Monthly Archives: August 2014

Barclays backs private rented sector – in Ireland

Barclays Bank has advanced a EUR130m loan to fund the purchase of rental housing in Ireland. The funds have been made available to Irish Residential Properties Reit (IRES), a company floated on the Irish stock exchange in April.
IRES is backed by Canadian company Capreit, one of Canada’s largest residential landlords with more than 40,000 homes across its home the country. It raised EUR200m when it floated, and has already invested in several apartment blocks in the Dublin area, including the Marker Residences in the docks area, and Kings Court in the city centre.
IRES has said it aims to build a portfolio of 2,300 houses and apartments for rent in Ireland. “We are very proud that our lenders have shown confidence in IRES and extended a credit facility which allows the Reit to grow and achieve its investment goals,” said IRES head David Ehrlich.
Will Barclays also move into the UK rented sector in a similar way? Time will tell. The loan to IRES is secured against the company’s existing assets ie the portfolio of properties already bought with the equity raised by the April stock market listing.

Big hitters circle private rented sector

In a sign that the private rental market is growing in stature and has a healthy future with major growth coming, a pair of experienced property investment organisations are heading into the market, from both Canada and the UK.

Canadian investor Realstar is said to be taking a close interest in a London PRS project in Elephant & Castle. The 470 apartment project in a 44 storey tower has been advanced by Mace Real Estate, which had been expected to take the development forward with private rental partner Essential Living.

Realstar is a big player in the private rental market, having built up a portfolio of 30,000 rental homes in the Canadian market. It has already dipped its toe in the UK market, and according to Property Week magazine, is reported to have been looking for additional PRS projects to get involved in. The company already has other UK property investments in the hotel and student accommodation markets.

Also ready to make a play in the UK private rented housing market are property industry veterans Godfrey Bradman and Sir Stuart Lipton. Bradman and Lipton were the dream team behind Broadgate, which created an industry-leading office complex from railway yards and space above the tracks at London’s Liverpool Street station; Broadgate’s breathtaking scale, speed of construction and style of new, efficient office buildings kept the City of London in the game as a global financial centre.

Now, Bradman has established company UK Residential Properties, with Lipton and other senior, big hitters among its directors. The pair have yet to reveal their plans, but their track record suggests they could deliver a game-changing move. And their unrivalled connections mean they have the ability to pull together substantial funds, should they see an opportunity.

Who rents their home? Report breaks down demographics

The numbers of private renters in the UK now tops the number of social renters. The private rental sector has continued to grow in recent years, doubling in scale from 2 million households in 1980 to 4 million today. The growth means they are now more important as a group than social renters, whose numbers have subsided to 3.7 million today, from 5.4 million in 1980.

Three quarters of private renters are under 45 years old. As a group, renters are younger than both social renters and home owners. A quarter of them are couples with no children and 20% are single occupiers under 60. Just over a third are parents – 23% are couples with dependent children, while 12% are lone parents. Just 14% of rental homes are occupied as multi-person households.

The report also reveals that, despite the media’s frequent stories about “rogue landlords”, private renters are actually happier than social renters. Of private renters, 84% of those surveyed were either very or fairly satisfied with their accommodation, compared to 81% of social renters. They were also happier with the local area they lived in – 87% of private renters said they were satisfied, compared with 82% of social renters.

“Landlords are an easy target in the media with stories of rogue behaviour, revenge evictions and poor accommodation,” commented Graham Kinnear from Landlord Assist. “However, this survey shows that more landlords than ever before are providing good quality accommodation for their tenants.”

Unsurprisingly, given the need to save for a larger deposit nowadays, the average age of a first time buyer is increasing, and 25% of these buyers are now in the 35-44 age range.

US investor Oaktree backs £700 million PRS push

Investor Oaktree Capital Management is planning its first foray into the UK’s private rented sector, and will start by building a 120 apartment scheme in Lochrin Place, Edinburgh. The company expects to leverage an investment of up to £700 million into the sector over the next three years.

Oaktree is planning to use its existing team at Knightsbridge Student Housing to bring forward the new developments, reports Property Week. The team has promised five private rented sector schemes will be revealed shortly, and have pledged to start seven new projects each year, building significant momentum in the sector.

“We really believe in PRS and believe it’s a great fit with our work in the student accommodation sector,” Knightsbridge chief executive Robert Crompton told the publication; and he said there was clear logic in the move. “Look at what we do. We build the units, we run the units and we know how to look after our customers already. We will be successful in PRS because we already do it in the student accommodation market. It’s a natural next step for us.”

Knightsbridge is said to be looking at cities including Bath, Bristol, Cambridge, Oxford and Manchester where there is a good flow of young working graduates coming out of local further education establishments. Through its customer facing brand, The Student Housing Company, the group already has close ties with its upcoming target market.

Oaktree’s commitment to the UK private rented sector is an interesting call. The company has investments across a range of businesses internationally; in the UK it has funds invested across a wide range of property assets, in everything from budget hotel group Travelodge through to serviced apartments, offices and warehouses.

Housing associations make record profits from renting homes

Britain’s housing associations are making more profits than ever from social renting, while looking for alternative options to broaden their business base. Yet despite many of them being charitable organisations, they are gouging tenants with rents higher than they need be – and failing to build as many new homes as the marketplace needs.

In contrast, private sector renters are seeing rental growth pinned down, as struggling working tenants live in an unsubsidised world where pay rises are barely keeping pace with inflation. And private sector landlords generally have to pay tax on any profits they generate.

The actions of the housing associations are laid bare in a new report that suggests housing association chiefs need to reconsider their organisation’s mission; and recommends the regulator keeps a closer eye on profit levels within the sector.

“Housing association profits soared to a record £1.93bn last year, nearly ten times bigger than five years previously,” said Calum Mercer, one of the authors of A Better Deal for Nation Rent. “The excess profit has been made by housing associations raising rents above inflation, while costs, management, maintenance and debt service interest payments have been broadly flat in real terms.”

And report co-author Natalie Elphicke added: “Housing associations need to follow their guiding principles and not become bedazzled by the prospect of greater and greater profits.”

The report notes the following facts about housing associations:
many are charities and pay little tax on their earnings
profit margins on social housing average 26% and are set to rise to average 30% by 2018
between them they own 2.7 million homes
housing association profits have increased tenfold in five years
the largest 25 associations own 1.1 million homes between them, and are the size of FTSE250 companies

This site will carry more from this research in the near future, in the meantime the report, and its predecessor report Nation Rent, can be downloaded at:
www.millionhomes.org

Archway tower to be reclad for new rental apartments

Rental developer Essential Living has received permission to reclad an existing office tower in Archway, north London as part of a refurbishment to create 100 rental apartments.

The approval for the reclad was given by a government planning inspector, after the local authority, Islington, failed to determine RL’s application in due time. The recladding would, she suggested, provide “significant improvements to the appearance of the building”.

Reclad and resused - Archway Tower to be reborn as apartments

Reclad and resused – Archway Tower to be reborn as apartments

“We are delighted with the decision which will dramatically improve the exterior of Archway Tower and vastly improve the horizon for many local people. Our plans will bring the building back into use to the benefit of the local area, particularly business close-by,” said Rob Whiting, asset director at Essential Living.

“As the first UK company focused on creating a rental brand, we have a long term interest in our developments both in terms of how they’re built and how they’re managed. We are looking forward to providing a highly professional service to those who rent homes within Archway Tower, helping to drive up standards in the sector.“

Local authority the London borough of Islington has been generally resistant to the conversion of office buildings to residential use, a provision eased by the government to encourage the reuse of empty commercial buildings. Speaking in 2013 as it launched a challenge to the proposals, Islington’s executive member for housing and development, James Murray, said: ‘There’s a real danger that small offices across the borough will be lost to private housing, and tower blocks will have as many flats as possible crammed into them. Archway Tower is already being lined up to have a large number of small, sub-standard bedsits squashed into it, with no affordable housing.”

Work has already started internally on the refit of the building, with flats and common areas designed specifically with renters in mind. Flats in the 17 storey block – which should have stunning views over London – will be available to rent in 2016.

Berlin shows London the way to build rental market

The residential rental market in Berlin is growing rapidly, with potential lessons for those looking to improve the situation in London and other UK cities.

Like London, Berlin has been seeing a growing population, which increased by almost 50,000 from June 2012 to June 2013. Like London, the delivery of new homes is failing to keep up with demand – and rental prices are rising as a result.

Unlike London, the market and city authorities in Berlin are reacting, and new supply is being delivered. New building starts in the city in 2013 equated to 0.7% of the total stock, a figure fully 40% ahead of London.

A new report identifies a pipeline of 13,900 new homes for rent currently under development across 191 construction projects. Further projects are expected to come into the development pipeline, spurred on by local government. City authorities calculated 137,000 more new homes will be needed by 2025, or around 10,000 a year.

Breaking down the participants in the Berlin market, the research by Howoge and BulwienGesa identifies 63% of the projects originated by the private sector, 29% by municipalities, and 7.5% by cooperatives.

Rental remains the predominant home type in Berlin, with 86% of the city’s 1.9 million homes currently rented.
One way the city authorities have directly helped promote more building is by adding extra staff to district offices, and paying a bonus for each new approved home. Urban development contracts are used to help share the burden of local infrastructure, and the benefit of increased land values after development. More herer on how Berlin authorities are planning the growth of their city.

Tax office converts to private rented flats on Liverpool waterfront

A former government tax office on Liverpool waterfront is to be converted to private rented sector apartments by invester Moorfield Group and development partner Glenbrook. The project is an example of the imaginative reuse of unwanted office space, providing much-needed accommodation.

The £30 million project will create 240 apartments with one, two or three bedrooms, with the aim it will be “one of Liverpool’s best residential schemes”, according to Charles Ferguson Davie of Moorfield. Work starts imminently, and should be complete in September 2015.

The office block has been empty since 2012, when tax staff were transferred to other buildings. In March, permission was granted for the change of use to residential.

“This is a landmark asset in Liverpool’s thriving city centre, and part of a larger strategic push into the PRS sector for funds managed by Moorfield,” said Davie.

Velocity Village, Sheffield, a previous Moorfield private rented project

Velocity Village, Sheffield, a previous Moorfield private rented project

Moorfield is already working on a private rented sector development in Sheffield, called Velocity Village. There, a mixed development includes offices and 443 apartments, which are renting from £395 per month.

Essential Living uses design to set rental homes apart

Essential Living, one of the new breed of private rented sector developers in the UK market, is undertaking research and conducting focus groups in a bid to understand just what today’s home renters want. Everything is up for grabs, as the group tries to redefine home renting as a painless service, rather than a hassle.

Quentin Keeble, Essential Living’s recently appointed development director, says initial feedback has been invaluable in helping the company design its upcoming schemes. “What is already clear is the principle that a person’s home should begin at the door of the building and not at the door of their flat,” he says, in an opinion piece published in Property Week. That could include, for example, turning over a penthouse apartment to shared space for residents; while this would mean foregoing the additional rental from a flat, it could deliver an equivalent long term value by delivering a more attractive package for those renting flats elsewhere in the building.

Quentin Keeble of Essential Living - focusing on design that works for renters

Quentin Keeble – focusing on design that works for renters

Essential will be aiming to use good design to deliver apartments with:

* fixtures and fittings selected for their high quality rather than just a brand name

* high energy efficiency, to keep running costs down and make a clear statement about sustainability

* smart, functional spaces with good daylight that create the feel of a home.

By getting these items right, Keeble says Essential can combine low running costs with flats that people want to not just rent, but to stay in – reducing voids and marketing costs, and maintaining long term asset value.

“The concept of selling housing as a service disrupts a market that has, until now, stigmatised renting for the many reasons we’re all too familiar with,” says Keeble. “In the PRS there’s a genuine opportunity to change how people live.”

Essential is working up private rented sector projects across London, and in key commuter locations including Maidenhead and Croydon. Several of its developments will see former office properties adapted and converted to create new apartments for long term rental.

 

Major European deals give flavour of the way UK rental market could go

Two new housing deals in mainland Europe have given a flavour for the potential in the UK residential rental market, once institutional investors have a stake in the market.

Already the UK market has seen the Abu Dhabi Investment Authority back Fizzy Living with a £200 million investment, while Qatari Diar has backed Get Living London’s East Village rental properties in Stratford. But recent news from Holland and Germany shows how a much larger scale rental property market will encourage larger scale institutional investment, and the major portfolio deals that go with this. There is also the potential for these mainland European investors to step across the Channel and make investments in the UK, if they can see a liquid market with returns that meet their corporate requirements.

In Holland, Dutch investor Bouwinvest has agreed a deal to sell 723 homes to a joint venture involving Credit Suisse and Qatar Holding. With a transaction value of around EUR90 million, the portfolio includes 723 homes in 16 apartment blocks, with just over half of the units social rented, while the remainder are private rented homes.

“The changes in the rental market and the favourable outlook have increased the interest for investors in Dutch dwellings,” said Bouwinvest director Allard van Spaandonk. “This gives us an excellent opportunity to use capital to rebalance our portfolio.” As a result, Bouwinvest will reduce the volume of regulated rental properties in its portfolio to just 15%.

Bouwinvest has around 15,000 rental properties across Holland, mostly in open market rent and at the higher quality end of the market. It looks to provide those investing in the company with a return of 6%.

And in Germany, consolidation in the housing market has seen property company TAG Immobilien grow its rental homes portfolio to 70,000 homes, from owning just 4,000 in 2009. The portfolio is a mixed bag, including 32,000 homes in eastern Germany. Recently, chief executive Rolf Elgeti has been informally canvassing potential institutional buyers for the portfolio, according to German newspaper Handelsblatt. But Elgeti has said any offer will need to provide a good deal for shareholders.