The divorced, the dead and the distressed
9th July 2016
Only yesterday I sat down with an agent who had a flat on sale for £3.3m, which was located in the prime part of Kensington in a well maintained block; consisting of 2,100 sq. ft. the property came with a long lease and a roof terrace.
There was a deal to be done on the table, apparently the owner was in a pickle with some of his businesses. He needed the deal done yesterday and needed the exchange money to be released to him on the day of exchange.
The agent was not privy to the exact details of the issues the vendor was having, being naturally nosey I did try and pry.
The vendor was realistic about the price given as he needed the deal to be done quickly. He was prepared to take £2.5m. This equates to £1,190 per sq. ft., in prime Kensington in a prestigious block; this is a deal.
The downside to this deal is the increased stamp duty and the market concerns in response to Brexit. The upside is you’re getting a big chunk off a prime property nearly 25% to be precise.
This is just one of the deals which has floated to the surface. The market is in a flux, not a good time to sell. Most vendors will hold on if they are able to do so and see the season through, after all it will not last forever.
You will get three classes of seller regardless of market conditions, the divorced, the dead and the distressed. These three categories have to sell, it is not a choice.
There is another deal on the table, this time it’s in Muswell Hill, not an area I’m familiar with, but these days you can glean a lot from the internet, and a cursory investigation revealed this was indeed a great deal.
This is an old spacious Victorian house detached and needing complete refurbishment. This property is cheap, as it is, and could be sold on prior to completion leaving the incoming buyer with some margin and angle to the deal. The property has potential to be converted into flats as many properties have been on the street.
The cause of this deal was death, it is a probate deal. The deal was introduced pre Brexit, and it was still going through the motions of being finalised. Post Brexit we are in a different world, the price will need to come down even lower, just because everyone thinks it should.
In this respect we are also on the selling end of one property as well, having to take a haircut on a property is never fun, but sometimes necessary in order to move on. If you’re in a hole it’s never wise to keep digging.
We are also in the midst of closing a mixed commercial deal. The property is in N3, and consists of a commercial tenant occupying the whole building.
The tenant does not need the whole building, just the ground and lower ground floor. As they are a large retail company, trying to get to the decision maker to make a decision can take a very long time. However in this situation we have had previous dealings with this tenant on another site and have an amicable relationship.
Because we know the tenant, we know the decision and execution will be painless. The strategy on this property is to develop nine flats above the commercial and then go in for a further penthouse unit, making ten units in total. This gives a conservative GDV of £3.15m with the downstairs commercial being valued at £2m.
In addition there is a large car parking site to the rear, which will also have a small ground floor office unit, valued at £300k, bringing the GDV total value to £5.45m.
We’re picking this deal up at just over £3m. The intention is not to develop and resell, but to pick up, develop, refinance and hold the asset. Because the long term goal is to hold on to this asset, there will be a focus on maximising income on this deal.
It will be a yield based investment rather than trying to maximise capital growth. On an end value of £5.45m we anticipate a loan of 70% which means £3.815m coming back out of the deal once it has been completed, subject to the rental cover of course.
In order to maximise the returns on this property the number of liveable units will be increased post planning, so that it is done within the regulations and at the same time the amount of rent generated is maximised.
The types of property built for resale and rental have generally two very distinct finishings. In developing to resell the property needs a wow factor in order to attract a premium. In the same way one would pay a premium for a new car, it is purchased with emotions rather than with common sense.
When developing for rental the property needs to be hard wearing and designed to cause the least hassle when renting.
We envisage the N3 deal to be closed shortly and the contracts will be with our lawyers soon. If you like the sound of this deal, why not call the office to find out more.
The Real Deal
St. John’s Wood, London, NW8 Purchase Price: £735k
- A large two bedroom flat in a purpose built block
- Long lease
- Parking facilities
- Close to Little Venice and the wonderful Regents Park
- Excellent buy and hold opportunity
Call us now to reserve!
!Tips of the Week
Remember that investing in property is a decision based on calculations and statistics, it should not be an emotional decision as it would be when buying your own home.
When purchasing and developing always keep the buyer in mind, not your own preferences.