Property Algebra

8th June 2021

We are looking at a small, very quirky property.  The downstairs has a lease with a Blue Chip, but it is part of a larger premises spread across two other units, which are not for sale.

The property is freehold, and has a residential premises on top.  There is a large slate roof above the flat allowing room for another floor to be built.

There is precedent for another floor in the neighbouring properties.

The flat has been described as having no access into it, which does not make sense.

The residential property is said to be circa 350 sq. ft., however, the EPC says 870 sq. ft.

With further examination, we have found there is access to the flat from the rear of the building, but it has been blocked.  Snooping around the building we could see into the flat, and clearly it was a lot bigger than the 350 sq. ft. described.

The good thing with this deal is that it’s not straight, there are variables to it.

Firstly, the whole deal is a little bizarre; you have a tenant which is sprawled across the neighbouring buildings as well as yours, you have a flat which cannot be accessed either from the commercial property or externally; and then you have a misdescribed square footage.

The ground floor is rented out for a period of 5 years to the Blue Chip, they may or may not renew, the chances are they will not.  However, at least it will serve to cover the interest payments whilst this building is being tidied up.

All of the above will scare most retail buyers.  There will be a few developers who will be open to taking a punt, but only if they can get it at a bargain price.

If the square footage is as the EPC described at 870, then the value of the upstairs flat would be about £390K, if you’re able to get another flat on top you would expect an increase in value of about another £300K.

So, you would have made your profit; the downstairs will just be the cherry, a rather large one in this case.

It’s only when there are unknowns, and inconsistencies, that there is likely to be a good margin on the deal.

A few years ago we purchased an auction property in Maida Vale, on behalf of a client, for £1.1M.  The property consisted of a number of flats, all with ‘unknown’ tenancies.  However, our own research told us they were all ASTs.  After exchanging on the property, we resold it on for £1.3M.  Our client only had to put the exchange money in, £110K, for a return of £200K in 3 days.

This one point could devalue a property down to potentially half of what it should be worth.

Similarly, when we were after a block in Kilburn, again there were unknowns involved.  When the higher bidder at the time became aware that there were unknowns, this was a risk they were not prepared to take.  Our client was happy to take the punt, and therefore, we got the deal, even though we were significantly lower in our offer.

This is a cracking deal, and my feeling is it will go for not very much money, for the reasons described.  I am currently looking at investors to match it to.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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