A few days ago I went to visit a site, outside of London but along the M4 corridor; if you imagine a clock, it would be about where the hand hits 7:30.
The location benefits from the spill over of Slough and Reading. This was an office building, to be offered empty upon completion. Almost everyone including the postman and the baker knows about the office to resi PD rights available on office buildings; one can convert them into residential without the need for full planning. However, there is one recent proviso which developers need to be aware of, and that is the minimum space standards which have been introduced recently. This sets out the minimum sizes for a studio, 1 bedroom etc. Prior to this you could have done the whole building as small shoe box apartments. There is an argument to say let the markets decide, why should the government decide how big someone’s living or bedroom should be?
So, this building has the obvious PD rights associated with the existing office foot print. However, this is not the end of the development potential, which is what attracted us to this site.
The building benefits from a pitched roof, and therefore has the potential for a further, one or two floors to be added, thereby doubling the square footage. There exists legislation under PD to allow one to do this without going through full planning, some say however the process is almost as cumbersome, meaning there are just as many hoops to jump through. There is one important distinction though, there will be no S106 and CIL payments to be made under PD. This makes things a lot easier in being able to implement the permission gained and of course keeps the profit margin healthy.
This is not where the deal ends. Along with the building there is attached land, part of which has been used for car parking space. There is the potential to apply for new build development here. This will be subject to S106 payments, and of course will be a lot more expensive than a straight forward conversion.
This deal is good because once you have done the PD conversion of the office space and are cash flow positive with hopefully all or most of your money out, you could dip your hand in the honey again two more times.
The timeline associated with this deal is almost tailor made to it, the sellers want to complete half way next year. This gives the buyer all the time required to obtain not one but potentially all three of the planning permissions in place before completion. This is interesting because this would enhance the value of the property and a development funder could potentially lend the full cost of the purchase price and the build cost.
It would be unwise to enter the deal on this basis, as valuers often are a law unto themselves, even when valuing plain vanilla properties, let alone when assessing a development deal which has many more movable parts.
