Property Tycoon 'devastated' As Business Empire Collapses

[@contradevian]

M&S has been in that same building for 50 plus years - pretty amazed they do not own their own shop. They must have paid for it countless times over the decades.

Well yes maybe, but the property should have been sold off at auction, not become a zombie asset at a zombie state bank with a suitably dodgy zombie valuation. Capitalism isn't working.

[Bloo Loo]

What is a margin call in this sense?

Lets suppose Mr Tycoon has borrowed to build up a massive portfolio of properties, like the Wilsons, windmilling increases in equity of previous purchases as deposit on new acquirements.

the loans would have stipulated that he keep x% equity in his portfolio...lets say 10%.

so he has 50 million in loans, and the bank asks for a current valuation..as it their right.

the bank does its own calc with its own surveyor and find that instead of 55million valuation, its in this case, 14million short, I think they said, ie 41million.

Mr Tycoon is asked to make up the equity back to 55 million or they will foreclose.

he hasnt got 14 million...he's not really a Tycoon. He has nothing.

so the bank decides....close it and get the security or ride it along.

they chose to close it.

course, they can now put the property into their SHELL and maybe through Enron Accounting end up with no loss, and another asset in a SHELL with property assets.

Banksters.....they gave this man the sun, and took it away...forget the rain and the umbrella.

[Tired of Waiting]

M&S owned most of it's property freehold and a few years ago ie 3-4 in a sale and lease back,they sold it to a separate holding co. wholly owned by them.they may well have offloaded the freehold to this guy then.in which case he paid top dollar

That is very interesting.

[Cinzano Bianco]

<snip>

But yesterday, Mr Thomas told the Evening Post almost all of his properties had now been transferred to principal lender RBS after the banking giant wrote down the value of the portfolio by between £30 to £35 million.

It is understood that the bank bought Mr Thomas's assets out of receivership.

</snip>

So does this mean that my taxes that were used to bail out RBS after they ******ed up, have just bought a bunch of depreciating assets from someone who ******ed up?

[The Masked Tulip]

Lets suppose Mr Tycoon has borrowed to build up a massive portfolio of properties, like the Wilsons, windmilling increases in equity of previous purchases as deposit on new acquirements.

the loans would have stipulated that he keep x% equity in his portfolio...lets say 10%.

so he has 50 million in loans, and the bank asks for a current valuation..as it their right.

the bank does its own calc with its own surveyor and find that instead of 55million valuation, its in this case, 14million short, I think they said, ie 41million.

Mr Tycoon is asked to make up the equity back to 55 million or they will foreclose.

he hasnt got 14 million...he's not really a Tycoon. He has nothing.

so the bank decides....close it and get the security or ride it along.

they chose to close it.

course, they can now put the property into their SHELL and maybe through Enron Accounting end up with no loss, and another asset in a SHELL with property assets.

Banksters.....they gave this man the sun, and took it away...forget the rain and the umbrella.

Thanks - I thought that was what it was but was confused by the use of 'breakage' in the article.

[lets get it right]

The Visteon Factory closed down a few months ago - former Ford place - so I guess that lost a sizeable chunk of rental income but the others are good payers I would have thought - unless they have been negotiating down their rents?

You can't negotiate down your rent - unless you are about to go broke I guess and the landlord decides he has no chance of either getting the money owed out of you or replacing you with someone who can pay their rent.

That's the awful thing about commercial leases - it's all in favour of the landlord. Most have upward only rent reviews and, if you go broke, you still owe the rent every quarter. I've seen so many people during my lifetime who have stupidly signed commercial leases to open things like dress shops and, when the business doesn't make money and they want to pack it in after a year, are surprised they are liable for the rent either until the end of the lease term or until they assign the lease to someone else. Even then, you can only reassign a lease with the landlord's permission.

And landlords demand collateral too. The only way I would get involved in retail premises is if I bought the freehold.

A pox on landlords.

[The Masked Tulip]

You can't negotiate down your rent - unless you are about to go broke I guess and the landlord decides he has no chance of either getting the money owed out of you or replacing you with someone who can pay their rent.

That's the awful thing about commercial leases - it's all in favour of the landlord. Most have upward only rent reviews and, if you go broke, you still owe the rent every quarter. I've seen so many people during my lifetime who have stupidly signed commercial leases to open things like dress shops and, when the business doesn't make money and they want to pack it in after a year, are surprised they are liable for the rent either until the end of the lease term or until they assign the lease to someone else. Even then, you can only reassign a lease with the landlord's permission.

And landlords demand collateral too. The only way I would get involved in retail premises is if I bought the freehold.

A pox on landlords.

This kind of thing is why so few people begin businesses here in the UK.

[leicestersq]

Weren't those assets taken from the people by tyranny and violence to begin with?

As Aboriginies say, watching men argue over who owns what land is like watching fleas argue over who owns what dog.

The current system of borrowing from banks to buy property means they are selling you something that was never theirs (land) with something that never had (money created out of thin air).

I dont think it was the aboriginies who came up with that phrase. I am pretty sure it was Hulk Hogan.

[lets get it right]

This kind of thing is why so few people begin businesses here in the UK.

Do you know though, I'm not sure that's true. It ought to be true - and for anyone with a bit of business savvy and life experience - the terms of a lease will put them off unless they are pretty damn certain they are going to make a go of whatever business they are in. (Someone opening their second hairdressers having made a success of their first etc.)

No, there seems to be an endless line of people who, through hope or desperation, want to open their own shop. Women are the classic example ... how many women dream of opening a dress shop. I have taken an interest in this area for years - whenever a new shop opens in my local towns, I find myself wondering how much the rent is, how long they've signed up for, how much turnover they'll need to pay the rent and rates etc.

In the boom years of 2005/6/7 small (new) units in my local high street (1000 sq ft I guess) were up for 50k a year! Generally they are ground floor units under new blocks of flats. My local high street has been semi rebuilt in the last 10 years with 2 bed flats over shops going for between 225k and 300k and the shops beneath commanding astronomical rents. A couple of them were taken by people selling art - limited edition prints etc. Are they nuts? Simple? How many do you need to sell to pay the rent of a grand a week? Too many it seems, because they have disappeared. Another one was a tile shop. A small retail unit selling nothing but tiles in a secondary position with very limited parking. Another was the ubiquitous estate agent. They moved in in 2006 and out in 2007 to be replaced by a charity shop. I can only assume they let charity shops have the premises on short lets - just to keep something coming in.

[guitarman001]

High rents is one reason I'd never start a business here - well, one that needed premises as such! Good post above!

[douggggy]

Do you know though, I'm not sure that's true. It ought to be true - and for anyone with a bit of business savvy and life experience - the terms of a lease will put them off unless they are pretty damn certain they are going to make a go of whatever business they are in. (Someone opening their second hairdressers having made a success of their first etc.)

No, there seems to be an endless line of people who, through hope or desperation, want to open their own shop. Women are the classic example ... how many women dream of opening a dress shop. I have taken an interest in this area for years - whenever a new shop opens in my local towns, I find myself wondering how much the rent is, how long they've signed up for, how much turnover they'll need to pay the rent and rates etc.

In the boom years of 2005/6/7 small (new) units in my local high street (1000 sq ft I guess) were up for 50k a year! Generally they are ground floor units under new blocks of flats. My local high street has been semi rebuilt in the last 10 years with 2 bed flats over shops going for between 225k and 300k and the shops beneath commanding astronomical rents. A couple of them were taken by people selling art - limited edition prints etc. Are they nuts? Simple? How many do you need to sell to pay the rent of a grand a week? Too many it seems, because they have disappeared. Another one was a tile shop. A small retail unit selling nothing but tiles in a secondary position with very limited parking. Another was the ubiquitous estate agent. They moved in in 2006 and out in 2007 to be replaced by a charity shop. I can only assume they let charity shops have the premises on short lets - just to keep something coming in.

... laundering hubbies drug money, tanning salons anyone..... `do the math`

[douggggy]

... laundering hubbies drug money, tanning salons anyone..... `do the math`

or the `Turkish` kebab shop - always has 6 people serving + + rent/rates/etc etc etc

yet kebabs cost a fiver -

yer right....................................

[hpc-craig]

M&S owned most of it's property freehold and a few years ago ie 3-4 in a sale and lease back,they sold it to a separate holding co. wholly owned by them.they may well have offloaded the freehold to this guy then.in which case he paid top dollar

Did the do this with many properties?

Could they have done this purely to get some cash in the bank, or did they foresee the current 'crisis' and think they could buy the properties back cheaply in the future when 'property mgoguls' like Roy Thomas went bust?

Edited August 25, 2010 by hpc-craig

[goldilocksporridge]

Do you know though, I'm not sure that's true. It ought to be true - and for anyone with a bit of business savvy and life experience - the terms of a lease will put them off unless they are pretty damn certain they are going to make a go of whatever business they are in. (Someone opening their second hairdressers having made a success of their first etc.)

No, there seems to be an endless line of people who, through hope or desperation, want to open their own shop. Women are the classic example ... how many women dream of opening a dress shop. I have taken an interest in this area for years - whenever a new shop opens in my local towns, I find myself wondering how much the rent is, how long they've signed up for, how much turnover they'll need to pay the rent and rates etc.

In the boom years of 2005/6/7 small (new) units in my local high street (1000 sq ft I guess) were up for 50k a year! Generally they are ground floor units under new blocks of flats. My local high street has been semi rebuilt in the last 10 years with 2 bed flats over shops going for between 225k and 300k and the shops beneath commanding astronomical rents. A couple of them were taken by people selling art - limited edition prints etc. Are they nuts? Simple? How many do you need to sell to pay the rent of a grand a week? Too many it seems, because they have disappeared. Another one was a tile shop. A small retail unit selling nothing but tiles in a secondary position with very limited parking. Another was the ubiquitous estate agent. They moved in in 2006 and out in 2007 to be replaced by a charity shop. I can only assume they let charity shops have the premises on short lets - just to keep something coming in.

Yep lots of small businesses selling rubbish - I wonder how they manage to survive with rent, bills, taxes etc, or as you mentioned selling some niche product limited edition art - but obviously they are still there so they must make a living.

Or on holiday you see so many pubs, and restaurant in the one area, you wonder how they manage to make a living.

Actually on the subject of rent prices, always wondered why business did not pair up - like a Cafe during the week, that becomes a takeaway at the weekend to save on costs, and use each other food.

[Home_To_Roost]

I hope a certain Mr and Mrs W join him

[dissident junk]

Do you know though, I'm not sure that's true. It ought to be true - and for anyone with a bit of business savvy and life experience - the terms of a lease will put them off unless they are pretty damn certain they are going to make a go of whatever business they are in. (Someone opening their second hairdressers having made a success of their first etc.)

No, there seems to be an endless line of people who, through hope or desperation, want to open their own shop. Women are the classic example ... how many women dream of opening a dress shop. I have taken an interest in this area for years - whenever a new shop opens in my local towns, I find myself wondering how much the rent is, how long they've signed up for, how much turnover they'll need to pay the rent and rates etc.

In the boom years of 2005/6/7 small (new) units in my local high street (1000 sq ft I guess) were up for 50k a year! Generally they are ground floor units under new blocks of flats. My local high street has been semi rebuilt in the last 10 years with 2 bed flats over shops going for between 225k and 300k and the shops beneath commanding astronomical rents. A couple of them were taken by people selling art - limited edition prints etc. Are they nuts? Simple? How many do you need to sell to pay the rent of a grand a week? Too many it seems, because they have disappeared. Another one was a tile shop. A small retail unit selling nothing but tiles in a secondary position with very limited parking. Another was the ubiquitous estate agent. They moved in in 2006 and out in 2007 to be replaced by a charity shop. I can only assume they let charity shops have the premises on short lets - just to keep something coming in.

Too true.

A few years ago, a retail unit near us was up for rent. I enquired into the costs -- the landlord wanted £2K a month.

To this day, I can't think of what you would sell and in what quantities in a spot with poor footfall and no parking that would cover that kind of cost, along with bills, rates and start-up costs, never mind paying yourself something to live on as well.

[okaycuckoo]

So, what has happened here exactly?

RBS has basically said the portfolio is worth 30 to 35 million less now than, presumably, last month?

Looking at the properties mentioned most of them either have good tennants - i.e. Marks and Spencer, Meeca Bingo, major hotel or nightclubs, which, presumably, bring in the rental cash.

The Visteon Factory closed down a few months ago - former Ford place - so I guess that lost a sizeable chunk of rental income but the others are good payers I would have thought - unless they have been negotiating down their rents?

So why would RBS call this type of commercial loan in now?

Is it because they simply no longer think the assets are worth the value of the loan or because paying back the interest on the loan becomes unsustainable?

Or is it because they are just writing down commercial assets across the UK/Globe?

Many questions, no clear answers. Could be a seriously poisoned relationship with the borrower, or maybe it is an indicator of how RBS intends to treat defaulting commercial mortgages. We could ask the government ...

I'm sure this has no bearing on how they will treat residential borrowers - that pretence will continue for years.

Isn't a "hypothetical situation" the same as mark-to-market?

[SNACR]

Did the do this with many properties?

Could they have done this purely to get some cash in the bank, or did they foresee the current 'crisis' and think they could buy the properties back cheaply in the future when 'property mgoguls' like Roy Thomas went bust?

Doubt it was an STR play to buy back cheaper. Sale and leaseback was very much in vogue and big shareholders would have pushed for it routinely, I suspect.

Also, by doing sale and leasebacks themselves they would be less attractive to corporate raiders, like Philip Green and private equity vultures - flogging off the crown jewels property and renting it back was how they made their deals stack up.

[SNACR]

Many questions, no clear answers. Could be a seriously poisoned relationship with the borrower, or maybe it is an indicator of how RBS intends to treat defaulting commercial mortgages. We could ask the government ...

I'm sure this has no bearing on how they will treat residential borrowers - that pretence will continue for years.

Isn't a "hypothetical situation" the same as mark-to-market?

The bank plays nicely with the landlord/borrower and helps them out with interest only etc. when they get into trouble. The landlord thinks 'oh, this is great'. Really the bank just wants to keep the landlord in situ as long as possible because they don't want the property liability on their hands (rates, service charge, maintenance etc.) - although if they did push the LLs company into administration they could appoint a fixed charge receiver and wangle their way out of the rates liability. A fear of a sparking a commercial property fire sale is probably in the mix to.

What's probably happened is a large solvent buyer (listed property co, possibly) has made noises to RBS they would buy the portfolio for x-amount. RBS weighs it up and decides this is a better prospect than the financially distressed LL they've used to babysit their property and throw him into insolvency.

This is all fine, and should have happened much earlier. The LL talks about his business but, it's not really, it doesn'r really employ anyone or do anything and it's no great loss if it disappears. He's just another fool like the Wilsons who thought they could borrow a load of money and get someone else to do the work and pay it back for them. The problem remains of the failure for the true value of these 'assets' being established.

[VeryMeanReversion]

Too true.

A few years ago, a retail unit near us was up for rent. I enquired into the costs -- the landlord wanted £2K a month.

To this day, I can't think of what you would sell and in what quantities in a spot with poor footfall and no parking that would cover that kind of cost, along with bills, rates and start-up costs, never mind paying yourself something to live on as well.

A friend of mine is paying that. This rent and loans are crippling him and they have already threatened to send round the baliffs. He has a lot of equity in this business so I bailed him out the day before he was going to be shut down. Once the remaining loans are cleared (2 more years), the profits will be good enough to pay the rent and the owners wages.

Another friend in business banking visits these sorts of companies all the time. He says most of the owners cant afford to even pay themselves minimum wage, and that's not for tax avoidance via dividends, they just can pay the bills and themselves at the same time. This is even for business with £1m turnover!!

The sort of people that start these business aren't the sort to just sit at home and claim benefits but financially, that is their best option under the current system.

[lets get it right]

Sounds like it's time for 'BeforeYouOpenAShop.com'

Seriously, why don't people who want to open a shop for the first time run through the idea and figures with a seasoned businessman?

[douggggy]

A friend of mine is paying that. This rent and loans are crippling him and they have already threatened to send round the baliffs. He has a lot of equity in this business so I bailed him out the day before he was going to be shut down. Once the remaining loans are cleared (2 more years), the profits will be good enough to pay the rent and the owners wages.

Another friend in business banking visits these sorts of companies all the time. He says most of the owners cant afford to even pay themselves minimum wage, and that's not for tax avoidance via dividends, they just can pay the bills and themselves at the same time. This is even for business with £1m turnover!!

The sort of people that start these business are exactly the sort to just sit at home and say f@ck the lot of you and claim benefits but financially, that is their only option under the current system.

.. and thus the country dies because the productive people in society just can`t be arsed anymore

Edited August 26, 2010 by douggggy

[Bloo Loo]

The bank plays nicely with the landlord/borrower and helps them out with interest only etc. when they get into trouble. The landlord thinks 'oh, this is great'. Really the bank just wants to keep the landlord in situ as long as possible because they don't want the property liability on their hands (rates, service charge, maintenance etc.) - although if they did push the LLs company into administration they could appoint a fixed charge receiver and wangle their way out of the rates liability. A fear of a sparking a commercial property fire sale is probably in the mix to.

What's probably happened is a large solvent buyer (listed property co, possibly) has made noises to RBS they would buy the portfolio for x-amount. RBS weighs it up and decides this is a better prospect than the financially distressed LL they've used to babysit their property and throw him into insolvency.

This is all fine, and should have happened much earlier. The LL talks about his business but, it's not really, it doesn'r really employ anyone or do anything and it's no great loss if it disappears. He's just another fool like the Wilsons who thought they could borrow a load of money and get someone else to do the work and pay it back for them. The problem remains of the failure for the true value of these 'assets' being established.

If MSE is correct about ONE THING its this:

Bankers are NOT your friends. EVER.

[Protect Rural England]

What's the betting this "tycoon" ends up at the end of it all in a very nice house, with good lifestyle etc etc.

"It was all my own money until very recently......."

So this tycoon goes down the pan because he over extended himself. The banks are userers and as a result numerous small shops, business owners and their employees will suffer.

The tycoon and the banks are equally to blame for the carnage which will follow.

[Lone_Twin]

But yesterday, Mr Thomas told the Evening Post almost all of his properties had now been transferred to principal lender RBS after the banking giant wrote down the value of the portfolio by between £30 to £35 million.

Big surprise

"It is a hypothetical situation."

You can avoid reality, but you cannot avoid the consequences of avoiding reality. Ayn Rand

(I know there is not much love for Rand here but that quote sums it up nicely)

"In a depression assets return to their rightful owners" Andrew Mellon

Err nope, stripped out by your state sponsored banker chums.

Massive land grab going on . Will it be sold off at a discounted price? Oh noo! Keep them prices high, heaven forbid they get marked to market.

Correct analysis.

Well yes maybe, but the property should have been sold off at auction, not become a zombie asset at a zombie state bank with a suitably dodgy zombie valuation. Capitalism isn't working.

Capitalism isn't happening.