I've been F*** before on residual valuation on Paisley loan. No more.
Same valuer too.
Interesting (and potentially concerning).
From VR cover page: "Date of Valuation: 28th July 2019"
From VR page 3: "In accordance with your instructions, as set out in your email to us dated 16th July 2019"
From VR page 4: "The day the initial inspection took place 8th November 2018 at 11.30 AM and subsequently on the 21st June 2019"
Potentially the VR we have is a readdress/refresh as it appears the commission from MT originated mid July 19.
Question for FAQ:
Is the VR a re-address / refresh of a report commissioned by a.n.other, or did MT commission the original report(s) in Oct/Nov 2018 and/or June 2019 ? In light of the substantial gap between the Paisley valuation (residual value valuation for the conversion of a derelict building into quasi hotel rooms) and the receivers recommended selling price, was any consideration given by MT to seeking the opinion of a different surveyor for this loan ?
I have nothing against re-addressed valuations per se (a sensible cost saving) but there needs to be a recognition that some surveyors will be more interested in slanting the valuation towards the borrower's needs than the lender's i.e. presenting a best case scenario. A couple of years ago a forumite suggested a form of wording to alert the surveyors to the real risk of loans defaulting and the security needing to be liquidated. If MT are still using that or similar wording it may not be applicable to re-addressed valuations.
The site was bought for £1 million, then planning permission was granted, the site is now supposedly worth £5.5-£6 million. I'm struggling to believe the massive uplift in value; surely this would only be the case if planning permission was unlikely to be granted, which given the site's derelict state I wouldn't believe to be the case.
As mrclondon points out, it looks like the valuation may be a residual value valuation as the comparables from which it is derived are all functioning hotels with yield calculations in full force.
In terms of a prospective FAQ, is the valuer able to give any examples of comparable brownfield land with hotel development planning, as opposed to operating hotels?
I’m sure the, superficially, astonishingly attractive, LTV %’s will entice borrowers less willing to do proper DD to invest.
If these LTV’s were realistic, obviously the Borrower would be able to find finance at more attractive rates?
That said, the 9% ranking tranche may be worth a punt at ~100% to real LTV, assuming a sell out well before term, but can MT attract enough investors to fully fund both tranches? A big test of MT?
Staring Brexit in the face, I’m probably going to sit out a little longer to see how it all plays out.
I think the loan is too large for MT's lenders capacity. Can't see it flying off the shelf. Advertised LTV might look attractive, but I doubt 9% will be as appealing. It's less than expected for the risk involved.
This is not what I expected at all after the recent change of strategy announcement. It doesn't look lower risk to me.
I'm amazed there seems to be so little mention of their huge neighbour in the proposal. Surely they are key to whatever happens to this building, given that their supply routes completely surround the site. The main customer base for the health club and bars would be the workers from there, but they are notoriously low paid. There may be a demand for another 4 star hotel in the general area, but on that site with that huge neighbour? Really? If the proposed use was a residential training centre for the retailer it might be more plausible.
If I booked a luxury spa break and ended up there I would be very disappointed! There is even mention of planning for a bridal suite in the valuation report! Handy for quick delivery of the wedding gifts I suppose
I was passing yesterday and took this picture. Seems an odd place to put a luxury spa hotel, especially with 24/7 HGV traffic and reversing beepers of trucks using the loading bays.
Echoing comments from others, my concern with this loan is the enormous sensitivity of the VR's residual value calculation to modest changes in the input assumptions.
The valuer projects a market value of the fully-developed hotel of between £18.75m and £26.25m, depending whether "industry norm" staffing costs are used to project future EBITDA of £1.5m or the borrower's own (more optimistic) £2.1m. Deducting estimated build costs of £13.8m gives a residual value range of £4.95m - £12.45m, and the valuer lands on £6m as his reasonable estimate, £5.5m for a quick sale.
Whilst these MV projections are based on a (hopefully cautious) 8% investment yield, a crude sensitivity check using 10% lower EBITDA and 10% higher build cost reduces the calculated residual value to just £1.7m, or roughly 90% LTV.
Whilst it's encouraging that MT have been shown a draft Sale Contract with a price that supports the £6m valuation, this cannot be relied on until it is signed. I can imagine a scenario where the seller's own valuation figure is used as a "place-holder" price whilst the buyer conducts his own DD on local hotel market demand, room rates, staff costs, construction estimates, etc. Absent more information, I have to assume the purchase price may yet be subject to significant renegotiation.
I'd be more comfortable if the borrower still had any significant "skin in the game" but, unless I've misunderstood something, this loan appears to cover everything that he's spent to date. Clearly his success in securing planning consent added to the undeveloped site's value, but a 6x uplift versus the price he paid seems somewhat incredible. A large, derelict listed building of this size and type is always likely to be granted consent for some sort of sensitively designed commercial or residential conversion, else it will simply deteriorate further and blight the local area.
On balance, this loan feels like a straight gamble on the success of the hoped-for sale, although prospects for a decent recovery in the event of default appear reasonable.
MoneyThing - I think this is the first new loan since the SM discounts were introduced. I generally have the loan listing page sorted on the 'Best offer' column ...could you consider having something other than a dash in this column for PM listings please so that they appear near the top when sorted on that column.
Disclosure: I'm a shareholder in Assetz Capital Limited
Do these answers change people's views it doesn't seem to be flying out at the moment?
Having played around with the valuation sensitivities (see my earlier post), I decided I was comfortable enough with Tranche A to go with a "mid-range" stake. The valuation seems toppy to me (as residual valuations pretty much always are) but the odds of a distressed sale yielding less than Tranche A capital + accrued interest (which now ranks ahead of Tranche B capital, of course) seems pretty low. I'll be happy also to reinvest my existing Liverpool / Scotland stakes, should they repay in time.
Tranche B is probably fine too, and the extra 3% was tempting, but I'm pretty dubious of getting exposed to 2nd ranking / 2nd charge loans these days (on any platform).
The assurance in the FAQs that MT's loan can be no greater than 90% of the total expended by the borrower also helps, in that he's looking at a potential £150k+ personal hit if the sale goes up in smoke.
Thanks for FAQ but even with headline LTV it does not make sense to invest at 9%. Some cashback and I may be tempted but till then its a No from me. As someone already mentioned before, second charge loan with P2P doesn't always work.
Must admit when I first read the valuation at £6 million, it came as a shock that the original purchase price a few years back was £1 million.
There was a local press release in 2018 with the owner saying work would start in weeks.
You got to think to yourself, did the previous owner not appreciate it's value, or was it what they were expecting.
When it comes to these sort of figures surely one takes professional advice, after all submitting outline planning consent is the easy bit.
It could not have cost very much to do.
You would have thought MoneyThing would have got a back up valuation with a £5 million difference in value.
I'm paying lip service to this loan having not signed the updated T&Cs but it seems to me that there's perhaps too much emphasis on the LTV and insufficient consideration of the exit, and therefore return of capital.
It seems that the borrower would have liked to begun development more than a year ago so why the change of tack? Was there a problem with development funding, was it purchased on finance that has since been called in, did they discover fundamental issues prior to commencing work (structural), was it just a plan to seek publicity to strengthen the planning case? Whatever the answer, there appears to have been no further publicity for this iconic building.
There must be serious questions over the exit if the existing buyer pulls out, it seems to be a bit of a gamble. Seeing as the exit is a sale (the loan is a bridge) then why should we consider the GDV, surely all lenders care about is the LTV with the site as it is, with the value being the price paid + planning (yes, the two should be related but it never quite works out like that ). For all we know the proposed purchaser has plans for an entirely different scheme (i.e. not nuts enough to develop it into a luxury hotel!).
The building itself isn't going to be trivial to develop. Not only is it Grade II listed but the scope of specialist metal work must be vast considering the buildings history.
One final point, what on earth were the planners thinking of when they approved the warehouse next door? I suspect they destroyed a large amount of value in this building at a stroke immediately placing the building at far greater risk of decay and eventual ruin.
You will have noted that the Valuer carried out his inspection with the land owner. We know that this has led in the past to the borrower "influencing" the level of the valuation.
The sale of commercial property older than 3 years from completion is exempt from VAT. (Pinsent Masons Fact Sheet).
The sum of money that the Borrower will receive from MT will be (approximately) £1,407k. Fees (£40k) and retained interest (£103k) are included in the loan figure. West One Loans has a Charge on the property dating from October 2017. They charge interest of approximately 1% per month. Therefore the land has cost the borrower £1,240k. So the borrower will be left with £167k to settle his Planning costs.
This suggest that he has no or very little skin in the game.
Except MT say in the FAQs that they won't lend more than 90% of the costs incurred.