Mortgage Archives - K2 Business Partners | Turnaround Investment Partners

Times are Tough for Commercial Landlords

Commercial landlords are coming under pressure from all sides in the current economic climate.
The plight of those landlords in the retail sector has perhaps been the most widely publicised as more and more empty shops appear on the High Streets where retailers have either ceased trading or moved out of expensive and badly performing outlets.
The problem for landlords is the double pressure of receiving no rent for their empty properties while still being liable for paying expensive business rates, calculated at approximately 40% of estimated annual rental value, a considerable burden.
Recently Dixons, owner of Currys and PC World, revealed that it had agreed with some of its landlords, to pay rent of just £1 a year in exchange for Dixons continuing to pay the business rates. Dixons is not the only retailer with business rate only deals with landlords.
Problems are not only in retail, however. Many commercial landlords are struggling as their tenants downsize, restructure or go out of business altogether, leaving empty industrial and office units for whom new tenants are hard to find. They still have to service their own loans as well as securing their empty premises and paying rates.
Added to this is the change in attitude among lenders towards property companies. Property loans are generally provided by banks who are now asking for much more equity and much better tenant covenants with evidence of a secure income when considering new or renewal of commercial mortgages. Banks themselves are already overloaded with vacant and distressed property assets.
The confluence of pressure is leaving many commercial landlords completely boxed in and adding to the problem is the amount of commercial property on the market.
A related issue is the number of businesses that cannot be sold because of an existing lease obligation. Buyers often want to downsize and therefore are seeking to renegotiate lease terms before purchasing the business.
There are formal and informal restructuring options that can be used to help commercial landlords who are dealing with vacant and loss-making properties but restructuring property portfolios is a complex process and every single situation is different. This is a situation that requires the knowledge and skill of an experienced restructuring adviser.

Businesses Should Pay Down Debt and Beware Offers That Seem Too Good to be True

Many businesses are overburdened with debt and desperate for ways to deal with pressure from banks, HMRC and other creditors. All too often they are prepared to pay off old debt by taking on new debt which leaves them vulnerable to unscrupulous lenders.
Prior to 2008, interest-only loans and overdrafts were a common method of funding, and were reliant on being able to renew facilities or refinancing.
Like many interest-only loans, an overdraft is renewed, normally on an annual basis, but it is also repayable on demand. What happens when the bank doesn’t want to renew the overdraft facility? With the economic climate continuing to be volatile and uncertain and banks under intense pressure to improve their own balance sheets, they are increasingly insisting on converting overdrafts to repayment loans and interest-only finance is disappearing.
This has created a vacuum for alternative sources of funding to enter the market where distinguishing between the credible salesman and the ‘snake oil’ salesman can be very difficult. Desperate businesses are desperate often try to borrow money and become more vulnerable to what at first sight seem to be lenders that can offer them alternative funding solutions that the banks cannot.
Generally the advice is to beware, as the recent eight-year prison sentence handed to “Lord” Eddie Davenport illustrates. The charges related to a conspiracy to defraud, deception and money laundering, also referred to as “advanced fees fraud”.
The court found Davenport and two others guilty in September. Meanwhile a large number of businesses had paid tens of thousands of pounds for due diligence and deposit fees for loans that never materialised and left victims even deeper in debt. The case only became reportable in October, when restrictions were lifted.
Many businesses just want to survive and are trading with no plan or in some cases no prospect for repaying debt. In such instances they should be considering options for improving their balance sheet by reducing debt. Options might include swapping debt for equity, or debt forgiveness by creditors or setting up a CVA (Company Voluntary Arrangement).