Mixed-Use Development, Palmers Green

The developer, who had completed five previous residential schemes across North London, identified a tired single-storey retail unit on the Palmers Green high street with a large rear yard used for storage. The site presented an opportunity to demolish the existing structure and construct a four-storey mixed-use building with a ground-floor commercial unit fronting the high street and six residential apartments on the upper floors. The scheme also included four parking spaces at the rear accessed via an existing service road.

The mixed-use nature of the scheme created specific financing challenges. Many development finance lenders focus exclusively on residential schemes and are reluctant to fund commercial elements, particularly in a market where high street retail faces structural challenges. The developer needed a lender comfortable with the commercial component and able to value the scheme appropriately, taking into account both the residential sales values and the commercial rental or sale value of the ground-floor unit.

Planning had been a protracted process, with the initial application receiving objections from neighbouring residents concerned about the height and massing of the proposed building. The developer worked with the council planning officers to revise the scheme, reducing the top floor setback and improving the relationship with adjoining properties. Planning permission was eventually granted after an 11-month process, but the extended timeline had consumed a significant portion of the developer's working capital, making the need for competitive finance terms particularly acute.

The total project cost was approximately 3 million pounds, requiring a development finance facility of 2.1 million pounds at 70 percent LTC. The developer wanted to minimise their equity contribution as they were also progressing a separate residential scheme in Barnet and needed to preserve capital across both projects.

We approached a lender from our panel who had specific experience funding mixed-use schemes on London high streets. The lender recognised the strength of the Palmers Green location, with its established retail and leisure offering, strong footfall, and proximity to Palmers Green station, and was comfortable underwriting both the residential and commercial elements of the scheme. The commercial unit was valued on the basis of a pre-let to a local food and beverage operator who had expressed strong interest in the ground-floor space.

The finance was structured as a senior development facility of 2.1 million pounds at 70 percent of the total project cost of 3 million pounds. The rate was agreed at 0.75 percent per month, reflecting the developer's strong track record and the quality of the scheme. The arrangement fee was 1.5 percent, and the facility term was set at 18 months with a 3-month extension option. The initial drawdown covered the site acquisition and demolition costs, with seven subsequent tranches aligned to the construction programme.

To optimise the capital stack and reduce the developer's personal equity requirement, we also arranged a mezzanine facility of 450,000 pounds from a separate lender, taking the total leverage to 85 percent of costs. The mezzanine was priced at 1.10 percent per month and was structured as a second charge facility with an intercreditor agreement between the senior and mezzanine lenders. This structure allowed the developer to fund both the Palmers Green and Barnet projects simultaneously with a manageable total equity commitment.

The project was completed in 16 months, two months ahead of the 18-month facility term. The construction programme benefited from favourable weather conditions during the critical superstructure phase and the contractor's efficient site management. The total build cost came in approximately 2 percent under budget, with the savings primarily attributable to competitive subcontractor pricing secured during the tender process.

Five of the six residential apartments were sold off-plan during construction, with the sixth selling within four weeks of practical completion. The total residential sales revenue was 3.36 million pounds. The ground-floor commercial unit was let on a 10-year lease to the food and beverage operator at a rent of 38,000 pounds per annum, and the developer subsequently sold the commercial investment for 475,000 pounds, reflecting a net initial yield of approximately 7.5 percent. Total project revenue was therefore 3.835 million pounds, marginally above the projected GDV of 3.8 million pounds.

After repaying both the senior and mezzanine facilities and all associated costs, the developer achieved a net profit of approximately 520,000 pounds, representing a return on invested equity of 115 percent. The exceptional return was driven by the combination of strong sales values, the additional value created by the commercial investment, and the highly leveraged capital stack that minimised the developer's personal capital at risk.