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From lead into gold

9th July 2019

We’ve identified a property which we believe is ripe for conversion.  This is an office building which can be converted into a large number of self-contained apartments.  This conversion will circumvent the normal planning process by going under the permitted planning rules.  This is a real blessing because planning always looks easy on paper, however, there is often a variance between the theory and what happens on the ground.

Under permitted development, as long as the application is procedurally correct it cannot be refused.  Furthermore, it will be approved within the statutory 56 day period.

This means within a couple of months you can expect to have full planning for 42 apartments.  The size of the building is over 12,000 sq. ft.  It also comes with car parking.

The angle is to convert the property into 42 apartments, which should bring in a rent roll of £300K per annum.  We are hoping to secure this deal at £1.5M, we have allowed a construction cost of £1.2M.  This, very crudely, would be getting you a 10% yield.  Once rented the idea is to refinance the property back out; i.e. you should be able to extract your original £3M for the purchase price and the development back out, based on the uplift on the building and the rent roll.

The cake is a good one, I’m sure you’ll agree; however, the story is not over yet.  There is icing on this cake.  Once this is in place, you can split the title, meaning separate the building away from the car park, sell it to a third party and then get planning for a whole new building on this now separated piece of land.

The aim could be to build out the scheme or sell with the benefit of planning.  The later is preferred, as this is the easiest way to make money.  The developer makes typically 20-30% on a development project.  When a site with planning is sold, the build costs and the resale values are predictable and the project is sold with the developer’s margin in mind.

Most money in property is not made by building units, but rather by changing the utility of a piece of land or building.  This is where the magic exists in property.

In order to do this, one needs to have a good grasp of the rules and also have their finger on the pulse with regards to the local council and their sentiment.  In addition, a good planning consultant is essential, as this is an area which is continually changing and there are many factors which could affect the planning.

Even with regards to permitted development, some councils could apply to remove themselves from granting permitted development.

Only yesterday I heard of a builder who purchased a large commercial site in Wembley for circa £7M, to discover it was not part of the master plan and never will be.  They will now need to get very creative with their purchase or resell back on to an end user.

The office deal is on the table and currently seeking an investor.  Do get in touch if you are interested!

Suresh Vagjiani

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