In this blog, we’ll provide some of the details regarding the recent, full repayment of a prolonged loan in Finland (#6445 Development loan). We hope this will give you some insight into why we sometimes elect to prolong loans, as part of our commitment to seeking to ensure the optimal outcome for both our borrowers and investors in every case.
Loan Project: #6445 Development loan
Outcome: 5.3 Repaid (€1.43M in interest and indemnities)
Average return: 12.1 %
What was the purpose of the loan?
The project involved the acquisition and complete renovation of an apartment building originally built in 1955, in a park near the Sipoo River. The buildings in the area were built in the early 20th century. Many of them were originally hospital buildings, constructed in the Art Nouveau (Jugendstil architecture) style. The building was to be transformed into 71 apartments. The borrower has a long and highly successful track record in developments of this kind, spanning over thirty-five years.
When was this loan funded?
The first stage loan of €1,500,000 was funded on 24.2.2021. The purpose of the loan was for the acquisition of the property and its reconstruction into an apartment building with 71 apartments. The total loan for the project was €5,300.000, which was gathered in stages as the construction works progressed.
What caused the delays?
Due to factors relating to Covid, supply issues, documentation and the departure of the original constructor halfway into the process, the project experienced multiple delays. After careful due diligence and multiple conversations with the borrower, who continued to pay fees and interest throughout, we decided to prolong the loan, as we still believed in the project and the potential returns for our investors.
Have we learned something from this story?
In times of market uncertainties, it is often better (following appropriate due diligence) to allow developers to find alternative solutions and be flexible with prolonging loans. In this case, this made it possible for the developer to resolve the delays and keep their focus on the project instead of unnecessary legal disputes.
Without the extensions, the project would have stalled, causing massive problems for our borrower, and a significant delay to the timeframe in which our investors received their full investment and interest, which included additional interest fees. Prolongation in this case served the best interest of both borrower and investors.
We do appreciate the frustration that can be caused when repayments are delayed, and so we only allow for prolonging after stringent due diligence, and when we feel that it is in the best interest of our investor community. We also recognise that the success of our borrowers and our investors are interlinked, and that to support the success of one is to facilitate the other. Prolongation is one of the tools available to us in this effort.