‘Loan Notes’ should not be the way forward for the Liverpool property market

By now this development for a new China Town on Great George Street should have been completed and occupied. It will never be built. Now another potential developer has come along with yet another way of securing development finance. Only time will tell if this new developer brings the institutional investment that City so badly needs.

18 months ago, the Council’s “Fractional Investment Task Group” held its first meeting. 6 months ago, it held its last meeting. You might think that you have missed the report that was produced. You haven’t because there has been no report despite the fact that there are obvious things that we found out that should be acted upon by the Council and a wide range of other players.

A conservative estimate is that £200,000,000 of investors’ money has either gone missing or has been spent in a way that means that there will be no recoverable investment. Most of this is in residential property but there were other types of property invested in as well.

There are no fractional investment offers being put on the market now because the ultra-high risk of this investment has now been made clear. That has not stopped other ways of putting high risk investment ‘opportunities’ into the market place

I have been sent the ‘sales details’ for a Loan Note being issued by the potential developers of the Great Georges (formerly China Town) site. I have looked in detail at the details which are for a scheme which is absolutely legal but which is highly speculative.

It is being promoted by Investability Ltd a company with one director registered in a suburban office outside London.

Its lawyers may be the same as the one director or may just be related. Not in itself in away illegal.

The loan note carries a repayment of 12% per annuum guaranteed after two years. This is, of course, about 10% more than individuals could raise from investment in a bank or building society. This suggests a high degree of risk associated with the loan note.

This risk is confirmed throughout the document. I select some apposite quotations direct from the brochure.

“Investments in this type of company carry particular risks. Investors are reminded that there is no guarantee that the company’s strategy or trading activities will be successful”.

“Financial institutions and/or other institutions lending to Investably may choose to withdraw their facilities due to changes in their lending policies or an inability to agree lending terms with the Company. Were this to happen, it may not be possible for the Company to meet its contractual obligations. This could result in a halt in development and potential financial losses”.

“The protections afforded by the Financial Services and Markets Act 2000 including recourse to the Financial Ombudsman Service and compensation entitlements under the Financial Services Compensation Scheme do not apply”.

In addition, it is not clear what the loan note money raised is to be used for. Although the brochure deals solely with the Great Georges St Development the description of the loan note purposes is much vaguer:

“The company is focused on development projects in residential and leisure sectors. The Directors hope to raise £8 million from the issue of the loan note which will facilitate pipeline projects and new opportunities”.

My recollection is that we were assured at the time of the planning application that an agreement about outstanding legal issues had been reached regarding this site between the developers and the Council. However, I have been assured by the Council that there is, as yet, no agreement with the Council to let this development proceed with this developer.

I have asked a series of questions, below, about this matter to the Council. At present only the first of these has been replied to. I will continue to request a reply to all of them.

Could you tell me:

  1. Has the sale of this land been agreed?
  2. Are there any legal issues outstanding between the Council and the developer?
  3. Are there any legal issues outstanding between the Council and the original developer?
  4. Do we have any opportunity to stop this development based on the fact that this is not the sort of firm institutional investor that we need in the City?
  5. Does the agreement with the developer allow for any repayment by the current developers to the hundreds of people who appear to have lost money with the previous developer?
  6. Given that the loan note only appears to seek to find the money required to take development to a next stage, including finding such high-grade permanent investors, when will S106 money be paid for the site?

I have also asked two questions of the developer on 3rd January which have also not been answered:

1.    Could you let me know if the proposed developer has title to the land and could therefore develop if finance is found; and

2.    The brochure regarding the loan note suggests that the £8 million to be raised is for a series of projects and not just for Great George Street. Could you give me an indication of what those projects might be?

I have yet to receive a reply. As always with property development in the City there are more questions than answers! There are two which lie at the heart of our problems in the City. Let us never forget that while there were fractional investment difficulties everywhere Liverpool had as many as the rest of England combined.

Problem 1. Why does the Council not do more to attracted institutional developers and established long-term investors in the City? The Council always attends MIPIM in Cannes and a follow up property MIPIM in London but we never seem to be able to land a big fish

Problem 2. Why is it left to an individual councillor to take up these issues? These are matters of huge concern to the City. What happens with issues like these will affect to finances and physical development of the City for decades. That’s why the Fractional Investment Group should publicly report. That’s why the Council should be much more public about its role in development and about its goals for the type of developer that they are working on attracting into the City.

I’m not a financial adviser but I can give some general advice. Never invest in anything like this until your own independent financial adviser and solicitor have looked at all the details and asked relevant questions. If you then proceed with a high risk investment because you might get a higher rate of return then don’t moan if it all goes wrong.

About richardkemp

Leader of the Liberal Democrats in Liverpool. Deputy Chair and Lib Dem Spokesperson on the LGA Community Wellbeing Board. Married to the lovely Cllr Erica Kemp CBE with three children and four grandchildren.
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2 Responses to ‘Loan Notes’ should not be the way forward for the Liverpool property market

  1. Nonconformistradical says:

    Investability Ltd does not show up on the official Companies House website as far as I can see. I can see a company of that name at https://www.companieslist.co.uk/05767202-investability-limited but that isn’t the official site.

  2. Hywel says:

    I would not believe that there is any investment that can offer a guaranteed return of 12%. I’m in the process of reviewing my pension and my advisor said they aren’t (and haven’t for a while) advised people to invest in commercial property (I’m not giving advice – makde of that what you will!

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