GeorgeT
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Post by GeorgeT on Aug 23, 2017 15:20:09 GMT
DFL030 - The ***** Hotel, N*******
Loan Amount (1st tranche): £647,466
Security Values (as at 11/5/17):
1. Gross Development Value: £3,520,000
2. Market Value (as existing): £925,000
3. Market Value (as existing) assuming 90 day marketing period: £900,000
LY Indicated LTV (1st tranche): 18% of GDV or 72% of Market Value (as existing) with 90 day sale period
Term: 365 days
% PA: 12%
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GeorgeT
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Post by GeorgeT on Aug 23, 2017 21:28:53 GMT
Just doing some more DD on this one and read the VR in more detail.
I thnk the valuer has made a careless mistake.
The Market Value with a limited 90 day marketing period is stated as £900,000.
While the Market Value with a longer 180 day marketing period is stated as a lower figure of £850,000.
The shorter, quick sale scenario would usually result in a lower price. So I think those valuations must be the wrong way round.
So if we assume the 90 day sale valuation ought to be the lowest figure of £850,000, that means the true LTV ratio at the start of the loan is actually 76% (£647,466/£850,000*100).
IMO we should always use quick, forced sale values in working out true LTVs for loan purposes. LTV ratios based on hypothetical GDVs don't cut any mustard with me - especially not at Day 1 before a brick has been laid. It's a bit deceiving and I'm interested only in the value of what actually exists. So I'd ignore LY's 18% figure and consider the true LTV ratio to be 76%.
Not a deal breaker for me - for 12% and a year's interest paid upfront by the borrower, I'm in - but just thought I'd mention it.
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Post by lendinglawyer on Aug 23, 2017 21:39:04 GMT
Good spot. Remember the LTV on that basis will I think only get worse as the tranches flow through because the loan amount goes up £ for £ whereas I would expect the true value stays comparatively flat in the early stages of the build and only accelerates towards the GDV as the build progresses (this isn't linear), if indeed it ever does. Just my opinion as I am no valuation expert but I can't imagine it works any other way; of course I am delighted to be corrected by those in the know...
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GeorgeT
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Post by GeorgeT on Aug 23, 2017 22:23:37 GMT
My DD skills are limited but a search of the local planning authority's website suggests to me that no planning application for the conversion works / change of use has been submitted as yet.
I consider the existing use to fall within use class C1 (hotels/guest houses/boarding houses) and that planning consent for change of use to class C3 (dwelling houses) would be required for the development. Also planning may well be required for any physical works and of course Buiding Regs consent.
I haven't read the local development plan so cannot comment on the likelihood of planning being granted - but I would have thought the Council might be quite keen to get rid of what currently sounds like a dump in order to upgrade the neighbourhood.
As it stands, and based on internet reviews, this place sounds like a hellhole, fragranced by urine, vomit and weed. The sort of establishment where you would worry about a local sewer rat staying the night for fear of it catching something.
But I'm overlooking that and looking at the property as it stands. And based on my (thus far limited) research, a value of around £800k+ doesn't seem unreasonable.
One has to have concerns about the type of person who would operate such an establishment. This chain of hotels is notorious. So there must be a question mark about the borrower but ignoring the DFL / Redevelopment side of things which may or may not happen, I'm content enough based on the value of the existing asset with it's existing use and quality. But I'm running it on a LTV at 76%. And any further advances would cause me to bail out.
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GeorgeT
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Post by GeorgeT on Aug 23, 2017 22:55:00 GMT
Not a deal breaker for me - for 12% and a year's interest paid upfront by the borrower, I'm in - but just thought I'd mention it.Maybe I missed something here... How exactly does the borrower pay a year's interest paid up front? Liam confirmed in recent interview that interest for the term of the loan is deducted from the advance up front which I assume to be effectively the same thing? i.e. interest for the term period is already in the bag in a safe LY account at the time of launch of the loan. If I am wrong and misunderstanding the situation perhaps you would be good enough to correct me for the good and information of all the many hundreds of people who read this forum.
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GeorgeT
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Post by GeorgeT on Aug 23, 2017 23:43:03 GMT
If the interest is held back as you say it is and I am sure you are right on that, then is that not effectively the same thing as having the interest in the bag for the investors? I'm not sure I understand the difference between the borrower paying the interest up front and LY withholding the interest from the loan. In terms of the investors In the loan why does it not amount to the same thing?
Thank you for confirming my DD findings which were that no planning permission was in place for the development works. Of course this is not a hotel to hostel proposal it is a hotel to high spec residential units proposal.
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bg
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Post by bg on Aug 24, 2017 7:14:46 GMT
If the interest is held back as you say it is and I am sure you are right on that, then is that not effectively the same thing as having the interest in the bag for the investors? I'm not sure I understand the difference between the borrower paying the interest up front and LY withholding the interest from the loan. In terms of the investors In the loan why does it not amount to the same thing? You noted that "a year's interest is paid upfront by the borrower" which is incorrect, as the borrower does no such thing; whether you think it is the same thing or not is irrelevant as it is simply an untrue statement The fact that investors see cash flow is simply (IMO) a marketing ploy (admittedly very effective) to provide reassurance that there is cash flow, but it is always important to note that cash flow is only generated by investors own money, not the borrowers. If you sit down and think about it, it would make no difference if that amount accrues and is paid at term and would actually remove a big chunk of unnecessary admin; the only nominal benefits (to investors) is there is compounded interest and slightly reduced max LTV, but both could be tweaked anyway (say 12.5% & max 65%). I'm digressing a bit but retained interest did come from the pre-P2P world of bridging loans, but rather than a Marketing Ploy, it was used as a crafty additional revenue as they often charged interest on the interest; I'm fairly sure this was frowned on by FCA What I find is amusing is people using the lack of monthly interest as a stick to beat the likes of FS with - saying that L is safer because it has it. What they don't actually understand is that all they are doing is paying money to themselves.
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p2pmark
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Post by p2pmark on Aug 24, 2017 7:20:38 GMT
You noted that "a year's interest is paid upfront by the borrower" which is incorrect, as the borrower does no such thing; whether you think it is the same thing or not is irrelevant as it is simply an untrue statement The fact that investors see cash flow is simply (IMO) a marketing ploy (admittedly very effective) to provide reassurance that there is cash flow, but it is always important to note that cash flow is only generated by investors own money, not the borrowers. If you sit down and think about it, it would make no difference if that amount accrues and is paid at term and would actually remove a big chunk of unnecessary admin; the only nominal benefits (to investors) is there is compounded interest and slightly reduced max LTV, but both could be tweaked anyway (say 12.5% & max 65%). I'm digressing a bit but retained interest did come from the pre-P2P world of bridging loans, but rather than a Marketing Ploy, it was used as a crafty additional revenue as they often charged interest on the interest; I'm fairly sure this was frowned on by FCA What I find is amusing is people using the lack of monthly interest as a stick to beat the likes of FS with - saying that L is safer because it has it. What they don't actually understand is that all they are doing is paying money to themselves. But doesn't it affect the quoted LTV? Lendy include the interest in the "L", whereas FS don't. (As I understand it.) In that sense, the Lendy approach seems more transparent.
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bg
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Post by bg on Aug 24, 2017 7:25:10 GMT
What I find is amusing is people using the lack of monthly interest as a stick to beat the likes of FS with - saying that L is safer because it has it. What they don't actually understand is that all they are doing is paying money to themselves. But doesn't it affect the quoted LTV? Lendy include the interest in the "L", whereas FS don't. (As I understand it.) In that sense, the Lendy approach seems more transparent. Strictly speaking yes but the LTV's for DFLs on L are based on GDV's which really are highly risky finger in the air estimations. I think most FS loans are based on current market valuation which gives me far more confidence (even if some of these valuations can be called into question!)
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elliotn
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Post by elliotn on Aug 24, 2017 7:46:30 GMT
You noted that "a year's interest is paid upfront by the borrower" which is incorrect, as the borrower does no such thing; whether you think it is the same thing or not is irrelevant as it is simply an untrue statement The fact that investors see cash flow is simply (IMO) a marketing ploy (admittedly very effective) to provide reassurance that there is cash flow, but it is always important to note that cash flow is only generated by investors own money, not the borrowers. If you sit down and think about it, it would make no difference if that amount accrues and is paid at term and would actually remove a big chunk of unnecessary admin; the only nominal benefits (to investors) is there is compounded interest and slightly reduced max LTV, but both could be tweaked anyway (say 12.5% & max 65%). I'm digressing a bit but retained interest did come from the pre-P2P world of bridging loans, but rather than a Marketing Ploy, it was used as a crafty additional revenue as they often charged interest on the interest; I'm fairly sure this was frowned on by FCA What I find is amusing is people using the lack of monthly interest as a stick to beat the likes of FS with - saying that L is safer because it has it. What they don't actually understand is that all they are doing is paying money to themselves. The same loan 70% ltv on FS is higher risk as borrower has to rustle that up AND the interest 6 months down the line; the same borrower on Ly *just* the combined loan/interest at 70% ltv.
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bg
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Post by bg on Aug 24, 2017 7:47:52 GMT
What I find is amusing is people using the lack of monthly interest as a stick to beat the likes of FS with - saying that L is safer because it has it. What they don't actually understand is that all they are doing is paying money to themselves. The same loan 70% ltv on FS is higher risk as borrower has to rustle that up AND the interest 6 months down the line; the same borrower on Ly *just* the combined loan/interest at 70% ltv. They're not the same though. The loans on L these days are all mass developments with huge GDV's.
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elliotn
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Post by elliotn on Aug 24, 2017 7:53:00 GMT
But doesn't it affect the quoted LTV? Lendy include the interest in the "L", whereas FS don't. (As I understand it.) In that sense, the Lendy approach seems more transparent. Strictly speaking yes but the LTV's for DFLs on L are based on GDV's which really are highly risky finger in the air estimations. I think most FS loans are based on current market valuation which gives me far more confidence (even if some of these valuations can be called into question!) From what I saw of FS dfls they used the GDV and then it was straight line MV inbetween based on % of costs used ie not a red book valuation for each tranche. Whilst it gives some idea of approaching the gdv, at early stages of, say, a demoiltion it could be positively misleading whilst value is destroyed.
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bloodycat
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Post by bloodycat on Aug 24, 2017 8:53:12 GMT
Just doing some more DD on this one and read the VR in more detail. I thnk the valuer has made a careless mistake. The Market Value with a limited 90 day marketing period is stated as £900,000. While the Market Value with a longer 180 day marketing period is stated as a lower figure of £850,000. Even before I got to that bit of the report I was unimpressed with the quality of the report. It clearly hasn't been proofread by anyone (even some of the bits that you could reasonably expect to be standard copy & paste paragraphs). Whilst it isn't necessarily a reflection on the professional judgement and attention to detail of the surveyor, it certainly doesn't improve my already low opinion of the reliability of many of these valuation reports.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Aug 24, 2017 10:02:34 GMT
But doesn't it affect the quoted LTV? Lendy include the interest in the "L", whereas FS don't. (As I understand it.) In that sense, the Lendy approach seems more transparent. The difference is nominal; a nice cup of tea for the surveyor should add a couple of quid to the value to enable an LY loan I wouldn't call it more or less transparent, just different; FS approach is "here's the security that will hopefully cover your capital", whereas LY's is "here's the security that will hopefully cover your capital & the terms interest". In both cases, if a loan defaults I'm sure most will be happy just to see the capital and as we have seen, VRs aren't exactly the most reliable indication of value at a distressed sale Ironically, a small shortfall on LY would be seen as a capital recovery on FS, because on LY, there'll be cutting into the interest already paid (work that one out!) About 50k extra interest & costs per 1m. (net 780k) thats an expensive cup of tea.
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sirius
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Post by sirius on Aug 24, 2017 17:13:35 GMT
new2p2p
I do not think you are wrong. I did my DD yesterday on this and came to the same conclusions as you.
I too have a bedroom bigger than 218 sqft!
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