Property Solutions
In the current market lenders are reluctant to enforce their security unless absolutely necessary. Typically appointments are being made when the borrower is subject to a formal insolvency procedure instigated by a third party, rent is being diverted or the asset is being mismanaged by the borrower.
Our specialist property team is dedicated to supporting all stakeholders in handling some of the complex issues arising in property insolvency. Unlike many other firms our property team dedicate 100% of their time to property assignments so are constantly up to date with the latest developments and market related issues. Our expert knowledge and understanding of different types of property mean we can readily identify the most appropriate strategy.
So why use Moorfields Specialist Property Team?
Appointing a firm with specialist property insolvency experience allows you to gain an expert practical opinion and we are able to provide the following:
- Realistic, timely strategies that are unique to each situation
- A wider range of insolvency options than if you use a real estate agent to realise the asset
- Tighter controls and reporting over projects
- An ability to change agent should this prove necessary
Our team has built up a strong reputation as one which delivers cost effective results and this is evidenced by the fact we act for a number of lenders in this sector.
Commercial, Industrial and Residential
Appointments are being made when lenders are reacting to protect their security. We have experience of dealing with the various issues which arise when dealing with a poorly managed estate such as:
- Planning irregularities
- Failure to comply with building regulations
- Dealing with guarantees
- Rent arrears
- Undocumented tenancies
- Missing rent deposits
- Errors in accounting for VAT
- Uncooperative managing agents
Recent experience has also shown that lenders who have adopted a policy of accepting interest only payments are finding that the value of their security has deteriorated during this period and ultimately they face a larger deficit than if they had chosen to enforce their security earlier.
Click here to read about a recent investment site project
Case Study – LPA Receivership of a dilapidated Commercial site located in London
Overview
- An investment property located in the city of London previously valued at £2m.
- The Debtor was made Bankrupt and could not afford to finish renovating the property.
- The building was severely dilapidated, with significant funding required to complete the project.
- On inspection Moorfields discovered the site contained large amounts of asbestos.
The Objectives
- Secure the premises in order to alleviate the threat of squatters and gypsies
- Identify the appropriate method of sale to maximise the return
- Remove the asbestos in order to attract purchasers
Moorfields Action
- Dealt with the Asbestos issue by instructing agents to remove
- After our review an auction was deemed to be the most appropriate route of disposal
- Bi weekly reporting was provided to the lender.
The Result
- The property was sold within ? weeks of our appointment
- The sale of the property at auction realised £435,000 above the guide price.
- The Bank was repaid in full and a surplus of over £233,000 was passed on to the Trustee in Bankruptcy.
Development and build-outs
Lenders may be confronted by developers who will have insufficient funding to complete projects leaving the secured lender with the difficult decision to make as to whether to enforce their security and complete the project or sell the site in its current state.
Using our network of project managers and construction firms, we are confident in appraising whether an unfinished development should be completed prior to sale and provide specific timelines and costs associated with completing the project.
Click here for an example of a recent build out project.
LPA Receivership of four residential barn conversions
Overview
- Four residential barn conversions undertaken by a property developer
- The site was 85% complete and the developer had fully utilised the bank’s loan facility
- The bank was at risk of the buildings being left incomplete and rendered unsaleable whilst the developer sought additional funding.
- One unit occupied without lender authority
The Objectives
- Liaise with project managers to obtain quotes, timescales and final valuation.
- Ensure the development was completed on time.
- Achieve sale of units and additional parcel of land for maximum value
- Control expenditure to maximise recoveries
Moorfields Action
- Took immediate control and secured the building site.
- Managed the process including instructing the conveyancing solicitors, building contractors, agreeing planning applications, building regulation sign off and building warranty provision
- Immediately marketed the parcel of land for sale and finalised strategy for disposal of the other units.
Result
- Sale of parcel of land completed within 2 months
- The four barn conversations were completed both on time and within budget.
- The final sale consideration was increased by 25% (against valuation) after deducting the building costs.
- Enhanced sale proceeds from the units reduced the shortfall to the lender
Licensed units and multiples
The licensed sector is suffering in the current economic climate; licensed operators are struggling with the VAT and budgetary duty increases and the reduction in customer spending. We believe that smaller operators with up to 16 units will continue to suffer increased pressure.
Moorfields licensed sector specialists have significant experience of dealing with public houses, restaurants and hotels. Our experience led us to develop a successful ‘PUBCO’ trading and disposal model which enables us to continue to trade units, whilst they are marketed, thus protecting their value. With the significant discounts available to our management companies it may be possible to trade sites profitably in receivership which are loss making when left with the existing borrower.
We work with a select team of licensed management and national/local commercial agents to maximize the return to the lender.
Click here to read more about our recent appointment of a large pub chain
Administration of a subsidiary of a large listed pub group
Overview
- A subsidiary of a listed pub group containing ten large freehold sites in South East England
- The parent company could no longer fund the trading losses or pay interest on the loan
- The tenanted sites were not being managed properly resulting in 7 managed/ vacant sites
- The sites were in poor condition and their value decreased from £10m to £4m in less than three years
The Objectives
- Increase the value of the freehold sites by finding tenants and increasing trading profits
- Trade the sites in administration without new funding from the bank
- Maximise the fixed charge distribution to the bank
Moorfields Action
- Took control and secured sites. Sought to find new tenants to produce monthly beer and rental profits.
- 5 of the 7 vacant sites were subsequently converted to a Tenancy at Will within 6 months, with the remaining sites breaking-even through improved trading.
- A proportion of trading profits were reinvested to renovate 5 sites to improve both trading and the freehold sale value
- After a year of trading, an exit strategy was agreed with the bank which involved identifying sites with alternative use
- A national marketing campaign was undertaken
The Result
- The sale of the properties realised an additional 25% over the valuation on the date of a appointment with all sites sold within 8 months from commencing the exit strategy. 4 of the sites were sold for residential use
- The banks shortfall was therefore reduced by £§m
- The bank was not required to provide any funding for trading or property renovations throughout the administration
- All professional fees were discharged from the 25% increase in value, therefore maximising the return to the bank
Care Homes
Care homes are coming under increased pressure as a result of the reduced budget available to local authorities. This is having an impact on the whole market and in particular those properties which are not purpose built.
We have a close association with a specialist care home manager who is able to assist us in trading these properties in receivership or administration.
Personal Guarantor Claims
We have a bankruptcy team who specialise in more complex bankruptcies where debtors may have sought to move assets beyond the reach of the trustee. We have experience in tracing assets and using the powers available under the Insolvency Act to investigate such transfers for the benefit of the creditors. In cases where you have taken personal guarantees you may require additional assistance to recover funds from the guarantor.
Click her to read about a recent Investigation and Bankruptcy of a Director
Investigation and Bankruptcy of Director
Overview
- A director of a property development company provided a personal guarantee for a residential development in East London
- The bank loan had increased over its term due to equity release
- In early 2010, the company failed to meet ongoing interest payments and the Bank appointed an LPA Receiver over the land.
- Following the sale, there was a shortfall on the loan, which the director had personally guaranteed.
The Objectives
- Advise the Bank on their options to recover the shortfall
- Maximise the distribution to the bank
Moorfields Action
- Advised the bank on a number of options they could pursue including;
- Obtain a charging order against specific assets
- Obtain Summary Judgment
- Issue a bankruptcy petition
- Timing and costs of investigation/ recovery action
- An initial low cost investigation was undertaken to establish up to date equity values of the assets listed on the personal asset statement.
- Following this, a strategy was implemented to secure the high value assets at the same time as issuing bankruptcy proceedings.
- Acted as Trustee in Bankruptcy to secure and realize the residual assets using the powers available under the Insolvency Act 1986 including interviewing the director and associates
The Result
- The bank obtained a specific charging order on a high value investment property which realised a significant sum for the bank.
- Using the powers conferred by the Insolvency Act 1986, the Trustee identified a further two assets owned by the director which had not been declared.
- A dividend was issued to the unsecured creditors with the bank receiving 95%.
- The combined result from the asset charging order and bankruptcy generated further realisations to discharge 85% of the bank’s liability.
Value Added Tax
In all property situations it is important to review the VAT position. In some larger cases the appointment of an administrator can enable the VAT on all professional costs to be recovered and some instances the LPA receiver can apply to be registered for VAT. We have considerable experience in this area and are able to create strategies which minimise the potential cost of irrecoverable VAT.
In addition, we may be able to assist a lender to recover VAT incurred on professional costs when property is not registered for VAT has been realised leaving the lender with a shortfall. This is a complex area and we are able to review your procedures for dealing with this on a contingency fee basis.
Business Rates
Business Rates will always be a cost of holding a property for a solvent company whether or not it is occupied and whilst it is possible to manipulate some reliefs to reduce the cost significantly a receiver or administrator will not have to pay Business Rates on vacant sites.
In some situations if the lender is following a holding strategy administration can be a viable option. In administration there is no vacant rates charge and this can represent a significant saving.
Click here to read about a recent administration with business rate savings
Administration of Business Park with Business Rate savings
Overview
- A subsidiary of a private equity firm owned a business park on the outskirts of Birmingham.
- The parent company was unable to meet interest payments or arrange refinance due to market conditions.
- Over 50% of the site had been vacant for more than 6 months, thus incurring business rate liabilities in the region of £300k per annum
- The site’s value had decreased from £9m to £3m in less than two years resulting in a significant shortfall to the lender.
The Objectives
- Find new tenants to decrease the bank’s contribution to void service charge space and increase rental income.
- Secure and hold the site whilst the market improves.
- Maximize the fixed charge distribution to the bank.
- Review the merits of transferring the site to a bank owned SPV.
Moorfields Action
- Took control of the business park and sought new tenants through both local and national letting agents, resulting in three new leases being granted.
- Extend the administration for one year to allow trading to continue.
The Result
- The administration is ongoing as the commercial market has yet to improve to a satisfactory level.
- After deducting administration costs the insolvency procedure is saving the bank £250,000p.a. of vacant business rates liability.
- It is estimated that the site will held for another 3-4 years.
Special Purpose Vehicles (‘SPV’)
We also have experience of assisting lenders to set up and manage SPV’s to hold properties when there are special opportunities for capital growth.
We have also advised on transferring licensed units which are unprofitable as stand alone units into a SPV which then generates profits. In addition units can be grouped together which can increase their marketability.
However it must be borne in mind that there will always be the cost of the stamp duty payable on the transfer of the property.
Distressed Debt
It may be on occasion that rather than dealing with the specific assets it is easier to sell the distressed debt. We know a number of parties who are interested in acquiring debt and would be pleased to affect an introduction or assist with the marketing of such debt.
