This piece of advice on the Moroccan market was very kindly written by Jorge Garcia Larios who is a property expert based in Melilla, a Spanish enclave in Morocco. It deals with the topic of developers that are experiencing financial difficulties but still maintain assets in the Kingdom of Morocco. The assets in question are usually in the form of land as most developers of unbuilt projects, at this stage, have little or no money.
One such developer is/was Property Logic Maroc S.A.R.L a subsidiary of Property Logic (Spain) based near Marbella in the Costa del Sol. The company’s flagship development, called Le Jardin de Fleur, was to be composed of Tourist Apartments and Villas over various plots of land at the Macro Resort “Mediterrania-Saïdia”
Property Logic stopped building some time ago and have ever since been seeking finance to continue the works. The result of this sequence of events has left scores of derelict shells of what were to be luxury apartments and villas full of rats and weeds. It appears to be totally beyond repair at this stage.
To give Property Logic some credit, by comparison to other developers in the region they have been reasonable at keeping up communications with their clients. Unfortunately most of these communications refer to the possibility of raising further funding to complete the project. This funding has always been ‘just around the corner’ but it has never materialised. The willingness to communicate is, however, more than has been shown by other developers in difficulty in coastal Morocco.
From 2004 to 2007, like many other areas, off plan purchases in tourist regions of Morocco experienced a huge boom. Many people came in contact with Property Logic’s high visibility marketing campaigns and it consequently attracted a lot of purchasers. The developer even persuaded some UK based Premier League footballers to invest in the resort. This obviously played very well in UK and Irish media outlets, succeeding in attracting even more buyers. Unfortunately nobody who bought has had deposits refunded, which amount to around 40% of the original property sales price.
Property Logic Payment Structure
Clients reserved their properties with a token deposit which was followed by around 20% of the total cost. Over what was to be the initial construction stage a further 20% was requested at which stage came the signing of a private contract loosely translated from French as “a promise to sell”. Under Moroccan Property Law all these contracts have now expired and, as they were written to favour the developer, they are not robust enough to offer their holders any protection in law. Essentially, the beneficiary names don’t appear officially anywhere in Morocco. There is no legal reference to them so the Moroccan authorities know nothing about them, despite their having parted with significant amounts of money and now having nothing to show for it.
What can clients do?
There are essentially two things you can do. Be passive or be active.
The First Option – Do Nothing and hope Property Logic delivers
The passive route is to wait and hope that Property Logic obtains long promised funding. This is highly unlikely but the building licence has now also expired so the developer would now need to re-apply for a new one. Property Logic also has a good deal of creditors with liens on the company assets who will need to be dealt with before any building is contemplated. To clear the creditor list Property Logic will require the ‘main levé’ from its creditors (literally translated as ‘hands up’ or ‘surrender’ from French. This is a legal document enabling the developer to clear the creditor list. It involves all creditors signing away their legal rights. No strong creditors will do this unless they are happy with the negotiated settlement. Those without rights will be left out in the shuffle, relying totally on Property Logic’s goodwill.
Another matter of concern is that it has been mooted that the company is not held in high esteem by Moroccan Authorities. It is widely considered that the Moroccan government is anxious to see the back of the company and others like them. This makes the possibility of obtaining a new build licence very slim indeed.
Second Option – Become a Creditor of Property Logic
The second and more active option open to clients is that, if they are not already official creditors they should consider very seriously becoming one. Why should a client go to the bother of doing this? As stated previously, contracts with Property Logic are now pretty much worthless. It is almost inevitable that Property Logic will eventually drop out of the equation and whoever takes over will no choice but to deal with the creditor list. Those who are not officially listed as creditors will simply be forgotten about. It’s not an ideal scenario for many clients as it involves reliving the nightmare of the investment and it is obviously going to involve extra expense.
We will deal with the process of becoming a creditor of Property Logic (or any other developer for that matter) in a later article.
Jorge Larios can be contacted at firstname.lastname@example.org.
PROPERTY DEVELOPERS TYPE 2 (MOROCCO)
As a result of the world financial crisis and the subsequent Real Estate Market slowdown in many countries, Morocco’s recent start in the second home market wasn’t to be an exception. As in many other places in the Mediterranean, Demand exceeded Supply leading the purchasers to buy off-plan. When the inevitable happened, Developers found that they couldn’t continue building works leaving thousands of people without their property or their money. This resulting fiasco has produced a scenario whereby stranded Property Developers in Morocco can be classified in three very different categories:
My breakdown could be put as follows:
Type 1 are those who have been through financial difficulties but have still managed to stay afloat in one way or another. Here the quality of their final product is way below the promised result and/or they have not dealt with contract cancelations from clients is a satisfactory way. It is possible to take legal action for breach of contract against this group as some still have sufficient cash-flow. However there is a tendency for feet dragging and in most cases a total unpreparedness to settle matters with purchasers in a professional and efficient way. The old Fadesa-Maroc and subsequent associations come to mind (Alkudia-Smir in Tetouan and Med-Saidïa amongst others).
Jumping over to Type 3: Here we simply don’t know the current state of things, communication is inexistent and an air of suspicion is present overall. Here, Playa Vista also in Tetouan is firmly under this heading.
I’ve left Type 2 for the end in order to develop in more detail. This corresponds to those developers that are experiencing financial difficulties but still maintain assets in the Kingdom of Morocco. The assets we are talking about are usually in the form of land.
One such developer is/was Property Logic Maroc S.A.R.L a subsidiary of Property Logic (Spain) based near Marbella in the Costa del Sol. Their flagship development was to be called Le Jardin des Fleurs to be composed of Touristic Apartments and Villas over various plots of land at the Macro Resort “Mediterrania-Saïdia”
Property Logic stopped building some time ago and have ever since been seeking Finance to continue building but have been unsuccessful so far. The result of this sequence of events have left an eyesore of derelict shells of what were to be luxury apartments and villas. It is now full of rats and overgrown vegetation. For many it is totally beyond repair at this stage.
To give Property Logic some credit they have been reasonably in touch with their clients and every time has transmitted through the message that funding was just around the corner which of course never came. This preparedness to show up in difficult times is more that you can say for other developers.
As it was the case during the property boom in the country from 2004 to 2007 buying off plan was the flavour of the month. There were hundreds of people answering Property Logic’s aggressive marketing campaigns and many did buy. One such successful campaign was persuading some premier league top professional footballers to buy at the resort. This was given top exposure in the media by the company’s spin doctors and succeeded in attracting many more buyers. It was a very clever tactic that later backfired. Unfortunately none of the people who bought has had their deposits returned, around 30% of the original sales price.
Property Logic’s Payment Structure
Clients reserved their properties with a token deposit which was followed by around 15% of the total cost. Over what was to be the construction stage a further 15% was deposited until reaching around 30% of the total cost and the signing of a private contract loosely translated from the French as “A Promise to Sell”. Again, here we have the regretful circumstance that these contracts have all expired under Moroccan Property Law and that they are not robust enough to offer their holders any protection in law. In other words, having a private nature only between developer and client, the beneficiary’s names don’t appear officially anywhere in Morocco. The authorities know nothing about these people who have parted with their hard earned cash and have nothing to show for it.
What is there for clients to do?
- Wait and hope that Property Logic obtains their long awaited funding. Apart from being a miracle we have the little matter that their build licence has also long expired and they would need to re-apply for a new one. They also have a good sprinkling of creditors inscribed on their assets and these people will have to be dealt with before doing so, that is to say they will demand a settlement which usually is tailor made in line with their demands and which may not only include their nominal investment back but also compensation and legal fees. To clear the creditor list Property Logic will require the “main levé” from their creditors. This is literally (The) “hands up” from the French and it’s a legal document that will enable the developer to clear that creditor list, basically the client signing away their legal rights. Of course a creditor will not dream of doing this until they are happy with their negotiated settlement. This goes for every single creditor, no one has to appear in the infamous list. No prizes for guessing that those without legal rights will no doubt be left out in the shuffle unless Property Logic’s goodwill say so otherwise. Take you pick. Another haunting matter for Property Logic is the fact that they are not exactly in the Moroccan Authorities good books. Although not officially, the grapevine here on the ground suggests the eagerness of Morocco to see the back of them and others like them. You can jump onto your own conclusions whether a new build licence will be granted or not.
- If clients are not already creditors they should consider very seriously becoming one. Why? As stated above their contracts are now virtually worthless. Property Logic may eventually drop out of the equation and whoever takes over will surely deal with the creditor list first (they have no choice) and certainly leave the rest who are not creditors out. They have the right to do so, after all the client is registered nowhere in Morocco. The way things work in the country this is a 100% bet. Yes, there are expenses and this is risk the client would need to take but what is the alternative?
How does one become a creditor?
A Moroccan Lawyer needs be appointed and documents submitted. Depending on the lawyer a full or partial provision of funds may be requested at the same time.
The objective is the insertion of a protective charge on the assets of the developer for the value of their investment, a legal instrument called a lien.
The lien is in the name of the client and duly registered under the plot of land the property was to be built. The client gets a copy of the court ruling in their favour. This is stamped with the official seal of the Land Registry.
The client is now an official creditor of Property Logic and appears in Moroccan Official Documents for the first time since they bought.
It is important to know that purchasers will not get their money back on the strength of the lien itself. This is only a safeguard should there be a takeover by a third party. After the lien is registered the holder will simply have to wait until matters develop further. This is Part II and a separate issue altogether from the above.
Notting Hill Inversiones (Melilla)
Le Jardin de Fleur (Saïdia)
Le Jardin De Fleur was supposed to be the flagship development within the macro-complex Mediterrania-Saïdia in turn one of the prototype state-of-the-art resorts planned under the umbrella of the Plan Azur 2010 tourism and infrastructures programs designed to quadruple the number of tourist to Morocco.
LJDF was, indeed, an ambitious project that even won some prestigious design awards. It’s variety of apartments, townhouses, villas and Riad style villas all built over 11 different plots ascended to 1342 units. The project also made a provision for in-house facilities such as sporting infrastructure, spas together with cafés and restaurants in addition to that available at the overall resort per se. In those boom years of the first decade of the 21st Century it naturally attracted a good number of International Investors and Private buyers with considerable success.
With the onset of the World Financial Crisis building works stopped in 2009 as it seemed that some of their funding partners went bankrupt and nothing has been done on the building front since then as the developer have found it difficult to raise finance despite impressive associations with leading players in the field and subsequent near misses. 2009 was also the very same year the King of Morocco, HM Mohammed VI, officially opened the rest of the macro-project which had and still has his backing. You have to feel for the Moroccan authorities who have fervently supported the launch of their country as a first class tourist and residential destination and to see some foreign developers, as it is not the only case, start and stop in mid-flight leaving thousands of bona-fide investors stranded coupled with the cost in image for the country as a whole.
Developers Property Logic had a clever marketing strategy, we all thought it a masterstroke at the time getting high-profile premiership players such as John Terry and Rio Ferdinand amongst others to do promotional work for them in return for discounted properties at LJDF worked at first but backfired later. It must have proven very embarrassing for the players so much so that the story was featured in an article in the Daily Mail in April 2013. The developer also collected considerable sums from off-plan deposits paid by buyers, a good number of them British including 25 footballers mentioned but there were other nationalities too. All of them are now with nothing to show for their investment and a great deal of frustration.
Property Logic published their last update also in April 2013 in all probability provoked by the newspaper article. This humble blogger has also tried to contact Sean Cusack, one of the directors there without success. The only information I have is what it’s published together with what I see on the ground in Saïdia and comments made by investors and buyers.
In the newsletter the developer admits that about 50 buyers have taken legal action in Morocco against them and insist that they are going to finish the development. They claim to have invested 10.5 million Euros with 60 or so million provided by the buyers in off-plan deposits. Two thirds of the 70 million went towards land purchase, construction and licenses with the rest going into design, marketing, sales and agent’s commissions.
The 10.5 million euro said to have been invested by the developer, was according to the update, invested by Estonian businessman, Margus Reinsalu through his company KC Group who are also active in other developments in Brazil. There are two further partners involved in Property Logic according to the April 2013 newsletter, the aforementioned Sean Cusack and one Joop Huisman. As KC’s initial loan was not repaid they took over the majority of the shares according to a certain 2009 agreement when building stopped. However Cusack and Huisman appear to still have the option of to reclaim their original equal 2.6 million euro stake in the venture. Property Logic Invest (Spain) also has equal interests in the project with KC, Cusack and Huisman as members of the board.
The Mediterrania-Saïdia resort as a whole is about 45% complete as we write in October 2013. It is now under the control of CDG an important Moroccan Company specialized in the field who intend to finish off the resort including the 9 luxury hotels originally planned. At present there are only 3 hotels operating but they have not fulfilled their intended grand role to cater for the international jet set with many that would have arrived in their luxury yachts at the Marina from places like Monaco and Marbella. Just one look at the hotels gives an indication of how things have changed for the worse. They close their doors in winter and its summer clientele are tour groups and civil servant from nearby Melilla on weekend outings. 50 or 60 euro all in will give you a stay in a supposedly five star grand luxe, gin tonics in plastic cups notwithstanding.
At the very least both Reinsalu and CDG are saying that they intend to finish off their respective projects. Obviously CDG have it easier as they are one of the biggest operators in Morocco and still have the backing of the government and the Monarch. Nevertheless Property Logic are keeping their clients informed from time to time even if it is to say that they have nearly missed yet another important funding scenario or that they have joined up forces with some big fish investor from a far off land. Credit has to be given to them though which is more than you can say for other foreign investors/developers.
If you are a disgruntled investor in LJDF what are your options?
1.) Sit pretty and hope that PL’s messages become a reality that is to say you are going to finally get the property you’ve bought. Better late than never as they say.
2.) Politely ask for a refund that you are not going to get. No money.
3.) The logical antidote for this type of situation, not the panacea but at least you will be protected is to take legal action and get a Moroccan Court to allow for a lien to be inserted against the assets of Property Logic Morocco. This is a type of preventive embargo that will secure your rights if there are any negative official movements against PL, exactly what the 50 or so people that the newsletter mentioned did, they will not get their money back immediately but they have their name officially recognized as a creditor. For more information about legal action see my articles of August 2013 at the beginning of the blog.
The worst case scenario would be that any potential negative official movements bypass the original buyers. A lien will safeguard your interests as the hypothetical new owners would need to take creditors legally into consideration before they do anything else. Let’s hope that this doesn’t happen, for everybody’s sake including Property Logic themselves.
Property Logic Newsletter 05.04.2013
The Daily Mail
Statistical description on estimated time taken to enforce contracts in Morocco. This also applies to property transactions. (Source: World Bank)