There is a client we were originally introduced to as someone who needed refinancing. As time went on I got to know the reason. In short, there has been a dispute with the managing agents. From what I saw the issues had escalated to a point where it went way past the actual problem, and became a personality issue.
This perception was confirmed by professionals whom the clients had employed to help resolve the issues.
There was without doubt a minor breach of the lease, something like an internal reconfiguration which did not affect anyone else; and was not a major breach.
This got one of the members up in arms. He happens to be a British architect, retired and has a lot of time on his hands. As the saying goes, the devil finds work for idle hands…
The other aspect of the story is these clients own not one, but three flats in the block; further more they are from Iraq. Way too many flats for a foreigner; especially in a prime part of Central London.
With these ingredients, they were not going to get an easy ride.
There were a series of incidents which indicate the board, controlled by certain personalities, are not looking for a resolution, but seem hell bent on persecution. They even took it upon themselves to inform the lender their security was in question, due to the breach in the lease. Whether they even have a right to do this is questionable.
As a result, the lender has made a demand for the full and final repayment of the loan. Thus, leaving the clients between a rock and a hard place.
As the properties are held in an off shore vehicle, and one which is currently not favoured by most lenders, though was many moons ago, it wasn’t easy to identify a lender who would fund this proposition. But we managed to source a lender to refinance this, even with the structure and the perceived breach of the lease. The rates are a little high, but given the circumstances, they are lucky to even be offered a solution.
The clients are frankly fed up with the situation and want out. Therefore, they wish to cut loose and sell. Local agents appeal to end users and tend to achieve the best price – in a normal market. Currently, the tide is turning, there is a sentiment which is wait and see what happens. Therefore, after listing this in the market, and having little to no traction, despite the original lofty promises given by the agents to onboard the properties, the clients are no better off. In fact, worse; as time and tide waits for no man, and the deadline from the bank is getting closer.
I felt they needed to look at reality in the face and grab the bull by the horns, and suggested an auction. Only an auction with a realistic reserve price would cut this issue out – in the timescale required.
Auctioneers understandably don’t want to take something on they cannot sell, it doesn’t look good for the next auction. Therefore, they tend to favour low reserve prices which helps ensure the lot ends up selling.
The bottom line is the market will decide the price. So, even if the reserve price is low the market will dictate the selling price.
However, the reserve suggested is below what’s owed to the bank, therefore this will require a top up by the clients.
One scenario is a low reserve will attract a lot of interest, build momentum and they will go for higher than expected. The other is they will not, given the current market sentiment, and an injection of funds will be required.
This is the current predicament of the clients which they are mulling over. Although the above situation was triggered by a breach in the lease, I feel there will be many scenarios this coming year, where investors will need to offload and off load quick. Auctions will be the obvious route to make this happen – watch this space.