The Intermediary – April 2025 - Flipbook - Page 46
SPECIALIST FINANCE
Opinion
Financing the
commercial-toresidential boom
T
he UK’s real estate
landscape is undergoing
a major transformation.
With soaring office
vacancy rates, shiing
work paerns,
and a deepening housing crisis,
developers are increasingly turning to
commercial-to-residential conversions
as a viable solution.
Supported by changes in permied
development rights (PDR), this
trend is reshaping city centres
and unlocking new opportunities.
However, financing these projects
presents unique challenges, requiring
specialist lenders that understand
the complexities of repurposing
commercial assets into homes.
As remote and hybrid working
paerns persist, office vacancies
continue to rise, leaving
many commercial buildings
underutilised. At the same time,
the housing crisis shows no signs
of abating, with demand for homes
outstripping supply.
According to the Home Builders
Federation (HBF), 10% fewer housing
projects secured approval during
2024 than during the previous year.
Against this backdrop, commercial-toresidential conversions have emerged
as an increasingly popular solution.
The financing challenge
While office-to-residential
conversions offer clear benefits,
securing funding for these projects can
be complex.
First, many traditional banks
remain cautious and risk-averse when
it comes to financing conversion
projects, particularly in uncertain
market conditions.
Second, it is oen easier to build
from the ground up than convert
an existing building because once
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The Intermediary | April 2025
you start digging, you don’t know
what you’ll encounter. In other
words, conversion projects involve
unforeseen costs, such as structural
modifications or asbestos removal to
meet regulations.
Third, there are important cashflow
considerations when undertaking
conversions, because unlike new-build
developments, office-to-residential
projects may not generate pre-sales,
requiring flexible financing options to
cover ongoing costs.
Unlocking potential
With mainstream lenders oen
hesitant to fund conversion projects,
specialist lenders have stepped in to
bridge the gap.
These non-bank specialist finance
providers play a critical role in
enabling developers to successfully
convert office buildings, by offering
tailored funding solutions designed
to support developers throughout
the process.
Unlike traditional banks, which
oen take a more rigid approach,
specialist finance providers offer
the flexibility necessary to navigate
the complexities of commercial-toresidential conversions.
Specialist lenders assess projects
based on their potential and viability
rather than a one-size-fits-all
approach. This means developers can
access tailored funding solutions that
accommodate the specific needs of
their project, whether that involves
securing finance before full planning
approval, covering unexpected
construction costs, or bridging shortterm gaps in cashflow.
Specialist lenders also bring a deep
understanding of the development
process, allowing them to work
closely with borrowers to anticipate
potential risks and structure financial
ROXANA
MOHAMMADIAN-MOLINA
is CSO at BLEND
solutions accordingly. Many offer
staged drawdowns, ensuring that
funds are released in phases as the
project progresses, helping developers
manage costs effectively. They also
tend to have a more streamlined
approval process, which allows
developers to access funding quickly.
An example of this is BLEND’s
funding of a £1.5m senior debt facility
to support the conversion of an office
building into nine two-bedroom flats
in Radstock, Somerset. This project
exemplifies how specialist finance can
unlock the potential of underutilised
commercial spaces, helping to
deliver much-needed housing while
revitalising local communities.
Traditional lenders may have been
hesitant to back such a scheme due to
the risks associated with conversion
costs. However, BLEND’s sector
expertise and tailored financing
approach enabled the developer to
secure the necessary funds to complete
the project efficiently, ensuring a
successful transition from office space
to residential use.
To conclude, in a market where
mainstream lenders oen hesitate
to back unconventional projects,
specialist finance providers are
stepping in to bridge the gap, offering
developers not just capital, but a
true partnership that helps bring
conversion projects to life.
Specialist lenders’ willingness
to finance projects that fall outside
traditional lending parameters
makes them an invaluable resource
for developers looking to transform
redundant office spaces into highquality homes. ●
