Our Apartment Block Has Just Sold At Auction - Advice Please

[Snoopy1948]

I bought my flat in April 2015, being one of 66 flats in the block. There is a retail underneath the block that is let and subject to a sub-lease, details unknown.
We were all aware that the developers had gone into administration and the block was therefore being marked by Savills on behalf of the administrators.

The final flat was sold I believe some three months ago and as a result, the freehold has gone to auction earlier this week with a guide price of around £300,00.
We are currently negotiating the Right To Manage, using local solicitors, and we have been given a completion date around the middle of January 2017 subject to no sustained objections from the current freeholder.

The block went under the hammer earlier this week for £395,000 which with all costs would mean a final price of around £418,000. From an observer in the auction, it was announced that the property is subject to a developing RTM application and there were no bidders in the room, bidding coming apparently from two undisclosed telephone bidders.

The residents now have some three weeks maximum to offer the same auction price and it is currently difficult to get all 66 residents to agree a formula to do this. AS such, I believe it is unlikely that will happen.

We all have 120 year leases with a ground rent of £250 each per annum. For the older residents, there is therefore little mileage in buying the freehold, except to have total control over the building and cease paying ground rent. The property was built to completion in 2010.

We consider the bid of £395,000 plus costs to be 'aggressive' based on the sole yield of the ground rent at some 4% per annum. Has anyone any experience of why such a bid should have been placed, bearing in mind the ground rent low yield ( we were told investors tend to go for 8% plus ) and what motives may exist here? Do some investors take a long term view of this? We are aware that the selling agents have to maximise the price by common law as the property is in receivership, but we all thought that might keep the price competitively low and some have even suggested subterfuge, if indeed that is likely.

All opinions will be welcome! Cheers ..

[des8]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

Perhaps the bidders have spotted an opportunity to further development on the site?

[wales01man]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

If that winning bidder pays for the freehold and completes the purchase I would think they know what the are doing and see it as a good investment if you can raise the funds they may sell to you either way at the moment the hammer price is what it is.

[Crazy council]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

Hi
At the moment, normal investment yields are very low, and not always stable, 4% ok for a short term stable investment. Also, the lease on the retail will possibly be were the profit is, these can range from 10kpa to over 100k,pa, depending on size and location.

I would look in the leases for how increase in ground rent are dealt with over the period, and what restrictions are involved around the maintenance of the building. Ie, can you be charged, separately, for any maintenance, or, is there a sink/insurance fund.

Leases like this are very complex to deal with becuase they tend to be very individual to the property, so its hard to give general advice, and leases is a complex area anyhow. .

[Snoopy1948]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

Thanks everyone for the comments to date. Additional Information as taken off the Auction Agents Listing that I would appreciate comment on :

"The block comprises 66 residential flats, each sold on a 125 year lease from 1st April 2011 at a current ground rental of £250 per annum, (doubling every 25 years for the first 100 years), together with a commercial ground lease of 150 years from 1st January 2010 at nil ground rent. We understand that the leases provided for the freeholder to insure, maintain and manage the block, recovering the costs from the leaseholders by way of a service charge."

When they speak of a 'commercial ground lease' for the retail unit, it seems from talking to others here that the retail unit rent does not go to the new freeholder and is therefore not a considered return when the property freehold was bid for. Can someone please explain why that is so and if so, does it have any advantage to the successful new freeholder? And how does this tie in with the stated .nil ground rent'?

[Crazy council]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

Hi. How much is your current service charge. That's were to watch out.

[Snoopy1948]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

Hi. How much is your current service charge. That's were to watch out.

Currently it's around £1500 pa but we all think that's too low as the sellers have maintained some things at cost to, I suspect, give an impression of affordability. Plus the managing agents have been incredibly lax on essential maintenance and we are putting areas of culpability to them where that may have affected warranties, such as rendering.

I thought exploiting service charges for profit died out with the Hoogstraten days?

[Crazy council]

Re: Our Apartment Block Has Just Sold At Auction - Advice Please

Still looks like a good buy/investment.

Your buildings fairly new if i remember correctly, Still be covered by basic guarantees. 100k pa in service fees, ( say 50k management wages, 15 - 20 k insurances 30k work/sink fund )

Its worth it for the management wages, thats without increasing anything ( but i bet they will ).

It would not surprise mew if your current management agent knows the Co. that put the offer in, and has done a deal to manage it for them..

Actually, when you do the numbers for this, its worth just some of the residence purchasing this if they can afford it ( and want the hassle of managing it )

20 residence at just over 20k each
Income from the other 46 residence , 11k lease pa, 68k service fees #
20k full insrances - 30k work/sink fund pa ( will decrese over time substantialy )

Not a bad pension option that

the 20 save paying the lease £ 250pa and fees 1500 pa ( £ 1750pa ), but would recive a split of the surplus 30k ( and rising ) of approx 1,500 pa ( if everyone pays ) meaning there total yearly payment is £ 250

they would still have the 20k loan to service, but you have the £ 1500 pa savings towards that

20k 15year term 5.5 works out about 2k PA

Looks good for a pension investment for 20 of the residence. consider the sink fund, if untouched, will reach £ 150000 in 5 years, or 75k if half used ( more realistic )