A developer that once hoped to build a £1bn business from office-to-resi conversions is on the brink of insolvency.
Magna Capital spent more than £20m from unregulated loan notes to fund a number of developments that have all been lost.
The company was founded by Oliver Mason, Jonathan Beach and Chris Madelin (pictured) with bold ambitions built on permitted development. The trio boasted a £1bn pipeline of developments, but despite spending millions, the schemes have been returned to equity partners or ended up in receivership.
Magna acquired a handful of sites using funds from high-net-worth individuals, raising additional finance for acquisitions and development through its loan notes. On its marketing material Magna describes “fantastic success”, a 100% payback rate and claims ownership of multi-million-pound assets.
The developer targeted small investors with various loan notes with a minimum buy-in of £10,000, promising annual returns of 12%, rising to 18% over three years.
After pausing repayments, racing to restructure its debt pile and trying to buy schemes out of receivership, Magna has now informed investors it has no viable way to repay the loans. Investors across all loan notes are owed money, with just one loan note partly redeemed, and the bulk of the finance is now unsecured after assets were sold.
A group of 30 investors have joined together to take legal action. A source told EG that most of the investors in the group claim to have put their life savings into the loan notes.
Investors said that telephone calls have been unanswered since the office has been disbanded, letters have been returned to senders and that their only means of communication with the founders is via e-mail.
Mason told EG: “If there is any possible way that we can turn this around or come up with some other solution, whether it is bringing new projects in, then we are exploring all those options right now and as soon as we have a solid plan we will let everyone know and consult with investors to work out what to do next.”
He added that Magna is considering buying back a scheme in Frimley that went into receivership in 2019, which Allsop has been trying to sell for £18m. However, as the company has no money and is unable to secure finance from lenders, Mason admitted that would require a partnership to fund. He said Magna will contact investors next week regarding possible plans.
What went wrong
Magna has blamed PD homes that banks have refused to mortgage, a poor sales market, contractor fees, Brexit, the pandemic, media reporting and jittery lenders for its failure.
In December, Madelin and Mason held a meeting calling for investors to agree to six-months’ breathing space. The partners explained their failed projects, pinning all hopes of survival on a single 68-home development in Woking, which it had exchanged contracts on, before it fell into receivership in February.
In the meeting, Mason told investors: “We’ve had some difficulties, we’ve kept going, we haven’t given up. The site is technically for sale with Savills at the minute, which is unfortunate. The first charge lender is effectively doing that as a last resort – I talk to him all the time, we are in pole position, he will go for our recommendation.”
When asked what would happen if this fell through, Mason responded: “Well obviously that’s not a great situation, but, saying that, we will still work hard to bring in new projects and new opportunities that will help to repay the funds.”
The two said they had scaled back the business, shrinking the team, getting rid of the office and bringing on board external outsourced parties to advise, including Scotia Partners and Colliers for surveying.
Investors approved the six-month extension. However, on 11 January Magna informed investors that it had lost Woking to another buyer and was “assessing the options, the viability and the legality of any continuation of the businesses”.
Magna is the latest casualty in a series of SME developers that promised small equity investors high returns through permitted development conversions. But rising costs, falling values and unmortgageable homes have seen a number of high-profile failures, including the administrations of micro-homes developer Inspired Homes and Liverpool-based Signature Living.
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