Fire safety issues and Government policy
What is the latest on the fire safety costs / issues?
As we outlined in our update to investors on 25 March 2021, the Government has confirmed that a cap on what Bricklane can access from the Building Safety Fund will remain, but will increase from €200,000 to circa £350,000. This change reflects the new restrictions by which the Government is bound under the recent trade agreement with the EU, replacing the restrictions that were in place while the UK was an EU member state. Despite this small increase, the cap means that the Regional Capitals fund must bear the vast majority of costs despite Government funding being available to other leaseholders.
Our latest estimate for the required fire safety remediation work is £1.8 million, net of the subsidy control cap.
Could the Government change their decision on the subsidy control cap?
It is possible, but our view is that this is highly unlikely and we do not know how this would be implemented.
In light of the continued uncertainty, and the opportunity that the stamp duty holiday provides, the Directors do not believe it is in shareholders’ interests to prolong the current situation in the hope of a change in the Government’s stance. We have exhausted available avenues in highlighting the issues that the Government’s approach has caused and do not have positive grounds to expect any change to the current position, despite continued pressure from the public that leaseholders should not have to pay these costs at all.
Why have you made the decision to close the funds?
On 25 March 2021, the Directors announced that a review would be undertaken to ensure investors’ long-term interests could continue to be served. This review concluded that the funds’ ability to attract further meaningful capital and to service any investors seeking an exit was severely compromised by the recently confirmed Government position on fire safety remediation costs.
In the context of the Regional Capitals fund, a large portion of the unaffected properties need to be sold in order to fund fire safety remediation work and the partial repayment of the fund’s bank debt. As a result, it would be difficult to successfully market the fund to new investors and liquidity would remain inadequate.
While it currently remains unaffected by fire safety works, the London fund has been severely impacted by the issues in the Regional Capitals fund. Investor confidence is key for the long-term viability of funds, and demand for new London shares has been extremely low since the issues with the Regional Capitals fund came to light last year. We cannot guarantee that the London fund will not be affected by fire safety issues in the future, and the confidence of prospective investors is of paramount importance.
The Directors have therefore concluded that it is in the best interest of all shareholders to close both of the funds by selling the assets in an orderly manner and, in time, returning the net proceeds to investors.
Who made the decision?
After a thorough review, the decision was taken by the Boards of each fund, whose primary responsibility is to shareholders.
Why are trading cycles not being restarted?
The closure of the funds will be managed in the best interests of shareholders. To ensure the fair treatment of all investors throughout the closure process, no further dealing can take place. This allows i) all investors to share equitably in the net proceeds raised by the sale of the properties; and ii) sales values to be optimised.
Can I withdraw my investment or close my account?
Unfortunately trading of the London and Regional Capitals funds through the Bricklane platform has now been suspended. This means that no further requests to sell shares to make a withdrawal or close accounts can be processed, including all withdrawal requests that have been previously submitted and for which we were unable to find buyers in previous trading cycles. We will be in touch with investors regarding distribution payments to investors as the wind down progresses.
Orderly wind down of the funds
How will this work?
We have begun an orderly sale of all properties owned by the funds. Our priority will be to maximise the value for the benefit of investors, while also being mindful of the need to return the net proceeds to you as efficiently as possible. This priority is in the collective overall interests of all shareholders.
As these sales complete, cash will be received by the funds. Any proceeds will in the first instance be allocated towards payment of outstanding liabilities, which in the case of the Regional Capitals fund, will include payments for fire safety remediation works and debt repayments. The amount of money returned to you will comprise the net proceeds from the transactions and will be dependent on the sale values achieved.
How long will this take?
It is difficult to provide guidance on how long it may take to sell all of the properties.
As there are no known fire safety issues in the London fund, we expect the wind down to be completed in the first half of 2022, but this will depend on the speed of sales of the remaining properties.
For the Regional Capitals fund we expect the process to take significantly longer, as remediation work will have to take place ahead of any sales, which will in turn depend on market conditions. We currently estimate that the process will last into 2023.
The reasons for the longer timeframe include:
Fire safety remediation work is required in a number of units in the Regional Capitals fund. In some cases this work will take approximately 18 months;
The need to strike a balance between selling within an efficient timeframe and delivering the best possible value for shareholders; and
Legal restrictions on distributions that can be paid to shareholders in order to protect creditors. This will limit the ability for such payments to be made until all fire safety remediation work has been completed.
In the meantime, the properties will be income generating and the funds have restarted paying dividends to shareholders.
How much can I expect to receive back?
At this stage it is impossible to say. Your dashboard will be updated each month to reflect the latest net asset value of the funds. This reflects the independent valuation of the underlying assets and will give you an indication of the fair market valuation of the properties.
There is no guarantee as to the final value you will receive, however the indicative methodology that we currently expect to apply, barring any unforeseen circumstances is as follows:
Aggregate achieved sale values of the properties held by the fund
Less outstanding liabilities e.g. remediation costs (currently the Regional Capitals fund liability is estimated at £1.8million) and bank debt (£5.9m in the Regional Capitals fund), and trade creditors.
Less property sales costs incurred
When should I expect the first payment from the funds?
This will depend on the timeframe within which we are able to complete sales transactions.
For the London fund, we expect this sales process to be completed in the first half of 2022 and we will need to consider the tax implications of distributions to shareholders, which will impact the timing of the first payment.
For the Regional Capitals fund, given the complexity and range of factors involved, we cannot yet give an estimate for when the first payment will be made.
I have recently made a payment which has not yet been invested, what happens to these funds?
Any funds that have not yet been invested will be returned in full. We will be in touch with these individuals shortly.
Does the termination impact investors that make regular payments into the funds?
We have not collected any monthly payments from investors since the trading cycle was paused in March. No further payments will be collected.
Advice and Communication
Will I retain the ISA wrapper?
Yes, if you reinvest directly into another ISA product.
I want to speak to an investment expert. Who can I speak to?
If you would like advice on your options then you should speak to your financial adviser.
How will you inform investors about the sale of properties held by the funds and the return of proceeds to investors?
We will contact customers through the normal channels, including email or by post for our offline customers.