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Expert calls for new way to deal with collapse of property developers PDF Print E-mail
Wednesday, 28 February 2018
A leading insolvency expert is calling for a new approach to deal with property development firms which collapse, leaving schemes unfinished and investors out of pocket. 

Matt Dunham of Dunham Dean Advisory believes the administration of the companies behind the Quadrant, a student accommodation block in Liverpool and the Angelgate residential scheme in Manchester could herald further failures on the way.

He is calling for a new solution similar to the ‘London approach’ which was popular in the 1990s, and under which creditors held off pursuing their own claims while attempts were made to restructure or refinance the business.

According to Matt Dunham, the need to find a new solution is all the more critical since the buy-to-let funding model - where investors buy units ‘off plan’ and the money is used to fund construction – is now being used in other types of development, including self-storage units, student accommodation and care homes.

“In effect, these investors are buying a unit, flat or a room in a care home off plan,” says Matt Dunham. “The money isn’t always held separately but is used to build the block which is fine if all goes to plan. However if it doesn’t then the developer goes bust, a ‘fire sale’ is held and the unfinished building is sold at a discount.

“In these cases everyone loses out, including banks who have lent money and the developers themselves, but especially the private investors who are at the back of the queue for pay-outs and may be left with nothing at all.”

Usually where developers run out of money, it is the banks that take the decision to pull the plug and put them into administration. Matt believes the solution is for investors to work together instead and try to raise a ring-fenced pot of money to complete the development, and appoint a restructuring officer or accountant to monitor the process.

“This would allow them to achieve a much higher value for the development and much better returns for themselves,” says Matt. “It would also help to contain any panic within the property market.

“We have seen a couple of schemes collapse recently and we believe there are several more teetering on the edge. In the 1990s we had the London approach, now we need to pioneer a new approach. Certainly it’s time we found a way for all parties to sit down together and come up with a pragmatic and consensual solution.”

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