Deals take time to unfold and bear fruit
Last week we exchanged on a property in Kensington, it was a freehold building consisting of 6700 Sq Ft which is a rare find in this location. The property was a mix of residential and commercial, but was used as a commercial building.
I had been working on closing this deal for well over six months. Negotiations began in Nov 2011. Someone whispered in my ear there was a deal to be done on a freehold building Grade two listed, I was told it was being sold by the Arts Foundation.
The charity informed me they have an agent in charge of the sale and I would need to go strictly through them. So I reverted back to the agent and arranged to have a meeting with them. I told them we were interested in acquiring the building, they had asked if I had seen the building and I said I had (in fact I had not, but my college had). If I had said I hadn’t seen it they would not have taken my offer seriously as no one in their right mind would purchase a property without seeing it.
After providing confirmation we had the full cash funds to complete the deal we were allowed to submit an offer. A few days after we had submitted the offer we were told all offers needed to be considered by the art charity trustees. Once the offer had been given they then came back and said the charity will now not be accepting bids for the property until they had secured their future office building first which would be in several months time. This was the reason they were selling the head quarter building, they were relocating.
And so the deal had been delayed. In the interim I made it my business to know and to get close to the agent in charge of this property, and so I met him several times outside the office and made small talk with him. Although under the bribery Act 2010, bribing is illegal, making friends with the agent and showing him a good time is not. For someone for whom diplomacy and small talk does not come easy you can understand my frustration when some months later he announced he was leaving the firm he was working for and following his dreams to become a rugby player in the USA! I very diplomatic, wished him well and asked him to introduce me to his colleague who was now handling the property.
I had to start my relationship building again from scratch; this is an important part of the process as often out of sight means out of mind.
And it’s important to develop a common ground, the agents especially on building like this where there are often many vultures circling the property.
The property was a 6700 Sq Ft freehold building which rather oddly included a 200 Sq Ft leasehold portion which connected to the rear of the ground floor, though when you look at the room which has the leasehold attached it appears seamless. How this had risen we had no idea, it came to light after we had exchanged on the property. To the rear of the property there are mews properties, originally mews properties were designed so you could bring your horse into the property on the ground floor and the accommodation would be on the upper floors. At some point the owners of the house did not require the accommodation for the horses at the rear of the building and so this was cut and sold off.
Later on John Millais whom the house is named after decided to build a studio to display art work, at this point this portion was incorporated back into the building as a leasehold interest. This 200 Sq Ft portion does not look like it is separate, on the contrary it looks and feels like part of the building. The studio was designed to allow plenty of natural daylight into the room but not direct sunlight so as not to damage any artworks in the studio.
The house has been lived in by many famous people from John Millais to Sir Francis Bacon and has been graced by many famous people including the Queen mother, who used to come to take her portrait by John Millais. The building is grade two listed with a plaque outside showing all the famous people who have lived there.
No doubt this famous history prompted the Arts Fund to purchase this building several decades ago. Fortunately for us it no longer serves their needs and they had to dispose of it. The art funds aim is to purchase paintings to put them on show for the public.
So after having again built my relationship with the new agent it was time for a new round of bids, for which again they required fresh proof of funds in order to even be in the race. I made sure I was on the phone with him right up until the deadline and a few minutes after, to ensure we were in the front of the race.
The art foundation were moving to a new office building and therefore their favored option was a sale and lease back, this would allow them to have the funds necessary to secure and refurbish the new building they were moving into. A sale and leaseback means they would sell the building but carry on occupying the building. This would mean they would have the benefit of the cash up front and the opportunity to occupy the building for a further 18 months.
It was not our preferred option as a deposit of 10% and allowing them to occupy the building to completion suited us better as there is less cash tied up in the deal. In order to make this sweeter for them we pushed our exchange funds up to 20% and allowed them to keep the 20% deposit which normally stays with the solicitor.
Now a 5% rental yield may be exciting to a pension company who is flush with funds and is more concerned about security but this option didn’t really rock our boat as our money could be working a hell of a lot harder for us than yielding us 5%. So with guidance of the agents we submitted two offers one very high at £5.4m with a delayed completion and the other at £4.78m with a sale and leaseback.
Again the art fund came back and despite having a ‘best and final’ bid decided to have another best and final and asked for only sale and lease back offers!
As they were a charity, they were very hesitant in making a decision and needed board approval for every little variation.
Again we submitted offers and again I was on the phone to the agent until the very last minute, and we secured the building at £5.4m on a sale and leaseback basis. This blew everyone else out of the water.
To be continued………
Cash producing property at the gateway
to Europe – £350,000
Four bedroom garden flat in a secure estate in Kings Cross
Probate sale – Requires modernisation of approx £30k
Net Income will be in the region of £13-15k pa
£2bn is currently being spent on regeneration of Kings Cross, which is expected to drive the prices up
Deposit needed – £87.5k plus approx £30k of refurbishment cost
Call us on 0207 096 1354 now to secure it, we are confident it will go quickly!
Sow & Reap
A Property Investment Company
!Tips of the Week
Most expenses, such as repairs, agency fees, etc., can be off-set against tax therefore reducing your liability. Check the HMRC website, there is an amazing amount of helpful information on there.
Capital values may be affected but regular income in terms of rent can be expected in good as well as bad times.