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Adrian Standing · 02-11-2012, 07:27 PM

We recently dipped our toe in the commercial property market and bought some commercial premises which had formerly been used as an amusement arcade on the ground floor and a restaurant in the upper parts. The building is just under 6,000 sq ft in a town centre location and needed a bit of refurbishment on the outside and roof, which we have now done..

Although the building had been empty for a while, we let the amusement arcade fairly quickly on a 10 yr FRI lease. We're now left with the upper parts.

We had a feasability study prepared for conversion to residential and could get 5 units in the space with a potential GDV of £500k. This is subject to planning permission but I'm reasonably confident we would get it as there have been some similar schemes nearby.

The question is: should we sell it on with the new lease and planning permission and move on to the next project or do the development ourselves?

Any thoughts would be appreciated, particularly if anyone has done this kind of thing before.

Simon Allen · 02-11-2012, 07:39 PM

Hi Adrian

If you develop yourself you will realise your profit when you sell.Would buyers be able to get mortgages for flats above an amusement arcade?

Whether to do it or not would that depend on the developers and contractors profit in it.Could you get a better return on another project?

Adam Hosker · 02-11-2012, 08:18 PM

Their are finance options available for Residential above Commercial, it is not an easy path though. It would hinder some perspective buyers, unfortunately.

If tender it out to offers for the leasehold with planning permission, then it would have to be a good deal for the buyer. Their are many "good deals" out their for those that can obtain development finance. If you do manage sell it on with a long lease with planning permission, your hands are free and wont have to deal with that headache.

Unless you are not looking to sell on, if you are going to rent each unit then wont have to worry about finance of the buyer - but getting your own finance in future (refinance). It is achievable.

Generally speaking, id look to spin off with planning permission if achievable. Otherwise build to rent.

Phil Stewardson · 02-11-2012, 08:27 PM

Adrian,
We primarily do commercial developments. In your case I would say it depends how you have funded it, I assume its a commercial lender, so if you have long term reasonably priced funding that you don't have to renegotiate every 5yrs or so, then hold on if you are happy with the tenant, are they secure? If they went punto, could you re-let easily??
If you decided to sell, as to whether to do the FF development, what rent would you achieve for each flat?whats demand like? What are conversion costs?

Phil Stewardson.
Stewardson Developments Ltd.
http://www.stewardson.co.uk
Follow me on twitter -@philstewardson

Simon Allen · 02-11-2012, 08:46 PM

(02-11-2012 08:18 PM)Adam Hosker Wrote: Their are finance options available for Residential above Commercial, it is not an easy path though. It would hinder some perspective buyers, unfortunately.

On an investment basis there are several although I was answering this on a residential mortgage basis.

I would normally follow my "gut" feeling on this Adrian as if you develop there are many factors outside your control including changes in the market and availability of finance. Or could you split the title and keep the arcade?

Adrian Standing · 03-11-2012, 11:48 AM

Thanks for your replies. We bought the building for cash so there is no finance to worry about. If we did develop the residential units, we would look to create buy-to-let units which we would keep. As the building is in a town centre location, the units would be ideal for young renters who don't have a car (they can walk everywhere - work, shops, clubs, pubs, train, bus etc)

Each unit would cost £30k to develop and they would be 1 or 2 bed flats.

If we did this, we could refinance with a commercial mortgage based on the cashflow of the shop and residential units.

The alternative is to sell it on to someone else with the PP and the shop lease and move on to the next project

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