The Asset Description
The building had once been five properties that had been merged into a single entity. When we took over, it was a +/-65,000sqft mansion with 40+ bedrooms, two commercial-sized kitchens and three swimming pools. It had been designed as a royal palace with large public rooms, five lifts, floors of bedrooms and also the family’s private apartments on the upper floors. It was fully equipped and ready to accommodate the family whenever they chose to visit their favourite overseas capital city.
Highest & Best Use
We carried out a detailed market study and created detailed financial models for returning it into town houses, serviced apartments, boutique hotel, Embassy and eventually concluded that we could achieve the highest exit by converting it into a select number of high-end apartments.
Development Management
Whilst we are active at the highest level of UK luxury residential market, we do not pretend to know it all. We then ran a competitive process wherein we invited a selection of the best residential developers who were all known to us to pitch to conceive, design and manage the redevelopment. The competitive proposals were gathered and analysed enabling us to make a recommendation to the principal.
House Clearance
The house was fully furnished from kitchen pots to pillowcases. The family didn’t want any of the furniture for its other homes so we arranged for the contents to be auctioned. On account of the nature of the decoration and style of the furniture, the well-known auction houses politely declined to pitch. We identified a specialist hotel clearance house and sold not just all the contents but bathroom taps as well! This provided a helpful cash injection to the project.
Planning Permission
Planning in the UK is a ‘dark art’ and things that you don’t think need planning approval do and vice versa. Delving into the planning history of the building, the development manager’s planning specialist was able to come up with a scheme for 13 apartments and because there had previously been five, the new count fell beneath the city’s requirement to pay any kind of planning gain.
Team Assembly
Curzon Land is a great organiser and knows what specialist attention needs to be applied to its projects. For this project, we engaged lawyers, insurance brokers, architects, engineers, town planners, party wall surveyors to name but a few.
It is essential to have the right team for the individual project and team assembly is one of our fortes.
Development Finance
Getting the right kind of development financing is essential. There are very few lenders that operate at the top end of the market and fewer still that will lend the amount that we needed when the target sales market, whilst strong is quite thin. Lenders are terrified of being left with unsold units because they are just not equipped to deal with hard real estate assets.
We were able to find financing from one of the client’s private banks and also from a UK insurance company that had a loan book. We chose the latter because it had fewer strings attached.
The lenders were very focussed on our development partner’s track record and ability to execute the project. This underlines the importance of picking the right team.
Day to day asset management
The house came with a skeleton crew of staff including butler, maintenance and security. Curzon land manage these individuals and paid their wages. We also arranged insurance for whilst the pre-construction process, this needed to meet the lender’s requirements.
Whilst not using much power, the building still had its utilities and we managed these payments and negotiated better deals with the suppliers and claimed refunds from providers for unused equipment. The house (being the size of a small hotel) had its own substation and we retained the capacity throughout the holding period.
Corporate Restructuring
The asset was held in a relatively obscure jurisdiction. The lenders required that it be held in a UK company and so we engaged lawyers and accountants to help effect the transfer leaving ultimate ownership unchanged.
We were able to provide all the due diligence on the corporate bodies when it came to selling the asset some years later.
Exit
As many of you will have read, we were just about to break ground on the redevelopment when an overseas party to whom I had sent the details of the property some time earlier appeared on the scene looking for his own grand house. The offer was less than the Gross Development value of the project but it would save our client the construction risk and we could have the funds ‘now’. A pragmatic decision was made to accept the offer.
As we had our own timeline, negotiations were fast and very detailed involving lawyers and accountants on both sides with us providing the deep knowledge on the project. At the time of writing, the price paid is the highest amount paid for a single dwelling in the UK.
Conclusion
Projects of this type are unique by their nature. Curzon Land acting as owner’s representative used its ingenuity, contacts and persuasive management style to navigate a path to redevelopment and ultimate disposal of the asset and overcome the obstacles that constantly presented themselves.
