Croydon Development Finance: 281 Unit Residential Scheme at Southern House Wellesley Grove Croydon CR0 1XG Enters the Pipeline

A large office to residential conversion has landed on the Croydon planning register, and it is one of the bigger single-building schemes our desk has seen in the town centre this year.

The application: scheme, units and status

Application 26/02309/GPDO covers Southern House on Wellesley Grove, Croydon CR0 1XG. According to the London Borough of Croydon planning register, the proposal is a change of use from offices (Use Class E) to residential (Use Class C3) to create 281 self-contained flats. The route is Schedule 2, Part 3, Class MA of the Town and Country Planning (General Permitted Development) (England) Order 2015, as amended. The application is pending decision.

Because this is a prior approval application rather than a full planning application, the council's assessment is limited to the specific matters Class MA allows it to consider: transport, contamination, flooding, noise, natural light to habitable rooms, and the loss of the office space. That narrower test usually means a faster route to a decision than a full application for a new build of the same size.

Where it sits in the Croydon pipeline

Southern House sits in the East Croydon office cluster, a short walk from the station. That location has been the main source of large conversion schemes in the borough since the permitted development rules were widened, and this application continues the pattern. At 281 units it is a substantial addition to the town centre residential stock, and it will compete for buyers and tenants with the other conversion and new build schemes already under way. We keep a running view of the borough's live applications and completed schemes on our Croydon development finance page, and this one moves straight to the top of the list by unit count.

The finance angle: what funding the scheme will need

Our desk puts the estimated gross development value at £74,465,000, a Construction Capital estimate built from the unit count on the planning register, which works out at roughly £265,000 per flat. That is a sensible average for one and two bedroom conversion units in this part of Croydon.

A scheme of this size will usually need three separate pieces of funding. The first is site finance to acquire or refinance the building while prior approval is pending. Bridging specialists will lend against an office building with a live Class MA application, though they price for the risk that the application is refused, so expect the leverage to sit below what a consented site would attract.

The second is the development facility itself. Specialist commercial lenders and challenger banks will typically fund conversion works at 60 to 70 per cent of GDV, which on our estimate points to a facility somewhere between £44 million and £52 million. A scheme of this scale is likely to need a senior lender with a mezzanine layer on top, or a single stretched senior facility from a lender comfortable with large London conversions.

The third piece is the exit. With 281 units to sell or let, the sponsor will almost certainly want a development exit facility to refinance the build loan once practical completion is reached, releasing capital and cutting the interest cost while sales complete or the block is let up and refinanced onto an investment mortgage.

Our read as brokers and what sponsors should line up

The prior approval decision is the pivot point. Until it is issued, lenders will treat this as a bridging case. Once it is granted, the funding options widen considerably and the pricing improves.

Sponsors on schemes like this should have the following ready before approaching lenders: a full cost plan for the conversion, a schedule of unit sizes with evidence that each habitable room meets the natural light test, a sales and lettings strategy for 281 units in a market with plenty of competing stock, and a clear exit plan showing how the senior facility is repaid. Our desk is happy to talk through structure and timing with any party involved in the scheme.