DFL016 - M***** Row, 6-9 H**** C**** Road DEFAULT

Looks like we will never see a new 12% loan again

Doubt very long as when look at investor numbers on the tranches that have been released at 12% it is a lot higher then the ones at 8/9%

I looked up the related company from which the property is to be purchased. It turns out to be in receivership related to a charge on the subject property.

As far as I can see we are not told what the amount of the total facility is, nor what the price being paid to the related company for the property is. If we were to assume that the current offer is a first tranche and covers the purchase price and interest, then the purchase price would be approximately £675,000. To this one might have to add a construction loan of £850,000, giving a total facility £1,525,000, corresponding to an LT(GD)V of 58%. That number does not include Lendy's cut of the interest, nor Lendy's fees, but also does not take into account any developer's equity, should there be any.

We also don't seem to be told the value of the limited personal guarantee.

The property was for sale at auction (March 2016) at a guide price of £600,000, which is less than the price paid in November 2007. Since the original borrower is repurchasing the property out of administration it would appear that that price wasn't achieved. Taking this at face value one could estimate the LTV on drawdown as in excess of 100%. The LTV of the current loan as against the current value given in the VR is almost exactly 70%, which casts doubt on the assumption that the first tranche covers the purchase price and interest. The VR's assumptions about finance costs are optimistic - it seems to me that this means that the current valuation should be reduced, pushing the LTV over 70%.

We're told that the rear gardens occupy 0.41 acres. The sale particulars give us the size of the full site, at 0.663 acres.

We are told that one exit strategy is to retain the property as an investment, refinancing onto a term loan. I am skeptical of the viability of that as an exit strategy. From what I have seen rental yields on high end properties are typically low, and are insufficient to cover finance costs, unless the borrower has a high level of equity in the property. (FC has a loan for an expensive rural property in Warwickshire where the rent didn't cover the interest, and that wasn't at a particularly high LTV - I didn't lend on that loan.) We don't seem to have been given an estimate of the market rent, so I have no numbers with which to test my suspicions.

Given the state of the property one would expect that the borrower would want to start construction immediately, rather than run up extra costs due to further deterioration ("approaching a point whereby demolition, at least in part and rebuilding will become the only financially sensible option"), so one wonders why the initial tranche isn't larger to cover at least some of the construction costs.

I haven't managed to track down the beneficial owner - I am assuming that the accountant who is the company director and shareholder is an agent.

Given the development history, the poor state of the property, and the difficulty of valuing the property, 9% doesn't appeal to me. As a risk-averse lender I'd still be thinking hard at 12%.

I'm not sure that wealthy people would want to live so close to the M11. 

You'd be surprised - not necessarily there, but some of the most expensive areas are right on top of other motorways.

Going live tomorrow (St. Valentine's Day)

I will and then immediately sell £90 because I like to have £10 in every loan and I cant prefund £10 !!