Project update

Update from the originator:

The originator is still on top of the project, looking for a solution, with a promoter who still has not materialized the different options that he has been proposing to the originator.

In view of which the originator has prepared the lawsuit to initiate legal actions that lead to being able to take control of the company, but August is not working in the courts. So, until the time of the filing of the lawsuit, in September, there is still an open possibility that the originator will resolve the issue.

The originator have proposed to the developer to grant a loan with a mortgage guarantee, so that it can be used to pay off the debt of the investors. The borrower would be a company linked to the originator. For this solution to be viable, the originator needs the updated valuation of the asset and the construction and sales contracts (it seems that everything is sold). And confirm that there are no other charges and that it would be a first rank debt. The work seems to continue advancing and could be finished by the end of the year. It seems that the appraisal is already commissioned, but the originator doesn't have it yet. The originator is in daily contact with the promoter and his lawyer to move forward as quickly as possible.

Update from the originator: 

The originator continues to closely monitor the progress of the project and urge the promoter to pay off the debt immediately, which is accumulating with the accrued interest. The originator's position has gone from being collaborative to more firm and demanding, and they are pressing (via burofax and email) for a quick outcome. The work is in progress, and the originator has verified that at least the pile foundation has been completed. The promoter affirms that everything is sold.

The originator has set the goal of reaching something concrete with the promoter and before the end of this week they hope to be able to send you a concrete plan with dates.

In relation to the taxation of the operation, according to Garrigues tax experts, the sale must be recorded as carried out in 2022 on the date of deed. And as a sale value, if the originator has a date we can calculate the accrued interest; Otherwise, the recommendation is to put an estimated figure and pay the excess in 2023.

They insist, before the end of the week the originator will circulate a detailed report, the originator hopes with a concrete final solution. The possibility of executing the resolutive condition still stands, and it is the one that the originator will start if they continue without seeing clarity or specificity in the dates.

Update from the originator:

The originator is writing to you regarding the Málaga – Postigo de Arance operation. After formalizing the sale to the promoter of the shares of investors, the payments agreed in the contract have not materialized:

Let's remember how the situation is:

1.      The operation was signed through a contract for the sale of the company shares with a condition of termination, with a first payment of approximately 1/3 of the value. The resolutive condition allows the contract to be terminated, in the event of non-compliance, which constitutes a powerful guarantee.

2.       The debt accrues "interest" of 12% per year, which will be calculated at the time of cancellation. They are not exactly interested, it is the sale price, although for the calculation it can be assimilated like this.

3.       The execution of the resolutive condition is a complex process, where once again each investor must appear before a notary, so it remains the last option.

4.       In this process the originator is counting on the advice of Garrigues so that the actions that are implemented in your case are carried out with the maximum legal guarantees.

The originator is very aware of the contractual breach that involves non-payment of the 2nd and 3rd payments agreed upon in the sale, according to the contract signed in July 2022. The originator is maintaining continuous communication with the developer. He has been explaining to the originator the alternatives that he is exploring to pay the outstanding amounts, but unfortunately, the terms are getting longer and the originator still do not have a reliable date to settle the debt with the investors.

It seems that the solution is close (as a most feasible possibility, through access to bank financing, taking advantage of the solid land value). As a tool to increase the pressure on the developer towards a prompt solution, from the originator, they are going to proceed to send a burofax demanding payment.

The originator takes this opportunity to convey their apologies for this late communication. To reiterate that the originator is very aware of the problem and the originator trusts that the solution will not take too long.

Update from the originator:

The originator is informing you that the payment of the pending amount, scheduled for December 20, will be delayed again. The reasons given by the promoter are that the funds he had for this, coming from his investment group or from a bank loan, would be conditional on work milestones. Unfortunately, the works have been delayed again; initially due to the City Council's delay in finishing the works on Calle Carretería, next to the site and an obligatory step to access the work. And, more recently, a company was selected to do the piling, but once on site, the machine chosen by the contractor did not meet the technical requirements to do the planned job. It has been necessary to look for an alternative company that had a suitable machine, but this machine will not be available until January, so it will not be until then that piloting tasks begin.

The developer's new proposal is to cancel around March 30, as he estimates that with the foundation and structure very advanced, access to the developer loan is taken for granted, due to its good relationship with the Abanca branch in the area. Its director has confirmed the bank's interest in financing the work with a contribution of 50% of the appraisal value (which would more than cover the outstanding debt service with investors) and the rest necessary to carry out the work.

The originator is going to forward a communication to the developer, prepared by Garrigues, stating the breach of the contract, reserving the legal actions that the originator might eventually take to resolve the situation.

The originator is looking, also with the Garrigues team, at how to effectively protect the economic rights of investors, and the originator manages, among other options, transforming the debt into a loan with a pledge of the developer's shares, through a Collateral Agent. That option has already been accepted by the developer.  

The originator continues with a strong guarantee as backing (the originator has a sale contract with a termination condition) and the annual remuneration of 12% of the capital pending collection is maintained, but the repeated breaches of the promoter invite the originator to seek more effective measures to ensure collection on time and shape.

Update from the originator:

The originator has two installments pending. The second one was due on October 29th, but the promoter was not able to start the work for the project until last week, due to the works on the adjacent street that made it impossible to bring the machinery.

He is negotiating alternative sources, and he expects to finalize the current debt before the end of the year.

The originator will keep you updated.

Update from the originator: 

The process of collecting Notarial Powers of all investors has concluded, and the originator has already been able to sign the sale under the terms that he announced at the time. You have already received the first of the three planned payments in your wallet. It is equivalent to a little less than half of your investment. The second payment, of a similar amount, will be paid in October; and the last one, until you get a 12% IRR (annualized return) on your investment, in December. All of this in accordance with the purchase agreement signed before a Notary Public, and under the advice of the Garrigues team, with whom, as you know, the originator maintains a permanent advisory agreement. Remember that, as it is a share purchase, no tax withholdings are made, and the profit from the operation must be recorded in the 2022 income statement, for which all the information will be provided in a timely manner. The total profitability of the project will have been, with that last payment, around 35-37%. The initial estimate of the project was 34% in 24 months. The final, therefore, has somewhat improved the estimate, although the term has also been longer. The originator wants to thank you for the effort of going to the Notary, something of an exceptional nature in his operations, but they believe that it compensated for carrying out the agreement that we have negotiated. In this way, a project that had been greatly delayed due to the delay in the license and the commercial delay due to COVID is liquidated, and they also managed to avoid assuming the construction risk. From the originator they actively monitor the projects, trying at all times to defend the interests of the investors and helping to find solutions to conflicts and problems that may arise. This is a good example of it.

Update from the originator: The originator is about to sign the sale of the project as it is now. The buyer will be the developer plus friend investors. The agreed return will be 12% IRR, in three payments, starting the first one in one/two weeks' time.

Update from the originator:

The originator is stating that the borrower is in an open process to sell the asset (land + project) to an investor, or alternatively get new presales in order to get the construction loan.

The project is at a standstill until one of these two alternatives occurs.

Update from the originator:

Negotiating commercialization. The commercial contacts initiated with Gilmar have not been adequate and it has been suggested to the promoter to break the exclusivity agreement so that both the promoter and Urbanitae can modify the exclusivity agreement. Both the developer and Urbanitae are searching for a strategy for the real estate operator, taking advantage of the potential for use as tourist rental housing.

Update from the originator on project progress:

Marketing launch. The developer has presented his marketing plan, and is very optimistic about the sales potential of the promotion, for the reactivation of tourist and economic activity in Malaga. They will do a campaign that will cover 4 promotions with similar characteristics in the centre of Malaga and that will generate savings of scale and be able to be present in more media and real estate forums and support its commercial network. The goal is to have everything sold before the end of the year.

Update from the originator:

Due to the restrictions caused by COVID-19 the project has been facing delays. The estimate for the delays might be 12 months or more. However, the originator does not expect changes in total return.

Update from the developer:

•    Work license.
Arqueosur, the company contracted for the archaeological study, performs the fieldwork satisfactorily, presenting and processing the Archaeological Intervention Report before the Andalusian Government.
The developer awaits, at this time, the Resolution of the Ministry of Culture of the Andalusian Board that is delivered to the Archeology Section of the Department of Licensing and Urban Protection of the City Council of Malaga. Once the resolution of the Urban Planning Board arrives, the developer's License will go through the next Government Commission for its final signature, without being conditioned by the Archaeological study. The developer hopes to have all these administrative procedures completed by the end of this month of February.

•    Budget.
Parallel to the License, the different work budgets are being finished. Part of the micropile system that will be used in the foundation has been changed at the request of the bidding companies and the developer's architects. Due to the data the developer has right now, the developer will not suffer significant deviations in the amount of the work with the budgeted.

•    Sales.
After making the first sale, to a Russian citizen, the promoter is in contact with colleagues and friends of this client who are interested, but the developer cannot move forward until they travel to Malaga. These clients already have investments in Costa del Sol. The developer is also working on the complete sale of the five remaining homes. A sales mandate has recently been signed to an investment advisory firm that works with these types of clients, specializing in the Nordic and Chinese markets. As soon as the perimeter closures are opened in Andalusia, the developer has arranged to visit the area.
On the other hand, the GILMAR real estate office in Malaga continues with the relevant commercial actions, conditioned by the current situation. The reports are stating that apart from individual clients they are presenting the product to investment groups.

Banks - Financing. The company has a current account with Banco Santander, an entity that is still interested in financing the project but does not request more than 50% of sales to start the study (3-4 homes). However, if the building were to be sold with the 30% contribution, the developer would need bank financing The interested investor group has been asked for 40%.

A new document containing pictures of the progress has been added.

Update from the developer:

Work license.

The urban regulations in the historic center of Malaga conditions certain elements of the façade of the buildings. Some of them with very subjective interpretations. The municipal architect in charge of this project made the developer change the initial façade, and after several conversations, it has finally agreed on. This has made the developer delay the concession of the building license, apart from the COVID-19 delay. It is necessary to take into account that Malaga has an estimated time for obtaining these authorizations is between 9 and 10 months, and if it is a historical center 10-12 months. But where the developer has really suffered considerable delay has been in the Archaeological Study, pending authorization from the Junta de Andalucia, the months from March to July. The contracted company is carrying out the work on the plot and expects in 30-40 days to have the reports approved and presented in Urban Planning of the Malaga City Council. The developer has the building license conditional upon the completion of the Archaeological Study.

Moves

The developer is working to have a total budget for the work closed, with the two construction companies in the area.

Sales and marketing

In the month of October the first sale was formalized, the house located on the ground floor. There is another reservation pending to be confirmed. The client has asked the developer until October 25 to decide between two options. As of October 26, the promotion will be marketed exclusively, for the national market, by the real estate agency GILMAR, which has just opened an office in Malaga. At an international level, the developer continues with the Swedish real estate company Fastighetsbyran.com. The local offices that had the promotion are practical without activity for sale and there have been no really interesting customer contacts. In these months, negotiations were held with an investment group for the sale of the entire building, but the current market situation did not help to close the operation.

Banks -Financing

If the second sale indicated materializes, we will initiate the request with Banco de Santander and Unicaja.

May update by the developer:

The current situation of the promotion is as follows:
Last Tuesday, May 5, the deed of sale of the lot was formalized before a notary, together with the capital increase. The presentation of the deeds has been made in the corresponding to the registries.
Finally, a reduction in the purchase amount of € 25,000 has been negotiated with the owners of the plot. Likewise, it has been concluded that the borrower will not have to face our brokerage costs, which amounted to € 12,750. In total, on the purchase price initially agreed, a reduction of almost 10% has been obtained. These savings are welcome and could be used in some sales price bonuses, if necessary. Work license - Requested for the project on November 14, 2019, from the City Council of Malaga (File No. 1127/2019). There has been no fluent communication with the municipal architect at this time since the Department of Urban Planning is teleworking and it is awaiting the opening of the municipal services to finalize its evolution. At the moment we have no objection to the project. We continue with the planned date of obtaining a Building License for July 2020. The archeology study has been successfully processed and approved. During the months of May and June, the work will be tendered with three different construction companies. Sales - The current situation caught us initiating a new sales strategy with the real estate companies www.fastighetsbyran.com, www.engelvoelkers.com, www.remax.es. In the coming weeks, commercial management will begin shortly. Two private clients connected directly from the developer are interested in the homes. We are awaiting the end of the state of alarm to continue with the efforts and visit the area. The interest of these clients is still active. The building has been presented to an investment group that wants all the houses, which has shown interest, despite the current crisis. Banks -The company has a current account open with Banco Santander, an entity that is still interested in financing the project.