Too much student accommodation in Newcastle caused the ultimate collapse of the businesses behind the Glassworks block in Ouseburn.
Administrators for three companies in the Hong Kong-based Bricks Capital Group - Newcastle Glassworks Limited, Newcastle Glassworks Management Limited and Bricks K5 Capital Ltd - said the companies owed about £11.6m to a Chinese lender, which had not been paid for several years. The 270-bed block on Coquet Street has now been sold to that lender, CIMC, which also owns the company that provided the novel pre-fabricated containers it is built with.
It followed months of failed negotiations between the Bricks Group and CIMC, which ultimately forced the businesses into administration having defaulted on their debt. Insolvency specialists at Interpath, who are dealing with the administration of the three firms, suggested oversupply of student accommodation in the city had forced rents down as the Glassworks struggled to attract students.
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In a report, 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."
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.
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.
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