Who’s afraid of a vacant commercial property…?

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.

The Avon Road purchase story continues……

As some of you may remember, I bought a property in February to develop into flats.

My previous blog took you to completion, this is the continuation of the project.

The property was a 5 bed detached house with a 1 bed single storey annex attached on a great corner plot.  We We able to negotiate a 2 week delay between exchange and completion so we could get a head start on the very sparse refurbishment on both parts of the property.

By the time we completed on 19th February the Annex was finished.  Some of the house was started, but would need another 2/3 weeks to get that ready for letting out.

The priority was to get tenants in as quick as possible.  We need to add funds to the pot to cover the mortgage as well as planning fees and associated costs.  We used Open Rent as 3 company Directors are local so we could manage the process ourselves.  We put the property on before completion to minimise the time the property would sit empty; it really worked as the annex tenants moved in on the Sunday after completion – we also rented them the garage, so £850 per month on a standard AST.

The main house was a problem though as the drive was in front of the garage so has no parking at all.  Again, we advertised on Open Rent, but although we had plenty of interest at both £1500 and £1750 pm none of them passed the references.  That causes problems for our insurance so we couldn’t proceed.

Then a lady whose house had burnt down a few weeks earlier approached us.  She was currently staying in a hotel with their 2 children and sick mother, which was not ideal.  She had been asked by her insurance company to fins somewhere for 3-6 months while her home was renovated.  We pursued this, and were particularly interested as under COVID rules tenants can be difficult to move on.  This could potentially cause delays when we are ready to start the development so a tenant with a clear exit route was a winner.

We got in contact with the insurance company and negotiated a fully furnished price BUT that obviously meant it needed to be fully furnished – we only had 4 days (including a weekend)! The rent offered was £3650 per month for a minimum of 3 months.  Ideally we need more than 3 months, but it was important not to lose sight of the development prize and we were aware of the clear benefits this provided.  Any income towards the costs and mortgage are a bonus.  We have a mortgage with no ERCs so as soon as planning is approved and the tenants have moved out we can get on with the next stage.

My vlog, previously published, gives a bit more excitement than the written word – that said it was a manic few days.  The tenant was a dream as she really wanted as much upcycled goods as possible. I gained a lot of trust from how she dealt with the situation; we gave her a £200 budget for all bedding, kitchen utensils and soft stuff – she came in at £235.  Total spend, including 4 new mattresses, was £2168.

They moved in on the Monday evening.  As the monthly amount was under a serviced standard price, we insisted on 3 months up front; as they are totally incompetent, they tenant moved out of their hotel by 10am and the payment came through at 5.30pm. I can’t think of anything so stressful for the family .  The whole process wouldn’t have been achieved without the 4 Directors working so well together, and this really has shown me that I am business with a great group of people.

Food for thought…. Loss adjustors are always in need of accommodation.  As long as your mortgage provider is happy, it can be a lucrative income.  It would be worth finding contacts in the areas you invest to see if the timing works.  It is important to check the figures though, they want fully furnished and bills included, so it may not be worth it over a year’s contract.

Your partnership, work ethic and values are key to a profitable and stress free working partnership.  Everyone will have something to bring to the party and it is important to be mindful of that.  All of us have busy full time jobs, so effective and smart working is paramount.

The last few days of this property were genuinely hard work. I was able to build up such an open relationship with the tenant and found out she was a very community based person.  My close friend had lost her Mum days before they were due to move and whilst helping her pack (on the Saturday before the tenant moved in), I noticed a lot of disability equipment that was no longer needed. I spoke with the tenant and she was able to give all of it to her local elderly charity, which they desperately needed.  So a really positive end to it all.

A bit of excitement for the closing straights of lockdown.  Now to get the planning in next week and I will update you on that as we progress.

Enjoy your weekend.

 

Jackie is always talking the talk – now she’s walking the walk with her first development!

Happy Friday everyone.  I hope you are all digging deep; however we think everyone is better off than us… they probably aren’t.

This week the blog is on my live case.  As most of you will know, I have been a property investor for about 20 years, but only with vanilla properties with a small refurb thrown in.  I have always wanted to do a development and with so many of our clients going that route, it was really making me envious.

Although I had savings, I don’t have enough experience in this area, so needed someone to work with.

When you chat as much as I do, it doesn’t take long to find out who’s got the appetite for this. I teamed up with someone I have known and worked with for a number of years, as well as his business partners.   After talking about what we could do, we started looking for suitable properties.  It’s important to have a team that can cover all areas; so we were able to delegate the roles of sourcing, development, finance and renting, a solid skill group.

Having not done a lot of sourcing, I really did underestimate its importance; It was time consuming enough just to look at the properties John found.  We looked at all sorts, from converting churches all the way through to large HMOs. We finally decided on an ugly property in Upminster, Essex which had plenty of development opportunities.

The property is a 4 bed house with a 1 bed annex on a good sized plot.  It was originally on the market for £750k, which was too high.  We waited and it dropped to £650k, at which point we put in a cheeky offer of £550k. It was accepted, but they would not allow an option agreement so if we were to proceed we would have to take a chance on the planning.

We intend to build 5 or 6 flats, which will be COVID friendly and eco friendly.  We will try and keep an existing wall, to avoid CIL, which again, reduces costs.

As we couldn’t get the option subject to planning, it was important to see what has happened to the immediate area.  The road has a lot of new builds, both flats and houses, so we can see that the precedent has been set.

We will be getting planning after completion, so I sourced a no ERC product, which will allow us to rent it out for the short term.  Any cash in will help towards costs.  We also insisted on a 2 week gap between exchange and completion so we could start the works required before we rent it out.  The property is a 60s house that had very elderly owners; it was really dated.

It is so important to check exactly what is needed to do to get it rented out, it needed to make financial sense, as it would all be knocked down. Just the painting of a large house is time consuming; it also needed some work to the electrics as they were definitely not tenant safe. As the owner removed all white goods, we sourced good second hand ones off Facebook market place.  They will all be PAT tested to make sure they conform.

We chose this route to avoid bridging; due to the time scales involved in applying for planning. Bridging, as we know, is an important route in a lot of cases but during COVID, this can lengthen the timescales. When you don’t know your timescales it’s worth looking at a longer term and lower cost option.  It really does depend on the property, thankfully this property is tired, but very habitable.

In the 3 months it’s taken to exchange, we have not been idle.  We have instructed the Architect and progressing the drawings and planning.

We complete on the 19th February and it’s definitely given me something away from work and lack of social diary dates to get excited about.

We have benefitted from the maximum SDLT discount, but there are still plenty of deals to be done out there.

Case study: When the wrong broker nearly kills the deal!

Happy Friday everyone. As a friend said to me, as long as one foot is in front of the other, we will get there… with kindness, patience and tolerance.

This case study covers a few areas: the correct broker; the correct broker and the correct broker!

I was offered this case about 6 months ago, maybe a bit more, but the client decided to go with a broker that wasn’t comfortable with his own expertise this area, but the client really trusted him.

The project is a large single property, ground up build.  Exit is sale and the client is a professional in another, busy industry.

I was approached again at the beginning of November, it had been with a lender for over 4 months and it had collapsed.  The lender had declined the case.  It was problematic in that the build warranty hadn’t been started and also it could be considered as owner occupied at the end – the property was larger than his own, and in the local area. Giving the correct evidence and assurance that it wasn’t was key.

The client had also run out of money and needed a speedy completion or the contractors would walk, and that can be a nightmare even without Covid to worry about!

We were able to utilise as much from the previous lender as possible – valuation report and QS updates, which eased some of the costs.  I put the client in touch with a very short term investor to cover a cash gap and then got to work on smoothing out the rough edges.  The build warranty should be started at the beginning, it’s not impossible to get it late, but it does increase the cost.  The lender, LendWell, were as always, fantastic.  They keep things in a sensible straight line. If there are any bumps then they are there to have a sensible conversation, and are always working towards completing the case. With other lenders it can feel like they are trying to find a problem.

We were able to agree a facility which got to client 25% of the GDV for 12 months. His build time had only got 4 left so this leaves plenty of time for any hiccups and sale.

Having a broker that is not transactional meant I, the Director, got totally involved. Managing the build warranty; warranty for a swimming pool and even working with the contractor. Keeping things smooth and transparent.

We completed on the 18th December.  The investor was paid from the drawdown funds and everyone could breathe again.

It really wasn’t a straightforward case – part built properties can be problematic, so you really need to know what you are up against.

The client learned a few lessons as well.  Every day is a school day, they say.

I can’t emphasise enough the importance of the right person for the job.  It is coming up time and time again and your time and stress never seems to be in the equation.  Someone said buy cheap, buy twice.