Ex-Tory donor’s bank in legal row over £12m loan that went bad

A challenger bank co-founded by a former Tory donor is locked in a legal row with one of the world’s largest real estate companies over a soured £11.7m property loan.

Oaknorth Bank, which is led by former Conservative Party donor 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.

Oaknorth claims it would not have provided a £11.7m lending facility to the project’s developer if Colliers had provided the “true” value of the building when it was assessing whether to award the loan.

Colliers has denied the claims and alleged Oaknorth was “negligent” for failing to carry out its own proper research into the state of the property development.

Oaknorth is a digital lender that specialises in making loans of up to £25m, mainly to UK property developers.

The neobank was founded by Mr Khosla, who donated more than £8,000 to the Conservative Party in 2019, and Joel Perlman.

The spat centres on the Jacksons Corner site in Reading, a former department store dating from the 1870s that was acquired by a property developer for £6.5m in 2017.

Oaknorth agreed to lend £11.7m to the developer to transform the former store into 33 apartments and three retail stores.

This money was supposed to be paid back in late 2019 but 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 £14.5m by 2021, and claims 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 and the whole development was eventually sold last June for £5m.

Oaknorth is blaming Colliers after it allegedly suffered a £9.3m loss on the loan, claiming the property giant “negligently overvalued” how much the site could be worth in its assessment. As a result, it is seeking damages from Colliers.

However, in a defence filing last month, Colliers alleged that 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 on the development.

It claims that Oaknorth put significant reliance on a £3m personal guarantee from two individuals linked to the developer, which was not repaid.

Oaknorth has only received £60,000 from the guarantors so far, according to the claim.

Colliers claims the apartments failed to sell for the sums envisioned because of delays owing to Covid and the competition in the Reading property market, rather than its own valuation reports.

In December, 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.”