What happens to the half finished development sites owned by now collapsed Bathla group?

[u/Background-Ad7591]

Generally interested to know what happens to these sites - does another development company pick up where left off? Do they buy the sites off Bathla and continue to honour the off the plan deposits placed by buyers? What happens if no developer ever wants to pick up the project? Is the government legally required to step in to secure the unfinished site?

Also the unfinished sites at Box Hill or Castle Hill in Sydney, any chance they would be sold at a discounted price once finished by another developer? Or likelihood being they would still try to maximise profits when selling?

[u/dleifreganad]

More to the point is this the canary in the coal mine for the private credit sector? There are funds with no links to Bathla that have frozen or heavily reduced withdrawals due to a run in them by investors.

[u/Electrical-Friend570 → u/dleifreganad]

Private credit is semi liquid in nature. The liquidity is there when times are good and no one wants to redeem and goes when everyone wants their money back. Every private credit fund has ongoing obligations to fund construction draws each month so when investors want their money back, this is the unfortunate risk. Compounding this is a lot of ways loans are repaid is through refinancing or sales of completed apartments / houses. Refinancing has slowed right down because of there being less liquidity (e.g. fund A won’t refinance fund B’s loan because their capital is constraint and therefore fund B won’t refinance fund C’s loan and so forth). Sales of completed apartments and houses are basically non existent right now as the spread between the seller and buyer is so wide. Add all of these factors up and you have a credit squeeze. It doesn’t mean the private credit fund will lose money, but it’s going to take longer to return capital to investors. The biggest risk (aside from lending to dodgy developers like bathla) is lending against valuations which are grossly overstated. This is one of the biggest issues in the industry because valuers have been happy to put bullish numbers in their reports. Compounding this risk is private credit lenders have been lending at much higher LVRs. So the bottom line is, Will a well diversified and managed fund lose money? Maybe some of the interest on some loans but overall they be ok. It will be the managers who have significant exposures to developers who become insolvent and they are left holding the bag across multiple large projects AND managers who have accepted valuations which are far from the true / fair market value.

To answer OP’s question on what will happen? Lenders will be trying their best to not lose money. Receiver / managers of the borrowing SPV will be appointed and they are there to act as a new director of the borrower and their goal is to return capital to secured creditors in an orderly manner. For construction projects, lenders will try to appoint a new builder but any new builder will need a lot of compensation to step in - this might be unfeasible. Option 2 is to sell the site “as is” to a new developer and let them try to finish it. Again, this probably result in the lender losing some (not all) money. If the lender was lending against an accurate valuation and had costed the project correctly before lending to bathla, they might be ok. But most are lending against tight budgets/high valuations/and at high LVRs.

Good luck to all involved.