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Alignment of Discount & Location

16th June 2021

Currently, we are negotiating a deal in Central London; a block of flats on a prominent road.  The price is surprisingly cheap given the location.  The property is not freehold, but leasehold, and is above a commercial premises.

  

Although this is a leasehold deal, under the legislation as the majority leaseholder you have the right to purchase the freehold.  There are a few benefits to this, for example: one, of course, is you will never have to keep paying a premium to keep extending the lease; another, is you have an enhanced value as a freehold property.  But, the biggest benefit would be you would have control over the building, and communal areas, in order to improve and maintain the building.

  

Not all leaseholders are fortunate to be able to execute this legislation. There’s a notorious freeholder just down the road from here, who has a reputation of excessive service charges, and very poor major refurbs when they do them; which means they keep having to do them.  They have owned the freehold of many blocks, and for many generations.  Their yearly legal bills are in the millions, no doubt keeping leaseholders at bay.

  

The reason the leaseholders cannot get together and purchase the freehold is because they ensure they keep ownership of just over 50% of the land which is made up of communal parts, courtyards, and then they purchase the number of leases they require to keep control, in line with legislation, but clearly not in spirit.

  

This location used to be the fag end of a very central location, but as time has gone on the ripple has spread, and this is going to be a very strong location, given its proximity to the station, which is only seconds away, and the money which has gone into developments close by; which will serve to uplift the area strongly.

  

The entry price is about 30% below market level, and that’s current market levels.  The value of the asset is reflected in the rental yield which is circa 6%.  In this location, the rental yields are around 3-4%, this correlates to the discount on price.

  

The properties themselves are reasonably generous for the location, and well proportioned.  Deals with this level of discount, in this location, are hard to come by.  This too in an area which is still growing.  We are currently matching this deal with an investor.  Please do get in touch if you are interested in similar deals.

Suresh Vagjiani

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