Pallas Capital has successfully secured an £8.2 million development facility designed to finance the conversion of a vacant educational building into a 98-bed purpose-built student accommodation (PBSA) scheme located in the heart of Leicester. This 27-month facility, structured at 70% loan-to-gross development value (LTGDV), will support the transition from the site’s previous educational usage (F1) through to the completion of construction.
The borrower, an experienced developer with a solid background in co-living schemes, plans to refinance onto a longer-term facility once the accommodation is fully let and generating income. Mark Witherington, Senior Originator at Pallas Capital, and Underwriter Ryan Houssart spearheaded the transaction, working closely with the developer throughout the process.
The Development Strategy
Change of use schemes require you to think beyond the construction itself. You need a clear vision of how the completed asset will operate, and having a strong grounding in PBSA provided us with the confidence to structure the facility around the borrower’s exit from the outset,” stated Houssart. The team’s underwriting approach took its cue from their extensive experience with PBSA, emphasising the operational performance of the finished project. They assessed expected occupier demand and income, bolstering Pallas Capital’s assurance in the borrower’s exit strategy.
Market Demand and Context
This transaction comes at a time when the supply of PBSA is insufficient to meet the rising demand. According to CBRE’s 2026 outlook for the sector, the UK continues to experience a structural shortage of student accommodation. The national stock has surpassed 700,000 beds, as reported by Savills. However, the development of new projects is hampered by escalating construction costs and a more selective planning environment.
Industry experts are increasingly advocating for the adaptive reuse of existing structures as a more feasible approach to increasing PBSA supply, rather than pursuing new builds from the ground up.
Local Insights for Confident Lending
Pallas Capital’s team operates extensively across the UK, not just in London, which is crucial for development finance. “Having covered the Midlands for 38 years, Leicester is my home city, so I possess an in-depth understanding of the local market dynamics, rather than relying solely on data,” remarked Witherington. He highlighted that while Nottingham, Leicester, and Derby may appear close geographically, they are distinct in terms of economic characteristics. This local expertise is essential for lending with confidence throughout the UK.
Pallas Capital intends to continue supporting the borrower as the project progresses towards completion and stabilisation, reflecting their commitment to fostering successful PBSA developments.