New hunting ground

9th Feb 2022

The London market is over heated, this is a result of lack of supply; less properties are coming on to the market than previously, whilst demand is at an all time high.

Recent events have caused this uplift in price to spill out into the surrounding countryside as well.  Predictably, large houses with spare bedrooms and gardens are on the top of buyers lists, flats are bottom.  In the last 18 months, UK’s average house prices have gone up by 16%.

This has driven us to look further afield for deals.  Last week, I took a trip up to Manchester to see some opportunities there.  This is not an area where I would go in cold, I had the expertise of a local businessman who is well established in the area and part of the fabric.  He is also a prolific property investor as well.

Initially, we were involved in arranging some development funding for him.  It was when I started looking at some of the returns he was looking to generate, my attention was caught; this prompted me to take a visit and explore further.

There is a portfolio for sale by order of the court, as the beneficiaries could not make up their minds as how to divvy up the assets.

Typically with sales such as this the properties have been underlet, and generally in a poor condition.  This was no exception.

What attracted me to the deal, was there was potential to uplift on the rent substantially, thereby increasing the value.

All the portfolio consisted of commercial properties consisting of shop and uppers, where the whole property had been rented to the commercial tenant.

I saw various opportunities with this.  Firstly, to build out into the pitched roof, for which there was precedent.  Then, split the commercial away from the uppers.

The potential upside on this deal is substantial, and whilst you are doing this there is rental income coming in from day one.  This takes the pressure off the deal, and in fact it is cash flowing strongly at over 7%, allowing for the funding costs this would generate roughly about £72K per annum.  On a commercial property this would be an FRI lease therefore there would be no agent’s fees, or maintenance costs.

This looks like a very lucrative deal, with several angles to add value; the kind of deal which we focus on.  We were sharpening our pencils to present an offer this week, we would have been coming in at £2.4M.

However, yesterday I had a call saying there had been an offer made for £2.8M, prior to even the deadline!

I was asked if we still wanted to go ahead with the offer.  It’s always good to go ahead even if you’re not in pole position.  Many deals have come back to us, when the front runner either couldn’t perform or took too long in closing the deal.

Regardless of how this deal goes, the appetite has been whetted for this region in the UK, and if not this deal, another will pop up when the time is right.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
Articles: 819