Opportunity for Transformation
In the bustling heart of the city, a traditional public house presented an exceptional opportunity for transformation. The ambitious vision was to retain the charm of the venue while converting its upper floors into a modern, 6-bed en-suite House of Multiple Occupation (HMO). This strategic refurbishment aimed to optimize the property’s potential and value.
Challenges in Financing and Planning
The project faced significant challenges, primarily in securing financing without pre-approved planning permission. This hurdle impacted loan terms and interest rates, making the financial aspect particularly tricky. The total project cost was £1.02m, encompassing a purchase price of £900k and refurbishment costs of £120k.
Strategic Project Plan
The initial phase involved purchasing the property for £900k, which included a sitting commercial tenant—a well-known pub. The tenant's lease allowed for initial revenue while planning for the HMO conversion on the upper floors. The project’s strategy was to maintain the ground and basement floors for hospitality use, enhancing the property's appeal and functionality.
Tailored Financing Solution
A bespoke financial solution was crafted, with a gross loan amount of £870,643 at a monthly interest rate of 1.06% and a 2% arrangement fee. This loan was designed to cover 70% of the purchase and 100% of the refurbishment costs, either on a serviced or rolled-up interest basis. The absence of planning permission initially increased the interest rate, highlighting the importance of obtaining approval to reduce costs.
Positive Outcome
The client secured a refurbishment development loan, which allowed for a higher loan amount than traditional products. This flexibility was crucial for the project’s success. The long-term strategy includes splitting the title and refinancing each part separately, anticipating a £60k annual income from the commercial lease and an additional £60k from the HMO, yielding a 7% return.
Conclusion
This case study underscores the importance of strategic financial planning and tailored solutions in complex hospitality projects. The successful transformation of this traditional public house demonstrates how effective financing can unlock a property's potential, ensuring a profitable and sustainable future.
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