Converting offices and other buildings to PBSA

Why conversion is attractive

Converting an existing building, often a redundant office, into student accommodation can deliver beds faster and at a lower cost than a ground-up build, while reusing a structure in a city-centre location close to a university. With offices in many cities oversupplied and student accommodation undersupplied, conversion is a well-trodden route to new PBSA stock.

This guide covers financing a conversion to student accommodation as a property investment. It is not about a student maintenance loan or help paying rent.

Planning and change of use

Turning an office into student accommodation is a change of use, and it usually needs full planning permission. While permitted-development rights allow some office-to-residential conversions, purpose-built student accommodation typically falls outside those rights and is treated as its own use, so most PBSA conversions go through a full planning application. The planning position is the first thing a lender wants confirmed, because it determines whether the scheme can be built at all and on what terms.

• Change of use: converting an office to student accommodation needs the right planning consent
• Permitted development: limited and usually not available for PBSA, so plan for full permission
• Local plan and student-accommodation policy: cities often have specific PBSA planning policies
• Building standards: fire, amenity and space standards the conversion must meet

How conversion finance works

A conversion is financed much like a ground-up development: against cost and against the value the finished, let scheme will have. Lenders advance up to about 65 to 70 percent of total cost, capped at around 60 to 65 percent of gross development value, released in stages against build progress certified by a monitoring surveyor. Interest is usually rolled up. Where the building is bought before planning is secured, the site is often funded first with bridging, then moved onto development finance once consent is in place.

What lenders assess on a conversion

A conversion carries some risks a new build does not. Lenders look closely at the existing structure, because surprises behind the walls of an older building can drive up cost; at the planning position and any conditions; at the build cost and contingency; and at the location and student demand once finished. A clear planning consent, a fixed-price contract with a credible contractor and a sound demand catchment are what give a lender confidence in a conversion.

The exit

As with any development, the conversion finance is repaid at exit, either by selling the completed scheme or by refinancing. Because a student scheme needs to lease up before a term lender will refinance, a conversion is usually carried through lease-up with stabilisation finance and then refinanced onto a long-term investment loan once occupancy and income are proven. We line the exit up in advance so the funding plan runs through to the term loan.