The money was supposed to be paid back in late 2019.
A challenger bank co-founded by an ex-Tory donor is embroiled in a legal row with one of the largest real estate companies over an £11.7 million property loan that went bad.
Oaknorth Bank, led by Rishi Khosla, is suing the UK division of Colliers International, claiming that it “overvalued” the redevelopment of a 150-year-old department store that ran into financial difficulties.
According to Oaknorth, it would not have provided a £11.7 million loan to the project’s developer if Colliers had provided the building’s “true” value when it was assessing whether to award the loan.
Colliers denied the claims and accused Oaknorth of being “negligent” for failing to carry out proper research into the state of the property development.
Digital lender Oaknorth specialises in handing out loans of up to £25 million.
Oaknorth was founded by Mr Khosla and Joel Perlman.
Mr Khosla donated over £8,000 to the Tories in 2019.
The row centres on the Jacksons Corner site in Reading, a former department store dating from the 1870s that was acquired by a property developer for £6.5 million in 2017.
Oaknorth agreed to loan £11.7 million to the developer to transform the former store into 33 apartments and three retail stores.
The money was supposed to be paid back in late 2019.
However, the bank had to roll over the loan several times after the borrower struggled to repay the funds.
Oaknorth eventually expanded the loan facility to £14.5 million by 2021 and alleged it relied on Colliers’ valuation in the assessment to do so.
The company set up to develop the site subsequently defaulted on Oaknorth’s loan after it fell into administration in 2022.
The entire development was eventually sold in June 2023 for £5 million.
After allegedly suffering a £9.3 million loss on the loan, Oaknorth blamed Colliers, claiming the real estate company “negligently overvalued” how much the site could be worth in its assessment.
As a result, it is seeking damages from Colliers.
But Colliers claimed Oaknorth had made up its own mind about the valuation of the property and that the bank lent the money knowing there was a shortfall in funding for the development.
Oaknorth allegedly relied on a £3 million personal guarantee from two individuals linked to the developer, which was not repaid.
According to the claim, Oaknorth has only received £60,000 from the guarantors so far.
Colliers said the apartments failed to sell for the sums envisioned because of delays owing to Covid-19 and the competition in the Reading property market, instead of its own valuation reports.
In December 2023, Oaknorth appointed Lord Turner, former chairman of the Financial Services Authority, as chairman ahead of a possible flotation of the group.
Oaknorth claimed Colliers’ negligence allegations were unfounded.
A spokesman said: “These allegations are completely false and unfounded. As this is an ongoing litigation, we are unable to provide further comment.”
A Colliers spokesman said: “As legal proceedings are ongoing, we don’t have anything additional to add to the defence statement at this time.”
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