Creating a Contingency Plan for a Protracted Conversion Strategy

Loan Amount:
£244,000

Property Value:
£340,000

LTV:
70%

There is opportunity in converting, or better utilising existing property space in the current market. The pandemic led to many commercial premises being left vacant as we tried to recover, and many of these properties remain empty to this day.

But, there is willingness and motivation to make improvements here. An investor turned to us to fund a purchase for a mixed use building, in which the commercial element was left dormant. They planned to convert the commercial space to accommodate a more desirable, and hopefully more profitable industry.

Before we could deliver funding, our underwriter had to make sure the investor’s plans were feasible over the long-term. Especially considering there’d be a relatively long wait until the property generated income.

Factoring in the reality of a schedule of works

Immediately, our underwriter gathered a schedule of works for the project. We saw that every single element of the conversion was accounted for while, individually, the tasks at hand weren’t complicated.

But, collectively, they would take several weeks to complete. Also, once the works were completed, it would then take another few weeks to secure tenants. As such, we looked into the borrower’s wider details to ensure our funding could be covered.

We saw they had several resources at their disposal, along with a clear refinance exit strategy at the ready. This reassured us but, for added security, we allowed for a longer term for this deal, which gave the borrower additional leeway.

Addressing a crucial need

The question of what to do with all our empty building still looms large in the UK, with our own research showing many want to see ramped-up efforts to amend the issue.

Fortunately, in the lead up to the general election, both of the main political parties have laid out plans to get building, and/or make conversions easier. At the very least, the needs of the market will likely force action over the coming months.

For our part, we will do what we can to support property investors planning to add to much needed supply levels. Whether that means providing purchasing loans for expanding landlords, auction finance to secure unappreciated properties, or conversion funding to bring rundown spaces back to life.

FAQs

What is the role of commercial to residential conversions in the property market?

Commercial to residential conversions are increasingly significant, especially when planning rules allow works under permitted development rights. Investors can tap into this opportunity to unlock extra value from properties such as shops or former offices by converting them into flats or residential units. We support this strategy because it can offer strong returns where traditional residential schemes may not be viable.

Which products do you offer for a commercial to residential conversion?

We can tailor both bridging and semi-commercial term facilities to support conversion projects. If you require immediate funds to acquire and begin works, a bridging loan offers speed and flexibility. If your project is more established and generating income, a semi-commercial term loan may suit better. We structure finance based on your stage, timescale, exit strategy and value uplift potential.

Why do you need the works schedule for a conversion?

We require a detailed works schedule so that we understand what needs doing, when and at what cost. That clarity helps us provide funds appropriately, releasing money at the right milestones, and gives us confidence that your conversion can be completed successfully within the agreed timeframe and budget.Do I have to have a tenant secured for my conversion to get a loan with you?

Not always. We appreciate that during conversions you may not yet have tenants in place. We assess each case individually, looking closely at local market rental demand, exit planning, and pre-let potential. As long as your projected rental assumptions are realistic and well supported, we could proceed even without secured tenants initially.