If you’re ready to take the next step and undertake some bigger projects, commercial conversions may be your next focus. However, whilst it may give you a heady rush of excitement to start a bigger project, your due diligence is even more necessary and can be a little different from the research you would do for smaller residential projects.
Take a look below at what necessary questions we ask, information we dig out and scenarios we work through when looking at commercial conversion projects with our sister company, Ashdan Estates.
Questions To Ask Yourself
Just like when looking at smaller residential projects, getting the basic information allows you to look at whether the project is viable and whether it’s a right fit for you. Additionally, like smaller projects, knowing the area, what the demand is, and your exit strategy all must be considered and should be some of the first questions you ask yourself. If you know, for example, that flats are in high demand in that area, then your exit strategy may be to convert the commercial project into various flats and either sell them or rent them. From there, a more in-depth look into the project can happen.
However, if flats or apartments are not in high demand in that area, what’s your strategy? What are you converting the commercial property into? Would a House of Multiple Occupancy (HMO) work well in that area? Maybe serviced accommodation? Or is it a viable option to refurbish the property into rental space for offices, or a local shop etc.?
Making sure to ask yourself what the demand is in that area is a good way to work out whether the project is viable. Additionally, asking estate agents in that area what they’re currently seeing within the market, in terms of demand for certain properties, can also give you a more rounded idea of the viability of the project and what exit strategy might work best.
Where did you find the opportunity? Did the opportunity present to you via an off-market source? An estate agent contact? Another developer?
Whilst you may think these questions are not relevant, you’d be surprised. If the opportunity came to you via an off-market source, did it come directly from the vendor or a-friend-of-a-friend who knows the vendor might want to sell but isn’t too sure? Do they have the contact details for the vendor? If it came from another developer, is it going to be a Joint Venture (JV) or is it solely your project? If so, why?
Additionally, if it’s a property which is up for auction, when is the auction date? Can you view the property and get the relevant information and documents in time to do a thorough due diligence process before the auction? Are you willing to go bid on the property within the auction? If it’s an auction property but hasn’t sold, why? Is this type of property not in demand? Is it the area? Is there something wrong with the property?
All these questions are to be asked either when first finding the commercial opportunity or when speaking to relevant sources for more information. But when viewing the property, further questions should be asked.
Surveys, which ones you’ll need and whether they have been conducted, what the vendor/estate agent know about the surveys carried out, and can a copy be sent to you are all relevant and crucial to the due diligence process. If an asbestos survey was to find asbestos in the property, this will add an extra cost to your refurbishment and conversion, as well as extra time for it to be properly removed by a professional. If there’s a structural problem, can a solution be found for this? Is it a recent problem or historical? Is it something which may add extra delay to the refurbishment? Knowing all this beforehand can help to paint a picture of what you’re truly dealing with and how much extra finance you may want to keep up your sleeve!
In addition, asking for the architects’ drawings and plans can give you a good insight into whether the plans and ideas you have would work etc.
What Surveys Do I Need?
Surveys and other crucial pieces of information can make or break a project, so it’s important to know which ones to get, why and when.
With help from our sister company, Ashdan Consulting, we are fortunate to know the different surveys needed when looking at bigger projects.
It should be said that all surveys should be carried out before any purchase process has begun, and by the professionals!
Firstly, a Condition Survey should be conducted by an RICS Building Surveyor. This survey is carried out to understand the condition of the existing elements of the building, for example the roof/windows/doors etc. It also highlights areas that may require work and ensures you know what needs to be refurbished before the sales process is started. It also allows you to have an idea on some of the bigger costs which you may not have known needed repair and highlights these within the budget you’ve set yourself.
If the Condition Survey has highlighted problems with the structure of the building, this leads to a Structural Engineer being commissioned for a Structural Survey to be carried out. The information that comes to light via this survey could very well mark the end of the project before it’s even started, if bigger structural problems are identified, so it’s important to have this survey done. If there are no structural problems identified within the Condition Survey, the Structural Survey is not needed.
Further to the above surveys, a Measured Digital Survey should be carried out, preferably done by an RICS Land Surveyor. This survey is essential to inform the architect of the dimensions of the critical areas of the existing building, which they will then use to develop their designs.
Included within the necessary surveys is an asbestos survey. There are two main types of asbestos survey which you, as a developer, should become familiar with. Firstly, an Asbestos Management Survey, previously known as a Type 2 Asbestos Survey. These are standard inspection surveys which are typically non-intrusive but may include sampling of suspicious materials. Additionally, there is an Asbestos Demolition and Refurbishment Survey, formerly a Type 3 Asbestos Survey, which are highly intrusive, and damage can and will occur to the property. For any project which requires minor and major fit-outs and strip-outs, a Demolition and Refurbishment Asbestos Survey should be commissioned. All asbestos surveys should be carried out by a registered asbestos survey company!
A final survey to be conducted is the survey of the existing services installations. These surveys determine whether the mechanical, electrical and plumbing installations are adequate in their capacity and condition to accept any new installations proposed. A similar process is done in smaller residential projects, and usually done by a developer, when viewing the property and looking to see if the electrics or boiler need updating.
Whilst I have listed above the 5 main surveys, to be done before the purchase, some including the Condition Survey, Asbestos Survey and the Structural Survey (if needed) are the most critical of the surveys. The other surveys are advantageous to your due diligence and for the project.
It should also be noted that, if the commercial conversion project has already had some of the above surveys done, you should ask for the surveys to be assigned to you, which means that you can then have a legal relationship with the organisation that undertook the surveys.
As you can see, looking into potential commercial conversion projects takes on a whole new level of due diligence and extra questions to answer. And as always, any project you as a developer seek to undertake should be thoroughly investigated and researched, and with commercial conversion projects, this can take extra time and effort!
The key is to get the right team of professionals around you who know what they are doing.