United Trust Bank’s Bridging division was approached to assist with the purchase of redundant office space above a bank in a period building in Kent and to fund the works for its subsequent conversion into two apartments.
The borrower is a company experienced in property refurbishments with one of the shareholders a qualified surveyor. They demonstrated that they would be equal to the task by virtue of having successfully completed three similar projects.
Between exchange of contracts and completion the customer obtained planning permission for the change of use from A2 to C3 which paved the way for the office space to be turned into two 1,250 sq ft apartments.
The purchase price of the office space was £270,000 with the conversion works estimated to cost a further £125,000. The Bank’s valuer assessed the Gross Development Value (GDV) of the completed apartments to be in the region of £550,000 and the initial market value to be £250,000, both slightly less than the borrowers’ own valuations. UTB agreed to provide an initial advance of £162,500 representing 65% of the initial market value of £250,000, with interest of 0.95% per month being rolled up and added to the loan.
UTB also agreed to fund 100% of the works costs to be paid out in four tranches in arrears. The total facility, including the initial advance, loan fees, rolled up interest and works costs will total £315,000, representing 57% of GDV.
Even based on the valuer’s lower appraisal, the company anticipates a profit of circa £100,000 on the project, which represents a return of around 22% on development costs.
Gavin Diamond, United Trust Bank Commercial Director – Bridging, commented:
“This is an excellent example of how experienced property professionals can use UTB’s new Residential Property Improvement Loan to complete a project using a relatively small percentage of their own capital. By combining the Bank’s experience in both bridging and development finance we have been able to create an innovative, flexible and highly competitive product which will suit borrowers looking to fund a wide range of projects from straightforward refurbishments to more complex conversions and extensions.”