Matt Dunham, a leading insolvency expert, from Dunham Dean Advisory is calling for a new approach to deal with property development firms that collapse and leave schemes unfinished and investors lacking money. He thinks a solution similar to the ‘London approach’ of the 1990s, under which creditors held off pursuing their own claims while attempts were made to restructure or refinance the business, would be useful.
He argues that the buy-to-let funding model is now used in other types of development, such as care homes, student accommodation, and self-storage units. “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.”
Banks lose money, developers lose money, and private investors lose money. When a developer runs out of money, the bank decides whether or not to put them back into administration. Instead of relying on the bank, Matt thinks investors should work together and 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,” Matt concluded.