An oversupply of student accommodation in Newcastle prompted a forced administration of the businesses behind the Newcastle Glassworks building, administrators say.
Newcastle Glassworks Limited, Newcastle Glassworks Management Limited and Bricks K5 Capital Ltd - all part of the wider Hong Kong-based Bricks Capital group - went into administration at the end of July having not made capital repayments on £11.6m of debt since 2016, and no interest repayments since 2018.
The property - which was only completed in 2016 using an innovative pre-fabricated container method - was sold in a pre-pack deal to the Chinese lender CIMC, which owns the company that provided the containers. It followed months of failed negotiations in which Bricks had tried to refinance its debt.
Read more: Go-Ahead shareholders approve £669m takeover by international joint venture
CIMC paid £1.5m cash for the property which was valued at about £6.5m, along with a £9.2m "credit bid" which used the debt it was owed. In a report filed by the administrators at Interpath, the loss-making Glassworks was said to have under-performed against its business plan due to a "high level of supply of student accommodation in Newcastle" and was forced to bring rents down. The building's "peripheral location" and relative lack of amenities were also noted.
Interpath said: "Newcastle is home to two universities, Newcastle University and Northumbria University, which together accommodate c. 55,000 students. Pre-pandemic, both UK and international student numbers were on a gentle ascent, which has been the case by-and-large over the last two decades.
"Developers and investors capitalised on the large number of students and the reputation of the city resulting in a significant and rapid increase in supply. Some reports suggest that, by 2017, Newcastle had the highest rate of student housing in the entire country, with one in every 15 homes being a student property, some 10 times higher than the national average for local authorities in the UK.
"Given the high level of supply, the group experienced significant downwards pressure on rents to attract tenants, particularly given the property's peripheral location and relative lack of amenities."
The most recent accounts for Newcastle Glassworks Limited show the company suffered losses of £3.49m in 2020. Writing in the accounts published earlier this year, director Peter Prickett - founder of the Bricks Group, which says it owns £500m worth of development assets - said he was working to finder a buyer for Newcastle Glassworks that could refinance the loan.
He wrote: "The cashflow forecasts prepared by the company to assess its going concern status recognise that the entity has a loan facility available that is overdue and was due for repayment in March 2019 and at the year end the liability totals £9.77m. However, at the date of approving the financial statements, the director is in active discussions to resolve the repayment of the loan via a sale of the company and a refinancing of the loan.
"There remains a risk that the sale will fall through, and the company could be called to repay the loan. If this was to happen, the company would either need to obtain new finance or default on Its loan. The company is in active discussions to resolve this issue."
Interpath said it understood that some £17.39m was also owed to other CIMC subsidiaries by the Bricks Group.
READ NEXT:
National Gas Centre for Excellence closes following parent company's collapse
430 jobs to go at Tyneside fruit factory Orchard House Foods amid soaring costs
Yorkshire Building Society gives staff £1,200 cost-of-living one off payment
Sunderland snack bar maker Fullwell Mill sold in pre-pack administration deal
