Editor: In response to your article ‘Experts bemoan Tories’ plan for vacant high street units’, I believe the industry will have even more issues to bemoan if these plans go ahead.
Developers already have limited financing options; traditional lenders shy away from unconventional lending and property loans often fall into this category, with uncertain exit dates and values.
But in the case of repurposing the high street, many landlords will need to apply for change of use and/or planning permission, depending on the unit’s size. Many lenders have a blanket policy of no pre-planning loans, given the uncertainty of the outcome and the timeframe.
This leaves developers with the only option of notoriously costly, short-term finance provided by a niche market of specialist lenders who understand the planning process and can turn loans around in short timeframes.
Add a six-month deadline into the process, and the threat of a forced auction for a rental tenant ups the risk profile further, meaning lenders that can structure these loans will place much more emphasis on the track record of the borrower to deliver in a short timeframe, alongside its relationship with, and the track record of, the local council.
Ultimately, underwriting an asset that only has six months of guaranteed vacant possession is going to be difficult.
Focusing on a timescale rather than a set of criteria will only result in undesirable short-term solutions to achieve an extension, such as three-month tenancy agreements on a peppercorn rent. Yet if the auction is based on the highest bid, this will also be out of developers’ control.
Without answers to these questions, it is impossible to draw accurate conclusions, but it appears to be a very short-sighted solution that also cannot practically sit alongside the government’s recent extension of permitted development rights to commercial buildings, which requires properties to be vacant for three months prior to application.
It seems to be wrapping up good intentions in red tape, increasing administration for councils already struggling to deliver and leaving developers with very limited financing options.
Daniel Austin, chief executive and co-founder, ASK Partners