Loan extension lifeline as Covid hits £4.5m flats scheme
- Credit: John Elworthy
Covid-19 forced housebuilder Laragh Homes to go cap in hand to the Combined Authority to extend repayment of a £4.5m loan to finish a flagship Ely development.
Cambridgeshire and Peterborough Combined Authority (CAPCA) agreed to the extension – but with some reservations.
The company will have the loan extended by three months and the interest rate will rise.
The loan was agreed by former mayor James Palmer and had been due for repayment on February 7.
But the 25-month term has been extended by three months after a plea by Laragh Homes - who borrowed the cash to convert Alexander House, Ely, to flats.
Laragh will pay 6 per cent over base rate on the loan until it is repaid in full.
The loan is secured against a charge on the site and CAPCA will share 50 per cent of any profit up to a maximum total profit of £500,000.
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In the event of any profit in excess of £500,000, CAPCA will receive 40 per cent of any additional profit achieved.
Tory councillor Chris Boden told the CAPCA board they had no choice other than to agree an extension.
He said that, in principle, he remained against “unnecessary generosity” and it was right to expect “appropriate recompense” on the loan arrangements.
But he said by not agreeing to the extension, CAPCA would be cutting off its nose to spite its face.
“It is not in our interest to insist on the current term being adhered to and this three-month extension is reasonable,” he said.
Laragh Homes was “not a company on brink of failure” and had a lot of resources behind it.
But he would not want it to be seen a precedent by CAPCA in agreeing new terms for other loans.
Housing director Roger Thompson said that the Alexander House revamp was close to being finished but had been heavily disrupted and impacted by Omicron.
He said Laragh Homes had found themselves short of labour – including plasterers, carpenters and electricians – to finish.
And the company had faced supply issues.
But he told board members all 25, £300,000 flats had prospective buyers, many on the point of exchange of contracts.
Four will become £100,000 homes and will be allocated by East Cambridgeshire District Council under an affordable housing programme initiated by Mayor Palmer but dropped by incoming Mayor Dr Nik Johnson.
If CAPCA did not agree the loan extension, CAPCA was told, there was a possibility of the borrower defaulting on the loan and the development not being completed.
And that, Mr Thompson warned, could open a legal can of worms
He said there has been a significant recent impact from Omicron on the project.
The deal with Laragh was evolved in 2018 as part of the devolution deal.
Money allocated by Government for affordable housing was divided into two parts, explained Mr Thompson.
Some was used for traditional grant funding and the rest for use by Mayor Palmer’s desire for a revolving fund to support delivery of additional affordable housing.
Mr Thompson said that Laragh Homes has found themselves in “a very difficult position with this project”.
They were very close to completing the scheme but delays in obtaining materials and the lack of labour for the finishing trades “have made it impossible to meet the repayment date”.
He said Laragh “have advised that they do not have the funds available to repay the loan from any other sources
“It appears very difficult for them to complete the scheme without the facility being extended.
“They will have to seek to find other financial sources which will incur significant delay and they may even lose the contracted purchasers who are waiting to move in as soon as units are completed.”
Cllr Lewis Herbert, lead member for housing at CAPCA, said it was the second loan extension for Laragh.
"Clearly we want to have assurance these flats are going to get sold and money repaid,” he said.
Mr Thompson said councillors could take “great reassurance” that 11 of the flats had moved forward to exchange of contracts.
CAPCA had a covenant over the site, he said, and as flats are sold loan money was paid.
He said the scheme would more than generate the money needed to repay the loan.
Cllr Lucy Nethsingha said the loan extension was “slightly worrying” but in the circumstances “not enormously surprising”.
Mr Thompson warned against other avenues to recover the loan repayments within the original terms.
“Moving for recovery will be more challenging if as the lender we find ourselves having to exercise statutory power of stepping in and sale or other remedies,” he said.
“Such action is highly likely to be more damaging as it results in additional disruption”.
He warned this could lead to increased costs “and usually results in worse outcomes”.
Mr Thompson said the request for an extension had come at short notice.
“As recently as November 2021 the borrower was indicating that they expected to secure enough completions to repay the loan as planned on February 7, 2022,” he said.
“There is provision is the existing loan facility agreement in the event of a default for interest to be payable at six per cent over the Bank of England base rate.
“We propose to apply this rate of interest from February 8 2022 until the loan is fully re-paid.”
The deal was spearheaded by Simon Somerville-Large, managing director and founder of Laragh Homes whose other projects include the Community Land Trust developments at Stretham and Wilburton.
Laragh Homes bought Alexander House in Forehill to deliver 25 new homes to include four affordable homes as part of the conversion of the former office block where tenants once included Lucy Frazer MP and the Ely Standard.
CAPCA agreed that in providing the loan it enables four of the units to become affordable flats without any grant being required.
The deal was originally criticised by Cllr Herbert of Cambridge City Council.
He said doing up a dilapidated 'lemon' will only end up as a slightly better looking lemon.
"Alexander House is smaller than the worst ones but it's a 1970s concrete office not designed for housing," he said.
"The 'affordable' housing loan to Laragh is an abuse of CAPCA's affordable housing monies."