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Case Study: Transformation of a Derelict Property into an Apart Hotel

by | Sep 8, 2023 | Case Study, Clients

The investor, Cyril Thomas, discovered the property just before the COVID-19 pandemic. The building, previously occupied by squatters and in bad shape, presented a unique investment opportunity with the location in the heart of rapidly growing Colchester, combined with significant planned government funding and regeneration initiatives in the area, marked it as a potential hotspot for development.

Located near the town centre train station, the property will benefit from Colchester’s planned government investment of £19 million, promoting regeneration in the area. The building had large rooms, tall ceilings, and large sash windows, making it different from other properties in the area. These features improved its appeal and potential rental value.

During the pandemic, the investor secured a favorable purchase price due to the property’s condition and the seller wanting to sell quickly. An option agreement on the purchase was established, allowing time for property development. A COVID clause was inserted into the option agreement, extending the original two-year timeline a certain amount for each day of COVID-related shutdown. Ultimately, this resulted in the project timeline being extended by six months. This flexible approach accommodated delays and by negotiating the option agreement, the investor avoided immediate bridge financing expenses.

The investor undertook significant internal works, including replacing carpets with tiles, insulating walls, and transforming the interior spaces. The result was a collection of modern rooms. At the same time, a tenant was secured for the ground-floor restaurant, responsible for financing and overseeing the restaurant’s renovation. This collaboration provided added value to the project.

The investor installed keyless locks, giving access through fobs, mobile phones, or codes. This technology streamlines guest entry and provides a competitive edge. High-tech CCTV and these keyless locks mean the property can easily be managed remotely with minimal staff intervention. This approach minimizes running costs.

During works, CPC Finance was able to secure long-term finance from Shawbrook Bank based on the final anticipated Gross Development Value (GDV), rather than the original purchase price. This was because they could present a well-documented case including before-and-after documentation, photographs, a schedule of works, and proof of money spent. Overcoming the challenge of securing financing based on the GDV for a property undergoing renovation required close collaboration with Shawbrook Bank. Site visits and transparent communication between the investor, CPC Finance, and Shawbrook Bank helped bridge the gap. Navigating the financing process for a hotel property, especially during renovation and establishing the restaurant’s lease, required aligning lender expectations with the project’s potential.

The property now offers considerable flexibility in how it can be used. In addition to renting rooms out on a nightly basis, the investor could rent out the property as an Airbnb, easily convert it to an HMO or even studio flats. With nightly rents currently at £110- £155 per night and rising to £250-£300 once all interior decoration is complete, it is more profitable to rent out nightly than a longer-term rental which would bring in £900 per month.

You can also watch a video discussing this case study with the investor on YouTube. Make sure you subscribe to our channel to be kept up to date with our latest videos.

You can find out more about Cyril in our recent podcast episode. Cyril has been an active figure in the UK property investment industry for over 20 years and began investing in property in 2006. You can watch the episode on YouTube or listen to it on Spotify.