Funding options for permitted development

We recently looked at commercial property funding for turning former licensed premises into private dwellings. One of the ways to enable this kind of development is to invoke the government’s Permitted Development Rights (PDR).

Funding for developments under PDR is available with various forms of debt finance. These include (but are not limited to) property investment loans, commercial mortgages, commercial bridging finance and property development finance. Funding is available from a variety of lenders. One of the options is to seek exit-oriented debt finance from a specialist funder.

PDR might not always be feasible for developing some types of commercial premises like former public houses into residential properties. A popular alternative to this is the office-to-resi development. This was the reason that the government introduced these permitted development rights in the first place. PDR was made possible under legislation from the Department for Communities and Local Government legislation enacted in 2013.

Permitted development rights allow redundant office buildings to be converted into residential accommodation. The government changed the planning regulations to make the process easier in order to help alleviate the housing crisis. Property developers and investors have enjoyed a bonanza as a result. This has met with opposition in some areas, particularly in London, where planning authorities are using Article 4 of the planning regulations to block developments predicated on permitted development rights.

PDR means that offices can be converted into residential schemes without the need to apply for permission from the planning authority, although prior approval for the works must still be sought. Developers should apply to the local planning authority for a certificate of lawful development. The office building must have been used as an office prior to the legislation coming into force in May 2013. Redevelopments under PDR must also comply with building regulations to cover building standards, electrical and heating systems.

PDR was due to expire in May 2016 but was made permanent shortly before that date, creating opportunities for investors in the commercial and residential markets. It doesn’t look like it’s going to be revoked any time soon either – so there are still plenty of investment opportunities out there.

PDR is at its most exciting where there are office buildings which have not been used for many years as offices and there is no commercial take-up. A sensitive, high quality development of apartments can realise a quick turnover for private buyers.

In other areas, this can bring back into use dormant buildings which have the potential to deliver much needed housing stock for local authorities.

Vendors are obtaining PDR without vacant possession. This means that finance for development needs to be a combination of commercial finance and development finance to control the costs. With vacant possession building works can begin almost straight away, therefore costs are lower. Where vacant possession is not available there will be an increase in the costs of the scheme over time because the investors will not realise yields as quickly.

Although PDR are particularly aimed at urban areas there are also opportunities in rural areas where landowners are seeking to convert agricultural buildings into residential accommodation using permitted development rights. However, according to some reports this is problematic. Figures reported in Farmers’ Weekly suggest that between April 2015 and March 2016 only 226 such requests for approval were permitted.

PDR schemes are certainly a creative solution to the housing crisis and provide plenty of opportunities for commercial investment in areas where there is a glut of office accommodation. If you are considering investing in an office-to-resi scheme and need to know more about the funding options available to you please contact Richard Olsen or one of the team on 0203 327 0567 or email info@pegasusfunding.co.uk.

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