Sui Generis Commercial Property
Sui Generis typically relates to property that has been built for a single dedicated purpose rather than a commercial property which could be used for a number of different uses. Common uses for these properties are;
- Petrol Stations
- Scrap Yards
The theme being that each of these is so unique in design that they are typically purpose built for that one specific purpose. Any change of use is subject to planning consent.
Funding Sui Generis
In simple terms a business operating from Sui Generis premises is no better or worse than any other. Whilst every business adapts over time, scrap yards and petrol stations continue to trade well. Theatres traditionally see an upturn during a recession whilst casinos and nightclubs continue to be regularly re-branded. My point being that in terms of trading there is nothing particularly different about businesses operating out of purpose built units.
The funding challenge comes from the security on offer to the lender.
A lender will look at security from a forced sale perspective. The more uses a property has the more in demand it is likely to be and the more saleable it becomes. This is where financing Sui Generis requires expertise. A piece of security that has limited alternative use is not considered favourably by many lenders which is the reason borrowing to purchase becomes more difficult.
The way to think of this is to roll your mind back to the old nightclub in town. The chances are that it changed names several times and stood empty for a while. The use of the property was limited to one purpose, several operators tried to make it work before the limitation on use lead to the unit being vacant. In all likelihood the nightclub was subsequently redeveloped as no viable use could be found.
Lenders don’t want to be left with a piece of security that nobody wants.
The problem with this approach is that many developers will see potential in Sui Generis properties. The properties are typically unique and offer something very different subject to change of use. Think of what your local town centre cinema is now, the multiplex has taken over with the art deco cinema now a restaurant, bar or something else.
How To Finance Sui Generis
There are typically two parts to this. Firstly that some experience is going to be required. Second that change of use is probably going to be required to be in place at time of purchase. If the developer has alternative security then the proposal is somewhat simpler.
The key is that the finance broker, agent and borrower need to liaise and work together. Agents are typically supportive in agreeing a sale subject to change of use. Most planning authorities don’t want vacant premises and they are slowly realising that change of use is not a bad thing.
If you want more details on how to fund a Sui Generis property then give me a bell.
By Dave Farmer