A Bird In Hand
11th February 2020
On Friday we received a refusal notice for a planning application to convert a dwelling into a 9 bedroom HMO, in a conservation area. The application had been in for the best part of a year. It had already gone through one round of major adjustment, by way of redesign. This was done in accordance with the case officer feedback to avoid the application being refused based on the first proposal.
All the professionals had been paid two rounds of fees for the revisions.
However, in the end, despite the revisions we had a refusal just the same.
The process of planning is highly frustrating, unpredictable and often done according to the whims of people who really don’t understand planning policy and are often voting according to either whim or pressure from local residents.
After a conference call on Monday the approach in regards to this project has changed. Now the instruction to the planner is to advise what we can do under the permitted development rules. This negates the need to go through full planning and provides certainty to the project.
Once this is ascertained, implemented, the property rented and money is coming in, at this point we will then have the luxury to go through planning in a piecemeal basis.
Permitted development (PD) is what can be done under law. It is a predefined criteria which when complied with cannot be refused by the council and within a fixed period of 56 days. So, in less than 2 months you will have your permission and can crack on with the works.
Many things like HMOs, 6M extensions, loft conversions and of course office to residential conversions can all be done under the PD rules.
The most lucrative way to make money on a property is not by enhancing it but by changing the use class. This is the equivalent of turning lead into gold. For example, it could be from a site without planning into one with planning; or a commercial building either office or retail into residential – depending on where it is.
Since the office to resi scheme has been in place the take up has been drastic in certain lucrative locations such as Westminster. The shrinkage in office space has led to a reversal in prices, wherein the office space has become more valuable than residential square foot in some areas.
In order to take the biggest risk out of property projects, we have made a decision to refocus our attention to go for planning which falls within permitted development only. This negates the need to go through the full planning process, providing a strong level of certainty.
There are many PD rules with can be utilised in order to be in and out of a project in a far quicker time scale than going through full planning; and god forbid if you have debt to service whilst going through this painful process.
Given the above, today we hope to be bidding on a commercial property in Barnet. The property consists of just over 2,000 sq. ft., and it’s a ‘shop and uppers’. The idea is, under permitted development, to turn the upper into residential, subdivide the downstairs into more digestible sizes and to rent the whole unit out.
There is the potential to gain another floor on the property. Looking at it from an intuitive point of view it seems this can be achieved.
However, this can be something which can be applied for once the PD has been obtained and implemented. The property, hopefully, will be rented and refinanced while we wait on the planning permission for the upper floor. We are not dependent on the full planning system with this deal, this is why our focus has shifted with this project. The target price is £550K, the residential on the first floor will alone be worth £500K when developed. The commercial on the ground floor when rented for £30K should be worth around £400K. So, there is some meat on the bone. However, the most attractive aspect to the deal is not just the gain but the time within which we can get this gain. People often forget that time is just as important as the gain. The longer the time taken in the deal the gain is eroded. People are hard wired to simply to focus on the numbers, and lose sight of the Time-Value of money.
The only thing which concerns me is its location, in Barnet. When I showed it to my Jewish lawyer, he knew exactly where the property was. Not a good sign as so will the rest of the local community, who will no doubt serve to jack up the price.
The last time we attended a commercial auction we were, naively, hoping to purchase an office building with a guide price of £900K. We had a clever idea of not only developing the office building but building out on the car park. The deal went for over £2.4M. Half of the auction room emptied when this lot was over. It seemed as if half of Southall were there bidding for this lot.
So, let’s see what happens today. If it goes our way, we will have exchanged today with completion set for 20 days time. If we do exchange we will not be waiting for completion to get this project going, planning can be applied for without the need to complete. At least there will be certainty in exchange and in the development. In an uncertain world, wherever you can find a way to make money with a level of certainty, it’s better to focus your energies on these projects. As they say, a bird in the hand is worth two in the bush.