More than 87% of investors in the Newcastle-based developer’s projects have voted in favour of tweaking a £100m loan note, meaning they must wait longer to receive a return.
One investor who asked not to be named told Place North West they had in reality “little choice” but to back the amendment if they were to protect their financial commitment.
The proposal High Street Group made to investors in its seven-year loan instrument last month is intended to give the developer more time to complete stalled schemes such as the £49m Cheshire Junction in Warrington, £29m Middlewood Plaza in Salford, and other projects across the country.
Under existing terms, investors pump a minimum of £25,000 into the developer’s portfolio of UK private rental sector projects and receive interest of 12% per year over seven years, plus annual bonus payments if the original investment is retained.
The instrument is not project-specific and covers the full spread of High Street’s portfolio of built and pipeline schemes. It is four years into its seven-year timeframe.
High Street in May proposed a supplementary arrangement allowing it to delay investors’ annual returns. The arrangement effectively waives the contractual default that would otherwise occur if the developer failed to repay any amount due in a given year, by preventing investors from exiting their investments on or before a certain date.
The move is permitted under changes to so-called ‘redemption’ rules implemented by the Financial Conduct Authority last year. Amid market turbulence caused by Covid-19, the regulator was concerned that the previous rules incentivised investors to exit at volatile times. In real estate – and other investment situations – such exits could harm those who remained if the developer ran into difficulties and was forced to sell an asset or place it into administration.
“The proposal was made by the company as part of a holistic plan to recover from the setbacks brought about by the pandemic,” High Street said in a statement to investors.
“In common with other funds involved in property investment and in line with pandemic emergency guidance issued by the FCA in 2020, [we] proposed requiring investors to wait until their loan notes mature before withdrawing funds.”
The loan note change is part of a larger financial planning operation that has involved securing new investors for, or otherwise refinancing, several of its schemes, High Street added.
The company is now working to revise delivery timeframes and get stalled projects back on track. For example, it is looking for a contractor to finish building the 362-apartment Cheshire Junction scheme, while it awaits the outcome of a legal case between itself and Nobles Construction, which stopped work at the site in November claiming it is owed money.
High Street founder Gary Forrest said: “This vote of confidence in our [redemption] proposal is an important building block in the full recovery of our business from the financial fluctuations of the pandemic.
“Our investor proposal was a pragmatic, viable and responsible course of action to support the company’s successful corralling of resources to continue its investment programme. Investors will receive 100% of their investment plus the agreed interest, but without the ability for early redemption.
“This measure is not unusual – in fact during the pandemic the FCA gave permission for investment firms to pause redemptions to maintain the sector’s viability.
“This vote gives the board the authority from its investors to execute its five-year business plan. We would like to thank all our investors for their overwhelming support, and we hope to repay their confidence by successfully delivering against our business objectives.”
The anonymous investor in the High Street loan note told Place North West: “I voted in favour of this so in that sense, I am happy.
“However, we must note that had the vote not gone ahead it would have put in doubt the very operating capabilities of the group.
“Although any investor would prefer to have the redemption option as was the case when we invested, we had little choice to be honest.
“It’s better that High Street Group gets what suits it and we are protected, rather than us being stubborn and potentially losing out entirely.”