Monthly Archives: October 2014

Realstar bags Elephant & Castle PRS scheme

Canadian residential investor Realstar has agreed to forward fund what will be its first purpose-built rental development in London. The company will buy the Newington Butts scheme in Elephant & Castle, that includes 278 apartments for rent, and 179 affordable homes.

With the backing of Canadian investor Realstar, the Newington Butts scheme is to proceed

With the backing of Canadian investor Realstar, the Newington Butts scheme is to proceed

The £200 million deal means the stalled project will now proceed, with Mace as developer and builder of the project, which includes a skyline tower of more than 40 storeys. For Realstar, the project adds to its existing commitments in London, which now amount to more than 1,000 homes.

“In essence, we step in and fund the scheme,” said Realstar’s Ryan Prince, speaking to Property Week. “We are the funder and then the take-out owner.” Social landlord Peabody will take over the affordable homes within the development, once they are built.

“It’s a significant moment when an experienced Canadian investor in private rented homes does its first major rented deal in the UK,” commented Richard Blakeway, deputy mayor for housing in London.

The Richard Rogers designed project has been a long time coming. It was awarded to developer First Base in heady pre-recession days, but was mothballed with the recession due to a lack of funds. Contractor developer Mace and Essential Living were appointed by the Greater London Authority in 2013, but failed to agree a way to proceed together.

The delays have allowed the scheme design to be refined. Now, as a pure rental scheme, penthouse flats have been deleted from plans, in favour of more uniform apartments; and the total number of units has been reduced by five, as common areas become more of an issue, rather than squeezing in the absolute maximum number of front doors, the preference when building for sale.

 

 

Insurer Legal & General details PRS push

Insurer Legal & General has signalled it plans a major investment in the private rented sector, for the long term. Speaking at a MIPIM UK debate organised by Estates Gazette and sponsored by Macfarlanes, L&G managing director Bill Hughes said he foresaw a time when specially designed, specified and built homes for rent would form a significant part of the company’s investments.

Hughes also said he believes so firmly in the long term value of rental homes, that he does not see the need for planning incentives to help get development going; nor does he believe there will be the need for the safety net of open market sale, were the rental sector to develop problems – as some have argued for.

“We’re mainstream and large investors in the residential sector,” said Hughes. That investment was across all sorts of touch points, but he said of the private rented sector: “It’s an existing part of the future. It’s principally an urban phenomenon. The thing that matters to me the most, if you’re a long term investor, is that rental housing is a very attractive investment.” That did, however, require a long term time horizon, and good management.

Hughes said there was a major problem with the wider market right now. “The housing industry needs to deliver more supply. All forms of participant will need to do more. PRS is something that all forms of housing market participant should be looking at.” There were other issues to tackle, he believes, including helping the older generation downsize – “last time buyers”, as he called them.

“The UK will only ever rise to the challenge if buildings are built specifically for rent,” added Hughes, noting that such buildings may well be so different from blocks of flats built for sale, that they could not easily be converted. “My greatest concern is delivering suitable quality buildings at scale.”

He said that while others wanted the flexibility of a sale exit route as a safety net – something that a specific use class would conflict with – that was not his concern, so confident is he of the sector’s returns: “We will invest not expecting to have that exit route.” Changes to the planning system such as a special rental use class “are not the central question,” he added, saying there are signs local authorities are starting to think sensibly about their options.

Amstone makes major PRS bid in Salford

Developer Amstone Developments is angling to become a major private rented sector landlord, with an application to create a project containing more than 600 apartments in Salford Quays.

A submission to the local planning authority proposes 614 flats in five blocks of up to 15 storeys, on a site at Clippers Quay. With permission granted, Amstone hopes to start work on the former multiplex cinema site during the first half of 2015.

Amstone Developments plans more than 600 apartments for rent in Salford

Amstone Developments plans more than 600 apartments for rent in Salford

Amstone operations director Martin Halsey told Property Week magazine: “Our Clippers Quay scheme provides us with the launch pad to roll out our PRS urban village concept in other North West locations in the future.”

Amstone has already developed the XQ7 building in Salford Quays, delivering 262 apartments. And the company is active on a number of other residentially led developments across the north west of England.

Lipton says private rented sector can thrive without more support

Elliott Lipton, CEO of developer First Base, is convinced the sector can grow without the need for government or planning support.

“The position is quite clear – the market demand for rental product is huge – and growing,” said Lipton, speaking at a MIPIM UK debate organised by Estates Gazette and sponsored by Macfarlanes. He said that despite concerns over returns, and the apparent greater appeal of developing for sale, the sector could deliver. “We can clearly see you can achieve that yield, if you develop to rent.”

Lipton said there was “profound unhappiness” among tenants right now who were crying out for better, more professionally delivered homes. Poor treatment, insecurity of tenure and the poor quality of buildings were issues. And regrettably these are often driven by a desire for short term returns – the same problem that blights the housebuilding sector. The stock market pushes volume housebuilders to sell, rather than hold assets to create an income stream, he said: “There’s a huge drive for short term results.”

Lipton also sided with those against further government intervention: “We don’t need a separate use class, and we don’t need incentives.” Planning options were already within the statutes, he argued, and local authorities have considerable flexibility: “Part of the problem is that officers don’t always understand their powers.”

Runners up praised for private rented initiatives

Two projects in the outskirts of London were named as runners up in the MIPIM UK awards, announced last week, behind first choice Get Living London.

First off was London Road, Barking, a 100 flat development being developed by residential landlord Grainger and Aviva. Developed by Bouygues Development, the project includes an Asda supermarket beneath the flats, and is due for completion in the third quarter of 2015.

London Road, Barking, delivering 100 flats for long term rental

London Road, Barking, delivering 100 flats for long term rental

Also highly regarded by the award judges was Taberner House in Croydon, a 32 storey tower that will provide 230 flats converted specifically for rental. New PRS landlord Essential Living has agreed to forward purchase the project, while is being developed to designs by Make Architects. The block will be built on the former site of the Croydon council offices.

The 32 storey Taberner House project will provide 230 flats with commanding views across south London

The 32 storey Taberner House project will provide 230 flats with commanding views across south London

 

 

Realstar reveals UK ambitions for private rented portfolio growth

Ryan Prince of Canadian landlord Realstar believes the UK government needs to consider further incentives to develop the private rented sector.

Speaking at a MIPIM UK breakfast seminar, organised by Estates Gazette and sponsored by lawyers Macfarlanes, Prince said: “We see a big opportunity, but it’s going to need to get a lot of help to get there.”

The vice chairman international of Realstar noted that if there was going to be government help, then that would need to be judicious. He noted the experience of Canada, where the rental sector received a major tax incentive in the 1970s, which promoted much construction – though since the incentives expired, there has been insufficient further building at scale. The on-off nature of delivery was exacerbated by the subsequent introduction of rent controls.

“In the short term, that’s good for renters, in the long term that’s bad for renters,” as no new homes are built and the quality of the existing stock drifts downward. “By and large, rent controls have hurt the market.” Prince suggested the options for assistance might include a new planning class, or other financial incentives.

Realstar, which runs a portfolio of 30,000 rental homes in Canada, also invests in hotels and student accommodation. “We like anything with a bed in,” commented Ryan Prince, Realstar’s vice chairman international. The company has been in the UK for 12 years, invested in hotels including several Holiday Inns.

More recently it has started to build a UK rental homes portfolio, but Prince said the company had bought blocks of flats in distressed opportunities, with a good priced deal making the assets attractive. “We’ve converted bulit-for-sale projects into build-for-rent,” which is said was less than ideal. “The challenge now is how you convert a deal or two into a sector.”  “Rental homes are no different from hotels and student housing. You are valuing for yield. Inherently today I think the challenge is, housebuilders will make more money by selling. There needs to be a way to value on yield. In the current regime, it’s very difficult.” He believed the planners cannot be relied on to deliver PRS at scale.

Prince said that operational efficiency was a massively important driver to delivering good rental returns. In Canada, his company expects no more than half a day to turn around an apartment, while it operates at 99% occupancy.

There was some concern that the new brands emerging in the private rented sector are jostling for a market lead prematurely. “Brands come from delivery,” said Prince, and it was about handling the small “nickel and dime” issues well, to satisfy tenants. “Some of the branding in this market has gotten a little ahead of itself.”

Patrizia plans push into UK residential rented sector

One name expected to be seen in the UK private rented sector soon is German investor Patrizia. The company has a long history of residential investment in Germany, and recently started investing in the UK, initially in commercial properties.

The company was set up in 1994 and since listing on the German stock exchange, has grown substantially in the last decade. It is Germany’s third largest housebuilder, and invests substantial amounts of long term funds for other institutional investors from across Germany.

Today, the balance of Patrizia’s German portfolio is around half commercial, half residential – a model that is likely to be followed in the UK. According to a research paper put out by the company: “Residential real estate as an own asset class acts as a risk diversifier enhancing at the same time the portfolio return.”

“We have a business that was originally set up investing in residential and diversified into commercial,” said the company’s Andrew Pratt, speaking at the MIPIM UK event in mid October. Growth has led to Patrizia expanding its horizons, looking to the UK and the Nordic countries. “There was a desire from a number of our investors to diversify into a number of other countries in Europe. We’ve bought over £1 billion of assets since we’ve come into the UK.”

“We came into the UK in the early part of 2013 and started acquiring properties,” explained Pratt. “It’s quite interesting because not many people know of our business here.”

The company’s Anonio Marin-Bataller said no deals have yet been done to acquire UK residential property, but he indicated that several transactions are already in progress.

Westrock adds Bedford site to expanding PRS portfolio

Developer Westrock has bought a 110,000 sq ft office block in Bedford to convert to apartments for rental. It aims to have the Merton Centre ready for occupation by the end of 2015.

The building was bought for £4.7 million and will be converted to create 160 apartments with over 200 parking spaces, as well as a gym, and retail units.

As a result of the deal, Westrock’s PRS pipeline now adds up to more than 1,500 homes, while the company aims to double its numbers over the next two years. It has to date purchased second hand office sites in a number of provincial towns including Portsmouth, Exeter and Crawley – more details here. The company also recently added Dominic Martin to its executive team.

Award for Get Living London project

Get Living London, the private rental development created from the former Olympic athletes’ village in Stratford, has been named Private Rented Sector Project of the Year at the inaugural MIPIM UK awards. The award was presented by TV personality Clare Balding in a ceremony during the three day MIPIM UK event at Olympia, London on 17 October.

The judges made their award to the project in recognition of the project’s straightforward rentals without hidden fees or extras; the availability of long term tenancies of up to three years, with the flexibility of breaks; and the benefit of a direct relationship with the locally based management team seven days a week.

“We are delighted to receive this award which recognizes the company’s concerted effort to shake up the private rental sector through this exemplary project,” said Neil Young, Get Living London’s chief executive. “We are proud to be commended for the high quality of the homes and our provision of a service which we feel is currently unparalleled.”

Andy Martin and Neil Young of Get Living London receiving their MIPIM UK award from Clare Balding.

Andy Martin and Neil Young of Get Living London receiving their MIPIM UK award from Clare Balding.

The first units at Get Living London were handed over to the company in November 2013 and the company has recently announced its 1,000th resident moved in. The company is continuing to take on and rent additional units in the village, with a series of retail units now letting to local businesses, providing an additional benefit to the growing community.

Scottish housebuilders appoint private rented champion

The housebuilding sector north of the border has appointed Gerry More, former board member at Cala Homes, to help drive the development of the private rented sector in Scotland.

The appointment by Homes for Scotland is the result of an initiative started in 2013, which saw the industry body look at the rental sector. Research backed by the Scottish Government, and carried out by the Cambridge Centre for Housing & Planning Research, and the London School of Economics, identified a need for 465,000 new homes in Scotland by 2035. The Building the Rented Sector project identified the need for a “champion” to drive forward initiatives in the private rented sector, which is acknowledged as having a major role in the delivery of the housing needed.

More told the Scotsman newspaper the institutional investors have still to get into the PRS, but that there are examples of them taking a stance in similar sectors: “It’s not something that’s there just now, but if you wanted a good corollary it’s probably the student accommodation market. That’s a £20 billion sector, and we haven’t got anything similar in the private rented sector yet, but there’s a lot of interest in it.”

Other recommendations in the report were the establishment of a limited-time working party to identify and monitor pinch points in delivery; creation of a benchmarking system so that investors have better property performance information; and an analysis of who is in the rental housing market, to understand new opportunities more clearly. In addition, the report came up with several further recommendations relating to housing development, and in regard to how institutional investment can be matched with development.