UNLOCKING SEMI-COMMERCIAL OPPORTUNITIES - COLIN SANDERS - THE INTERMEDIARY MAGAZINE
24.05.23
UNLOCKING SEMI-COMMERCIAL OPPORTUNITIES
By Colin Sanders, Chief Executive Officer, Tuscan Capital Limited.
The semi-commercial bridging space is a specialist area of the market which some brokers have chosen not to involve themselves in. I believe such brokers should rethink this approach, as it is full of opportunities for clients and is especially useful at times like these when the residential mortgage market is harder for brokers to operate successfully in.
Essentially, a semi-commercial property is a building or land that combines both commercial and residential elements. This typically features a commercial space on the ground floor and residential units on the upper floors. Examples of a mixed-use security might include a classic 'shop and uppers', consisting of a commercial unit with flats above or a pub with residential space on the upper levels.
There are a number of reasons why clients look to invest in a semi-commercial property. First, it can help diversify an investment portfolio by providing exposure to both the commercial and residential property markets. Meanwhile, the dual nature of semi-commercial properties can help to reduce the risk of vacancies, as the property can generate income from both commercial and residential tenants.
Semi-commercial properties can also often generate higher rental yields compared with purely residential or commercial, depending on the location and market conditions.
There are risks, of course. Void periods for the commercial element can be longer, and yet the landlord will still be paying rates and other charges. Also, semi-commercial properties typically require more time and money to manage, as by definition there are distinct residential and semi-commercial aspects to contend with.
Today’s market
While there is no avoiding the reality that the past couple of years have been challenging for the commercial sector, the fact that the nation has now largely reopened following the pandemic has seen demand for commercial space reinvigorated.
As a result, Tuscan Capital is seeing strong demand from landlords looking to diversify.
Our approach to funding for semi-commercial or mixed-use assets might surprise some brokers. Where a property is made up of both residential and commercial use, provided the commercial aspect does not make up more than 60% of the total square footage, borrowers may qualify for our most competitive residential bridging product range. Pricing is cheaper than when lending against commercial securities, and at Tuscan, we are able to offer up to 75% loan-to-value (LTV).
When undertaking our underwriting and risk assessment, we assess the quality of commercial tenancies while also understanding the strategy to enhance the yield or improve the quality of the commercial asset. We will also take into account any residential rental income via an assured shorthold tenancy (AST).
Our risk assessment of a semi-commercial asset is largely based on the proposed exit for our bridge. If the exit is a refinance, we keep a keen eye on the commercial term products available. We effectively underwrite the loan based on the likelihood of the commercial term refinance being both credible and viable to the client.
Where deals involve property which is predominantly or 100% commercial, we do offer a commercial bridging product which involves a commercially savvy approach to our risk assessment.
The commercial underwriting focuses on the asset and the viability of what the borrower is trying to achieve. Our commercial appetite does not reach far into development lending or securing against land with or without planning; we stick to what we are good at, leaving the land and development deals to the specialists in these fields. Clients can also take advantage of most elements of our FastTrack offering. Mixed-use units get the same approach as residential assets when it comes to auction purchase or refinancing.
Over the past nine months, Tuscan Capital has seen a significant increase in new business through our FastTrack proposition for residential bridging. However, it seems that many brokers are yet to take advantage of the fact that we can apply the same approach to many semi-commercial deals too.
We have worked hard on promoting our FastTrack proposition, but the true strength of our semi-commercial proposition remains a surprise to some brokers, and we hope to put that right over the coming months.
As the nation continues its recovery from the pandemic, the semi-commercial market has been given a boost, with local high streets bouncing back particularly well. With mixed-use assets offering better results than traditional buy-to-lets, clients need brokers to partner them with a lender that can help them to realise their goals. What are you waiting for?
Read the May edition of The Intermediary Magazine here.
For more information or to get in touch with the team, please contact us:
Call Us: 020 7846 9030
Email info@tuscancapital.co.uk
View our Regional Offices:
London Office
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Manchester Office
A range of case studies demonstrating examples of previously completed loans can be found here.