According to residential development lender Silbury Finance, the project for which it has written its latest loan should serve as a ‘blueprint’ for using the permitted development rights that apply in England to transform obsolete office stock into housing.
Silbury, which is backed by US private equity firm Oaktree Capital, has provided a £24.7 million (€28 million) senior loan to residential developer Kingsbridge Capital to finance the site acquisition and conversion of a dated office building in the town of Bracknell in Berkshire, southeast England, into 150 sustainable apartments.
The loan is Silbury’s 16th since its launch in January 2021, bringing its total lending to £579 million across the retirement living and build-to-sell sectors. The firm is aiming to bring its total lending to £1 billion by the end of the year.
The underlying property, at 100 The Ring in the centre of Bracknell, will be transformed from a vacant office building into studios and one-bedroom apartments for sale, ranging from 415 square feet to 757 square feet, over seven floors.
The loan has a 20-month term and was provided at a loan-to-cost ratio of 88 percent.
A full planning application for the development was not required, because a ‘prior approval’ application had been made to the local authority to allow the modification of the building to go ahead.
In the English planning system, permitted development rights enable certain building works and changes of use to go ahead without the need for full planning consent. In August 2021, the UK government introduced changes to England’s general permitted development order allowing commercial, business and service premises – including offices – to be changed into residential without planning consent. Since then, some, but not all, local authorities have put in place rules to remove such rights from specific areas.
‘Lower construction risk’
Gavin Eustace, co-founder of Silbury, told Real Estate Capital Europe that projects that make use of permitted development rights can be attractive to property lenders. “We look at such loans as having lower construction risk because these are not ground-up developments,” he explained. “In terms of using permitted development, this project is a blueprint as to how to transform office stock.”
The loan is structured as an acquisition facility, with a tranche designed to find the construction period for the project.
Kingsbridge’s project appealed to Silbury because the building is well located and suits conversion into residential units, Eustace explained. The challenge in such projects is ensuring formerly commercial assets can be repurposed to suit residential use, he added. “It is important to look at the things such as the façade, the windows, how to divide the space – this does not always fit with residential use.”
Ensuring a suitable Energy Performance Certificate Standard Assessment Procedure score can be achieved for the completed scheme is also a consideration, as most conversions are of older office stock, which may not have been constructed with energy efficiency in mind. “Offices are measured according to BREEAM ratings, but residential is graded by EPC, so SAP scores need to be applied to determine the EPC rating.”
However, Eustace argues such conversions are a more sustainable method of delivering homes than ground-up schemes. “There is a lot of embedded concrete in these buildings, so demolishing them to create a new concrete core and frame is not energy efficient.”
The 100 The Ring project will see Kingsbridge retain the building’s existing frame and façade, with the interior of the building stripped out and subdivided. It will include 133 bicycle and 150 car parking spaces in the basement, plus electric vehicle charging points. The first homes at the scheme will be finished in the second half of 2024.
Across Silbury’s lending to date, it has financed schemes for 12 sponsors with a gross asset value of more than £887 million.