A review of some recent transactions demonstrates the more positive sentiment in the property market.

There has been a marked improvement in the UK property market in recent months and this renewed confidence has been evident in a number of transactions we have completed over that time. Here are some examples from our London team.

The Circle

We were appointed as receivers to the Circle, a mixed-use but primarily residential freehold development a stone's throw from Tower Bridge in February 2010. The property had been marketed for sale prior to our appointment and the initial strategy was for a quick sale to a specific buyer. The tenants exercised their right to buy pursuant to the Landlord & Tenant Act but after a protracted and rather painful period, failed to perform. Meanwhile, our original buyer had lost its funding and that deal fell away. A number of other buyers came and went over the next couple of years, the circumstances of the asset repeatedly revealing themselves to be just a little too awkward for prospective buyers to take the plunge in an uncertain market.

That is, until the Autumn of 2013, when a buyer was identified that not only had confidence in the asset but was prepared to invest the time and effort to understand its issues. A constructive dialogue with the right-to-manage company ensured that a deal would not be unnecessarily delayed or obstructed beyond our need to once again complete a section 5 (Landlord & Tenant Act) process. We completed the sale of the freehold for £8.125m in November 2013. What had been a far more difficult and much longer process than could have been imagined at the outset – and which at times was a real headache for both the secured creditor and us - resulted in an outstanding result for that secured creditor.

Aldermaston Court

We were appointed administrators in December 2011 over the companies that owned the assets known as Aldermaston Court, a single site in Berkshire comprising the Manor Hotel (Grade II listed), Portland House (85,000 square feet of office space), approximately 141 acres of land (Grade II listed) and a number of small lodges. On the face of it, this was a collection of straightforward and well-located assets that would be extremely attractive to prospective buyers.

Scratching the surface revealed a far different picture. These were difficult assets, not least due to their location on the doorstep of the Atomic Weapons Establishment, where the UK designs and manufactures Trident missiles, and where decommissioned and redundant nuclear weapons are dismantled. Worse still, a basic Google search reveals stories of a decommissioned nuclear reactor being buried on the site, a matter of yards from the hotel. The office building had been vacated some 20 months prior to our appointment under a disputed exercise of a break clause and no replacement tenant had been found.

Although no formal management agreement or lease was in place, the hotel operator continued to run the business following our appointment and following the initial marketing period a number of confidential offers for the sale of the assets were received. Confidential negotiations were embarked upon with multiple parties, all of which were ultimately aborted.

The hotel operator vacated in December 2012, leaving us to make and keep secure a very large unoccupied site, the costs of which were substantial. At times, as prospective buyers came, performed their due diligence and went, we were uncertain whether a sale was achievable at all. The assets were seemingly just too problematic for buyers given the condition of the market.

But things changed in late 2013. In conjunction with our own network of high net worth investors and our sale agents, we identified a couple of new potential buyers, managed to create some competitive tension on the buyer side for the first time in well over a year and were ultimately able to sell the assets just after Christmas. The price achieved was above the lender's red book valuation and almost double what the previous owners had been offering a few months previously.

Greenwoods Hotel Spa and Retreat

We were appointed as administrators of this Essex hotel in September 2013 following an HMRC petition for the company to be wound up for arrears of tax. The four-star hotel had aspirations of achieving five-star status and the strategy agreed with the secured creditor was for an accelerated marketing campaign with a view to completing a sale before Christmas. The hotel traded under our supervision while buyers were sought. An early deadline for offers was set and the hotel proved attractive to prospective purchasers – a number of good offers were received, some from cash buyers, others from buyers who would need to secure finance. We proceeded with the party who offered the right combination of price and ability to transact on our timescale but, just prior to exchange, the buyer attempted to negotiate a price chip which was not acceptable.

Had we been selling this asset 6 or 12 months earlier, when demand for such assets was depressed and funded buyers extremely thin on the ground, this would in all likelihood have left us in a weak negotiating position with no comparable offers available. Now, however, we were able to turn away from our price-chipper and revert to the other interested parties. Although the sale was delayed, we were able to complete on a sale at £5m in February.

Outlook

There is every sign that demand and asset values are benefitting from positive sentiment and my impression is that things are improving very quickly in our space. This can only be good news overall but I would not be surprised if secured creditors start to see opportunities in respect of assets that may hitherto have been producing income sufficient to provide interest cover only and may soon yield a recovery through enforcement that the lender would find acceptable.

For this and other reasons, even though this has been a recession unlike any previously seen, I think that the historical pattern of insolvency numbers increasing in the recovery phase will be repeated.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.
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