We have started this thread incase some of our members have, for any reason, not received the email that was sent. We can only comment on the arrangements that we have made on behalf of our members and not on any arrangement made by other agents; although there may be some general information that will benefit them.
This is a verbatim copy of the mail that was sent to our members:
Dear (member's name)
You may have been made aware, through the press, media or internet, of reports concerning the finances of the Spanish property developer San Jose. As part of our ongoing service to members we have asked for, and been provided with, the full detail which I am now passing on to you.
So as to fully understand the current situation it is necessary to have some of the background. Firstly, it has to be said that San Jose is an extremely asset rich company. They have over 300 million euros worth of unencumbered assets; which in anyone’s book makes them a sound long term proposition. Secondly, there are two of their developments that have had issues, El Pinet and Santa Ana, and I will give you the background to both. Thirdly, they have acted in a professional way to protect the future of the company and, I have been assured by the directors of San Jose, that there will not be any knock-on effect to our members’ investments in terms of risk to, or delay in, meeting our completion dates.
San Jose bought land at El Pinet, which had been granted change of use from urbanistic to development, and started building on an approved plan for 700 properties. After the first 400 or so had been built the Green Party, who had come to power, objected and won a court case to have the land reclassified back to urbanistic use. San Jose appealed the ruling and after 18 months won the case to have the reclassification overturned. This caused a severe delay in completing the build and obtaining habitation licences for the properties already completed. The consequent interruption to cash flow was serious, however, as San Jose are a company with unencumbered assets in excess of 300 million euros it was no more than a trading difficulty.
At the same time the situation at Jumilla, which I described in detail in my last update, was developing. In essence the land which was agreed to be sold was held up by a couple of small holders and the court case took some time to resolve the issue. This again had an effect on San Jose’s ability to get started on the building at the Santa Ana development and was a further setback in terms of cash flow.
As I mentioned before San Jose are extremely asset rich, however, like every other business they need to raise working capital and therefore they sought to rearrange their finances to cover the loss of revenue from El Pinet so that the effect on the Jumilla project would be lessened. Initially their preferred bank agreed to a line of credit that would have seen them through the loss of revenue situation but a newly appointed director then vetoed the deal. This left San Jose in a position where they had to negotiate with other banks to provide the credit facility that they believed they had already secured.
To avoid the situation which they are now in, they had two months to arrange finances with other banks, however, this coincided with the credit crunch and subsequent lending clampdown that has affected all borrowers, business and private alike, and they were unable to negotiate a satisfactory arrangement within the allotted time. The lack of cash flow left them in a technically insolvent position despite their undoubted wealth of assets and so, being an extremely professional organisation, they have placed themselves in administration.
Administration differs from liquidation or receivership in that it is a process that is used to protect a company that can undoubtedly trade out of its difficulties; this is the case with San Jose.
At present they are satisfying those creditors who will take assets in place of revenue whilst negotiations continue with a group of banks, including Barclays International, to provide lines of credit to secure all other debts and see them through the next 2 years of trading; something in the order of 30 million euros.
These negotiations are at an advanced stage and being in administration will allow work to recommence at El Pinet in the next week or so, with work at Santa Ana Jumilla starting again as soon as possible after that.
In terms of what this all means to investors, San Jose is an extremely wealthy company that has gone into administration whilst they make arrangements to leverage their assets into working capital. This is a responsible move given the situation that they found themselves in.
Therefore all investors in these developments should remain calm whilst the administration process and bank negotiations run their course. Deposits that have been taken on properties on these developments are safeguarded by bank guarantees and indeed, there is no indication that the original plans and timescales will not be met and therefore a default situation is not likely to arise.
We will remain in close contact with San Jose during the next few weeks and, if there is any further information that will help to clarify the situation, I will give a further update. In the meantime please remember that the press and media love to whip up a story to gain maximum effect; we will continue to bring you the real situation as it develops.
Yours sincerely
Andrew Ward
Managing Director
Ward & Co Property Investments