Over the finishing line
The property was 17 Portland Place, W1. It is in a very prestigious location, only doors away from both the Chinese and Russian Embassies and near the famous Landmark Hotel.
The property comprises of 13,000 sq. ft. and comes with a Grade 2* listing, meaning the outside is listed and so are many parts of the internals. Translated this means we cannot touch the outside and many of the bits on the inside, including the grand winding staircase which greets you when you enter the building.
It has many beautiful features typical of a period London property, the ceiling heights, especially on the first floor, are huge with the ceiling hand painted with pictures and intricate coving. The square footage of the building doesn’t justify the grandeur when you enter the building, it has to be seen to be appreciated.
The property was exchanged at £14.75m which represents £1,134 per sq. ft., it came with a tenant who was using the building as serviced offices. The lease allows the occupier to use the building for both office and residential.
Once we exchanged on the building we managed to get the tenant to agree to vacate the building for an agreed premium. This means the property has an instant uplift, a recent Savills valuation values it at £18m.
Finding the right valuer isn’t always easy, many – believe it or not – do not want to value the building instead they want to cover themselves from future litigation. They take the most pessimistic view point possible. If the building is repossessed and the banks do not recover their money which is typically 65% to 70% of the building’s value, where will that leave the valuer? It is with this mindset many set out to conduct a valuation.
Indeed we have a valuation for £3.1m for a 6,700 sq. ft. freehold building we purchased for£5.2m in South Kensington next door to the French Embassy. This valuation was conducted by a supposedly highly reputable Agency in 2012. This implies we have over paid for the building, not only us but the party who purchased from us at £6m and not only them but someone else who is looking to buy the building for £8m. It is ridiculous to claim a freehold building in this location values at only £462 per sq. ft.
In the current market where there is a nervousness this is occurring more and more, especially for higher value properties where the potential liability increases. Valuers do not have a commercial mindset and therefore cannot always see the wider picture, if they did perhaps they would not be in a salaried role and instead be dealing in properties.
We had set a completion date at the point of exchange, as the completion came closer, all our ducks were not lined up, we therefore requested a longer completion. The selling party was known to us and we had done many deals with them in the past. In the interest of maintaining a long term relationship he agreed to the extension, but in exchange the price was to be increased by £250k and they wanted the princely sum of £5m in total to be transferred across to the sellers’ group. We agreed this on the basis we would get a further two months. We were pushing for 3 months but under the circumstances we agreed and got busy with the building.
Even at the increased price of £15m the pounds per sq. ft. came to £1,153 which still represents great value given similar residential properties on the road have sold f or £2,500 per sq. ft. upwards. Of course the building would still need to get planning to convert into residential from the council but not from the freeholder.
With completion now out of the way the question of what to do with the building needs to be addressed. The theme of office conversion to residential has become a fad at the moment. Everyone is at it. We have been at the brunt of this policy, as we were given notice from our offices in Westbourne Grove, from which we had no intention of moving; hence we shifted premises to Marble Arch Tower, and guess what we will be homeless again, they are turning the whole building into residential apartments!
Companies in their attempt to secure decent office spaces are gazumping each other and going in at asking prices or higher as this space is shrinking fast.
There may be much merit in keeping this space as office space as there is so little of it around, it is an avenue that is at least worth exploring. Of course there is always the potential to convert into a house and flats, and variations of this, e.g. to convert into serviced apartments for which there is a huge demand for. This gives the tenants the comfort of a hotel but at a lower price and yet they would be in an apartment which many prefer as an alternative.
We are in the process of gathering a team and exploring the options going forward on the project. Intuitively I’m feeling somehow or another we should arrange to keep this building long term; it’s in one of those locations where prices will not really drop, as there is so little stock available in this location. I can see the prices here nudging higher and higher up purely driven by the sheer lack of quality space of this size in this location. This does not mean we will look to keep the money trapped in the property, once we have decided and done what we need to do to increase the value, we can extract the initial funds by way of a remortgage – again of course at the mercy of the valuers.
Dropping a building like this may mean you will never have another chance to get another trophy building in this location.
The Real Deal
Kilburn, London, NW6 Purchase Price: £2.2m
- A block of five flats in a strong location
- Long lease
- Generating around £70k rental per annum, which we believe is below market level
- Close to the station
- Nearly 15% below market value
- Only 3% stamp duty
- Income from day one
- Very good long term hold
Call us now to reserve!
A Property Investment Company
!Tips of the Week
Do consider the projects which are happening in and around the borough you’re purchasing in, this will ensure strong capital growth into the future. The trick of making money in property development is learning to spot up and coming locations.
Always have in mind who you are aiming to sell to once you have refurbished the property. It isn’t about your taste, it is about what the market wants.