumably) with IMS reports during the term to say that all was well. ISTM that the IMS reports simply will confirm that the money was spent. AIUI, this isn't unusual, because it isn't easy to determine how much value has been added by a given amount of money being spent. It's often presumed that after 50% of the budget is spent the value has increased from where it started 50% of the way towards the GDV. That's not a bad approximation for projects that go according to plan, but the method falls apart when things don't go according to plan, either taking longer or costing more than expected. With a fixed-price contract, that shouldn't be an issue unless the contractor fails, but it could be caused by changes requested by the developer. With this sort of situation, nobody might realise that there's a problem until all the money is spent and the project remains unfinished. Might that be what happened here? ...but that rather begs the question of where all the money advanced so far has gone. As noted above, it might have been spent on the building works, but progress wasn't as expected.
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mikes1531
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Post by mikes1531 on Sept 16, 2017 21:45:53 GMT
What matters on the money front is that the borrower reins in expenditure, gets on with the developments (if he can obtain funds to do so), and/or either rents out the DFL002 properties if they won't sell this year now. The key drain on resources may be the interest rates charged by lendy - these loans are at 12% to investors so maybe 18 or even 20% to the borrower. That was before the loans became overdue. Now that the remaining terms have gone negative, the rate being charged by Lendy probably has increased by about 50%. (That would be consistent with Lendy's policy of interest accruing to investors increasing by 50% during the 'tolerance period', which is where we are now.)
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Post by charliebrown on Sept 17, 2017 1:04:30 GMT
This strikes me as the worst LY default so far. Whilst some of the other defaults look bad, this looks like an unmitigated disaster. This is the first DFL default.
Depending on the borrower's attitude, wouldn't it be better to try to find a way to finish the build? That's what Lendy did with PBL081. I don't think taking a hard line and adding more penalties/ interest will help. Of course, if the borrower has already washed his hands of this then a hard line must be taken.
What options are the Receivers likely to consider in this scenario? Can anyone with experience, or a crystal ball, predict some likely outcomes?
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seeingred
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Post by seeingred on Sept 17, 2017 8:41:02 GMT
At a rough guess, this site is about half finished in terms of the money spent and needed to complete. This is an experienced developer who runs (has run) a web of building companies both in Devon and Thailand for some years. An inexperienced developer might underestimate the funds needed to undertake a reasonably straightforward domestic housing project by 50% but that seems unlikely here. So once again, where has the money gone?
The second point is that I understand that the developer wishes to see the project through to completion - the updates suggest this also. But the site has been at a standstill and may remain so until more money is provided from somewhere.
The third point is that irrespective of any 'best solution' being a build out of the project using the expertise of the people who have already been involved (and the work so far is a good standard) the recently appointed 'recovery officer' at Lendy Towers may feel a need to flex his muscles simply to show he can earn his keep. So even if the best solution all round is a build out and with Lendy going soft on some interest payments, this may not happen owing to a desire internally to play hardball - who knows?
Some of the later DFLs have more at stake in terms of overall loan value but may (it is to be hoped) have been better supervised than would appear to be the case here.
The most recent weekly crop of updates (15 September) show some recognition of the number of chickens coming home to roost. Receivers have recently been appointed for both DFl001 and 002 in addition to PBL155 (the castle) and PBL161. These developments are in addition to the older crop of default loans which include Somerset (where a large loss is expected) and Glos, which has become a soap opera of purported sales and promises. The Isle of Wight is a project that should never have got into trouble - good site, full PP for a major housing scheme in a sought after area and yet now we have "The report identifies issues which could adversely affect the value of the security." So what is known now that should have been picked up at the outset?
The Isle of Wight is not the only loan with this ominous update: it occurs for PBL027 Fleetwood also - but with the addition of 'significantly':
"The report has highlighted issues which could significantly adversely affect the value of the security."
Lendy may be entering a difficult phase - many defaulted loans may not repay for months or years. Investor confidence needs to be maintained in order that new money is made available to fund ongoing and new projects. Other platforms are having to raise rates paid to investors to 15% in order to fund their DFL expansion plans.
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mary
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Post by mary on Sept 17, 2017 9:46:04 GMT
Lendy may be entering a difficult phase - many defaulted loans may not repay for months or years. Investor confidence needs to be maintained in order that new money is made available to fund ongoing and new projects. Other platforms are having to raise rates paid to investors to 15% in order to fund their DFL expansion plans. Agreed, I'm struggling to see how investor confidence will be maintained as the default list grows and the recovery drags out. While there are some DFLs that look like they will complete very profitably for all concerned (08 and 12 at a minimum), to complete some of the others that are already started (17, 19, etc) requires £10s of millions of new money, and it would be catastrophic if that was not forthcoming due to plummeting confidence.
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orvilorvil
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Post by orvilorvil on Sept 17, 2017 21:11:10 GMT
Perhaps someone can clear this up for me.
What I don't understand is why the IMS didn't raise the fact that the developer was no way near completion and that there was not enough funding in future draws to complete the development. Surely this is one of the key roles of an IMS, to provide the lender with a clear picture of development progress in relation to the funding available.
I don't believe its just a case of them just signing off saying the funds allocated have been spent, it would be a total waste of time employing them for just that function.
He / she should have been given the full figures of the cost of the development to assess prior to any funding being made available to the borrower. It only would have taken some rudimentary maths and a m2 rate to see something wasn't right if the problem lies with the amount of funding..... or there's something else going on here?
Does anyone know the ft2 or m2 of the GIA of the whole development floor plans and the gross site area?
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sildenafil
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Post by sildenafil on Sept 17, 2017 21:32:07 GMT
Do we even know for certain if an IMS ever visited the site? It is only recently that we have been receiving any sort of building updates on DFLs
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micky
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Post by micky on Sept 18, 2017 7:44:37 GMT
Hi Steve.A slight mix up here I think- Exeter Loan 1-Lendy. Whitehaven -FS.
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Post by brummiefred on Sept 18, 2017 13:41:22 GMT
Yes, the purpose of fellow IMS is to value the work in progress against the 'experienced' contractors fixed price bid for the works and so I am completely baffled by the apparent overspend, unless the ground conditions have been totally unexpected (unlikely) or the client has changed the spec so much, or something else that we dare not imagine.
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Brainer
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Post by Brainer on Sept 21, 2017 14:29:20 GMT
ISTM that the IMS reports simply will confirm that the money was spent. AIUI, this isn't unusual, because it isn't easy to determine how much value has been added by a given amount of money being spent. It's often presumed that after 50% of the budget is spent the value has increased from where it started 50% of the way towards the GDV. That's not a bad approximation for projects that go according to plan, but the method falls apart when things don't go according to plan, either taking longer or costing more than expected. With a fixed-price contract, that shouldn't be an issue unless the contractor fails, but it could be caused by changes requested by the developer. With this sort of situation, nobody might realise that there's a problem until all the money is spent and the project remains unfinished. Might that be what happened here? There's a loan on AC (#392) that has MS reports with each drawdown. I've not read many MS reports to know whether these are particularly good but the level of detail in them would make a situation like what has happened here nigh on impossible. Everything has been budgeted, tracked, projected, photographed and verified throughout the development. It even has a 'Cash Flow Graph' which appears to somewhat answer a question I believe you have asked elsewhere on the forum about expenditure vs progress/value for a development project - apparently there is a "standard 'S' curve". I'm aware #392 is a smaller, less specialised development and so probably easier to monitor but even still, the IMS Lendy has used (or how Lendy has used the info provided) needs a serious autopsy.
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sildenafil
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Post by sildenafil on Sept 21, 2017 16:40:24 GMT
IMS reports are generally split into subsections. These are; Progress - detailed comment is made of the planned progress as shown on the contractors program against the actual, with reasons given for any variance. Valuation - this is the cost of the work done to the date of the report and the contractors agreed cost plan is used as the basis for producing this detailed statement. Variations - this is a list of all works the client has instructed which do not form part of the original contract. The cost of the variations should be met from the client's own funds unless there is prior agreement with the funder to cover these. Utilities - this is a report on the progress of appointing the various utility companies to install water, electricity gas etc. and will include copies of quotations, receipts for payments made and confirmed installation dates. Materials on site - this will list all materials currently on site with their value. Subcontractors - this is a list of all appointed subcontractors detailing their works package and value Suppliers - this will list all specialist suppliers and include copies of quotations and acceptances together with receipts of payments made There are various other sections covering planned work, health and safety, site management, record of plant and operative on site in the previous period contractors proposals for the coming period etc. IMO it is extremely unlikely that an IMS would sign of further payments without producing a report containing the basics of the above and drawing the funders attention to the overspend on the construction as it was progressing. This post shows me that there was no IMS ever appointed and Lendy released further funds based on the word of the borrower. Just my opinion. But would love to be proved wrong...
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mikes1531
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Post by mikes1531 on Sept 21, 2017 21:27:01 GMT
IMS reports are generally split into subsections. These are... This post shows me that there was no IMS ever appointed and Lendy released further funds based on the word of the borrower. Just my opinion. But would love to be proved wrong... If this loan is indicative of how Lendy run their business, then it might explain why they have in the past refused to allow their investors to see the IMS reports.
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sildenafil
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Post by sildenafil on Sept 21, 2017 22:16:47 GMT
Then suddenly out of the blue we have started getting IMS reports for most/all DFLs and never an explanation why we didn't get them before. Now it's even more clear that these reports never existed to be shared with lenders in the first place.
A lot of forum members were repeating themselves on and on for sight of these reports. I was guilty of putting too much trust in Lendy/Saving Stream and I feel I'm now going to take the hit for that with a big loss on this loan.
We live and learn
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