Hi everyone. And it’s Friday again and so close to lock down ending (fingers crossed).
If you’ve been reading our blogs over the past few months, you will know that I have got involved in a couple of properties for development. I’d like to talk about the commercial one for this blog.
I’d known about this property for a while, as the buyers are clients of mine. The property is a D2 usage large building in Salford. D2 is leisure, as it was a crown bowling social club. It was also run down and vacant. As you can imagine this can cause challenges in getting funding.
The property had a 15 month option from February 2020 in order to get planning for residential. You’d think that 15 months is enough time to get things sorted, which in normal times it would be. The property stands on an acre of land, the building itself has a footprint of around 320 sq/m – so there are many options for an exit, it was the purchase that was proving challenging!
I got involved end of last year, just to find funding. This proved rather difficult. The commercial market has really taken a hit with lenders during COVID. For a while it simply wasn’t available, then when it did return it was specific to certain professions and whether they had been trading during lockdown. This fell into neither camp.
The week before exchange I put my hat in the ring to be a part of this. Thankfully the investors were happy to do that; it spread their cashflow, which is important at the moment. If you know and trust the investors you get in bed with, then it’s better to share a number of projects than be responsible for it all.
When a property has a lot of options, although it should be a positive it can prove a negative with lenders as it causes uncertainty. We could go full on development of 36 or so apartments; a mixture of houses and apartments; renovate the house and split off the land; keep the property commercial and split off the land… and the list goes on.
We now had a deadline to exchange by May 10th, but due to planning having been changed (a housing association wanted to buy it with planning) so we still have no planning. As most of you will have experienced, COVID has caused such bottle necks in so many areas and this is clearly one of those areas! The application went in for an AIP on 7th May and I looked at it as an auction buy.
I approached Shawbrook to see if they would consider it – at the time we wanted to convert the house into 7 flats under permitted development, but could not get it on PD due to D2 usage not allowing it. We could also not apply to change the commercial usage as planning was already in. It was all really frustrating. We decided just to buy as is and landbank it until planning was through. I can’t praise Shawbrook, particularly Mark Whitburn and Kieran Route enough, for really getting on with this knowing the completion date of 18th June. They have agreed 60% ltv on Vacant Market Value, which was the purchase price (£500,000) – very reasonable indeed.
The property is a good buy. There is no way that a piece of land of this size in Salford can lose you money, but having to react quickly at the moment can be a challenge. Sometimes you really need to go with your gut, as properties are in low supply and you can lose out. Of course there are risks here, but aren’t there in all walks of life? You could argue that doing nothing is the biggest risk of all.
All is set for completion on 18th. I know I bleat on about the power team – IT IS THE MOST IMPORTANT THING – we couldn’t achieve this without our amazing solicitor (Phillip Adam) and the safe hands of Shawbrook and Laura Nicholl at Pure Law. They are worth their weight in gold for the stress they alleviate. Particularly when the completions side of things is really boiling over at the moment.
What have I learnt from this?
The educational part of this is the change in lender appetite towards properties like this as we have progressed with it. There has been a realisation from lenders that there are some properties that are worth funding; there is a still a massive shortage of residential properties and the Government is pushing for smaller builders to step up. I would ask you to consider these when you are looking at your next investment. If you don’t have enough experience, then bolt onto someone who does; spreading the risk/cash and progressing up the development ladder as well.
As always, we are happy to run through the figures and see what options are available to you.