Monthly Archives: December 2014

Essential gets £20m from Venn to back conversion project

PRS developer Essential Living has agreed a £20 million debt facility from Venn Partners, to help it develop the Perfume Factory site in Acton. The project, converting the commercial premises into private rental homes, will deliver around 500 new apartments.

New private rental homes looking sweet at the Perfume Factory, Acton

New private rental homes looking sweet at the Perfume Factory, Acton

Alternative lender Venn will advance up to £20 million on a three year debt facility, with an option to extend for two more years.

Essential Living paid £30 million for the site in July, and is currently consulting with the local authority and nearby residents over the redevelopment. Completion is some way off, with the company not expecting to start work until 2016.

Venn has just been appointed to run the government’s Private Rented Sector Guarantee Scheme, which is destined to provide loans to encourage more private sector development of flats for rent. The Essential Living deal is not under this new regime, which is still be established.

This is not the first time that Essential Living has tapped alternative funding sources, specifically those that are inclined to support the private rented sector. Its projects in Maidenhead, Archway and Bethnal Green have recently received a £52 million loan via the government-backed Build to Rent fund. In that instance, RBS and the Homes & Communities Agency are supporting the three year funding.

Private rental landlords enjoy steady returns as rents firm

UK residential rents slowed in November, falling for the first time in eight months. But the trend remains modestly upward, giving landlords a steady return on their property investments.

The seasonal slowdown saw rents drop an average 0.2% month on month, according to Your Move and Reeds Rains. The average monthly rent is now put at £768 per month, up 2% on the same time a year ago.

“Not only are wages higher than a year ago and wider inflation dropping rapidly, but now rent rises are cooling once again too,” commented David Newnes, a director at Reeds Rains. “For those tenants still reeling after half a decade of financial pressure, a more affordable rental market is another welcome boost.”

The East Midlands is the strongest region, seeing rents continue to rise – they were up 1.7% from October to November 2014. In the South East, rents fell 2.1%, while in the North West they also dropped, by 1.2% month on month. Landlords in the East of England have enjoyed the strongest local market, with rents up there 6.7% year on year.

Property yields are around 5.1%, while total returns improved during the month and are now calculated at 12.8% for the last year. “Property prices have shifted to a more sustainable pattern,” said Newnes. “And that is only a good thing for landlords, just as it is for those looking to buy their own home.  Rental income is also steady – with average gross yields hovering just above their long-term 5% average for over a year now.  This makes buy-to-let a haven from the insecurity stalking other investments – though careful attention to detail, local knowledge and an eye for cash flow on areas like maintenance are always essential ingredients in realising the best possible return on any investment.”

“At this time of year big picture improvements are always tested, as festive financial pressures mount. But as a whole, 2014 has been remarkably positive in terms of the affordability of renting – which is just as positive a note to end the year on for landlords as for tenants themselves.”

Moda to deliver northern PRS projects

Moda Living, a joint venture between Generate Land and Caddick Developments, is staking its claim to be a major private rented home brand in the north of the UK.

Moda Living's logo - another new PRS brand for renters to seek out

Moda Living’s logo – another new PRS brand for renters to seek out

Behind the new name, the two companies have put in place a development pipeline that promises to deliver up to 5,000 private rented homes on sites in cities such as Manchester and Leeds.

The company’s flagship scheme will be in Manchester’s city centre, called Angel Gardens, and is forms part of the residential element of the masterplanned NOMA project, backed by the Co-operative and Hermes.

Angel Gardens will include a 36 storey tower

Angel Gardens will include a 36 storey tower

Angel Gardens will include 455 units, ranging from studio to three bed apartments in a block that includes a 36 storey tower, along with semi-private gardens. Tenants are promised facilities that include residents’ lounges, a cinema and business meeting space, a rooftop garden with barbecue area, fitness and sports facilities.

PRS homes with a garden

PRS homes with a garden

“The joint venture brings together an expert team that has authoritative sector experience in creating mixed-use communities and an excellent track record of delivering quality, award-winning developments,” said Johnny Caddick, director of Moda.

“Our development pipeline will focus primarily on UK cities which we feel present the greatest opportunities and as such we’re looking to set the benchmark for delivering a residential investment portfolio.”

“We’re already turning heads as we have more than 2,750 units under our control and we’re in negotiation on further sites in key regional cities including Birmingham, Leeds, Edinburgh, Bristol, Glasgow and Liverpool.”

Caddick explained the rationale behind making Manchester the starting point for its portfolio: “Manchester is the fastest growing population outside London. It is expected to significantly grow over the next ten years in both GDP and household disposable income terms by 31% and 29%, respectively. Moreover, with 28.4%, or 58,000 households in Manchester falling into the private rented sector – often with both poor quality and poorly managed accommodation – the prospects for rental growth, in this city, are substantial.”

Also in the pipeline are flats at Liverpool Waters, where an agreement with Peel Group will see a 40 storey tower contain at least 325 homes for rental.

Moda Living has hired agents CBRE to look for investors that the developer can work alongside. “The Moda Living platform for delivery and management, its product and geographical business plan and its significant “real” pipeline provides a quite unique opportunity for investors to co- invest,” said Chris Lacey of CBRE.

UK rents set for steady rise in 2015

Rental prices are expected to increase by around 2-3% during 2015 across the UK, underpinned by a continuing shortfall of supply against demand. Yet in central London, that rise could be as high as 10%, local agents in the capital reckon.

The countrywide prediction has been pencilled in by David Cox, managing director of the Association of Residential Letting Agents: “Simply put, we need more houses. Demand continues to outstrip supply.” He notes there will be some supply increase, with investors moving their focus from London and the south east towards the north of the country. Some “accidental landlords” – those who were forced to rent when homes they had bought slipped into negative equity – will be finally in positive territory, allowing them to sell.

In London, while the heat is coming out of residential sales, agent Marsh & Parsons believes it will instead be applied to rentals. “The rental market will be where much of the action takes place in 2015,” said the company’s chief executive Peter Rollings. “Those relocating to the capital for work are now biding their time before purchasing their own portion of London property, until question marks surrounding additional property taxes are erased.”

“This will push demand in the corporate lettings sector even further, and the biggest rental increases are predicted to be among one or two bedroom flats. Supply of rental properties looks set to be sustained, but any regulatory changes to tenancy fees under a new government could inflate rents artificially. The powers that be need to ensure that landlords are not spooked out of the market by unnecessary layers of legislation, and that aspiring property investors don’t take their money elsewhere.”

ARLA is also keeping a close eye on regulation in the sector. Cox said the outcome of 2015 general election could impact the private rented sector substantially. “The colour of the next Government will have a large impact on the rental market; particularly when it comes to regulation of the sector. ARLA would like to see a fully regulated industry to build a better, stronger private rented sector, which will help to eradicate the rogue agents who tarnish our industry. Labour is pro regulation but has also pledged to introduce three-year tenancy agreements with strict rules which will make it more difficult to evict tenants. This could see landlords pull out of the market.”

Cox sees some impacts from existing leglslative changes that still have to work through the market. “The recent Immigration Act requirements on landlords, which are being trialled in the West Midlands, may be rolled out more widely in 2015. Under the new Act, letting agents will be required to make ID checks to establish the immigration status of all prospective adult occupiers before a residential tenancy agreement is granted. Whilst establishing ID checks for all adult occupiers is effectively converting best practice to law, it may push some vulnerable tenants into the arms of rogue operators.”

New PRS developers to transform housing

Britain’s rented homes sector is about to enjoy a substantial transformation as newcomers to the market will, for the first time in a long time, construct blocks of accommodation specifically designed for rental.

In London alone, two million people live in rented accommodation, in 800,000 homes with rents totalling £300bn, noted Nick Jopling, executive director, property at Grainger’s recent results presentation. “That is a largely a portfolio that was never built for rent, it is a lot of it below standard and below quality.”

Grainger’s first new development is being built by Bouygues, in Barking, east London and will contain 100 flats. “There is considerable anticipation about this first build to rent project being handed over by Bouygues, six months early.”

“We think that when you put buildings like this that are designed for rent, and will be serviced for rent, they will not just be attracting new tenants in the market, but absorb existing tenants that are already out there.”

Grainger expects it will lease all the flats in the development over a three to four month period.

A second project, also in partnership with Bouygues will deliver 211 flats at a site in Pontoon Dock, in London’s Docklands. “It will be designed using the ULI design code, and there will be considerable attention to customer focus and to an effectively and operationally smart building, because that is what will drive the net incomes,” promised Jopling. He expects to be on site 2016.

Jopling said Grainger’s aspirations were to see the medium to long term growth of a market rented portfolio and “to be first and foremost truly national market rented landlord in the UK”.

One area where Jopling sees funding coming directly into the private rented sector is from the nation’s pension funds. At Pontoon Dock, the London Pension Fund Authority is backing the project. “There is an increasing attraction of funds like the London Pension Fund Authority,” said Jopling. “The local pension funds of the UK have over £180bn in reserve. I think you will see that on a more local level.”

The current issue in the market, he added, was the perception that the development stage different to that of the “stabilised stage”, when projects are completed and let. “There is plenty of appetite to own that stock once it’s up and built, but getting it up and built is quite a challenge. And that’s what many funds are looking at, at the moment.”

Greystar beefs up Europe residential team

US residential investor Greystar has strengthened its European team with two recent hires. The company has already made strides into the UK market, acquiring both private rented sector and student housing investments, and is looking to grow further both in the UK and in other key European markets.

Steve Zeeman, joining Greystar

Steve Zeeman, joining Greystar

Steve Zeeman has been appointed to lead Greystar’s growth into the Dutch and German housing markets, looking for both student housing and private rented sector opportunities. He joins from Dutch asset manager PGGM, where he was a senior investment manager.

Joining Greystar, Mark Allnut

Joining Greystar, Mark Allnut

And Mark Allnut has joined the group to help drive forward its growth in the UK private rented sector. Allnut was previously at housing assocation Thames Valley Housing, where he led that company’s creation of Fizzy Living, its dedicated PRS brand.

Government gives £3.5 billion loan boost to rented sector

The government has hired Venn Partners to oversee a £3.5 billion loan scheme to encourage development of private rented sector homes in the UK. Venn, through subsidiary PRS Operations Ltd, will be responsible for administering the loan scheme which is designed to get greater volumes of PRS homes built.

Venn was selected after a competitive bidding process. They will be responsible for establishing and managing the scheme, which will loan cash to landlords looking to invest at least £10 million in building homes for rent. The loan will be backed by the government, but the intention is that once properties are built and let, they will be purchased by long term investors and the loan repaid. While several major investors have said they will invest in PRS property, not so many are prepared to finance development risk, preferring instead to purchase ready built and rented stock.

Paul House, head of real estate and managing partner at Venn Partners, commented: “Attracting significant institutional investment to the private rented sector, which is now England’s second largest housing tenure, is critical to underpin its further expansion, improve standards and tenant choice and help increase the supply of new, purpose built homes to help address the UK’s overall housing needs.”

“Today’s deal with Venn Partners will secure a £3.5 billion investment in delivering homes specifically for private rent to ensure a range of developers across the industry get to expand into this growing market,” said housing and planning minister Brandon Lewis. “This is an exciting and important move that will help strengthen the private rented sector so that it meets the needs of tenants well into the future.”

Should demand for the government backed loans prove strong, there is a provision to increase the amount of funds from the current £3.5 billion to £6.5 billion.

Grainger makes plain its PRS ambitions

Listed residential landlord Grainger has made clear its ambitions to grow a portfolio of private rented sector homes around the UK, hiring a new big hitter.

Derek Gorman has been appointed as managing director of Grainger’s market rented assets, starting in January. Gorman was until recently chief executive of Get Living London, heading the business running the massive private rented estate created from the Olympic village in Stratford.

Derek Gorman is joining Grainger to head its PRS activities

Derek Gorman is joining Grainger to head its PRS activities

Grainger chief executive Andrew Cunningham called the appointment “a clear demonstration of the scale and seriousness of our ambition to be a truly national, leading market rent residential landlord. We look forward to benefiting from his wealth of industry knowledge and experience.”

“It is a pleasure to be joining Grainger, a company with a hundred year history as a residential landlord,” said Gorman, who has a remit to help grow the company’s platform of market rented assets.

And at a results recent presentation, Cunningham made clear the company’s ambitions: “There is very strong and growing demand for market rented properties, And in London over half of all occupiers are now tenants.”

Cunningham said the group would be looking nationally, not just in the south east. “We see opportunities in the regions of higher yields than perhaps in London, and there is a lot of government support for the private rental sector.”

He indicated his support for the recommendation in the recent Lyons review, creating a new, restricted type of planning permission specifically for private rented. “That is one of the things that will make a big difference to the private rented sector going forward. As soon as you get planning conditions or covenants that make sure that land will be used for private rented you will see a very good level of growth in that sector.”

While Grainger’s main business is in buying, holding and selling on tenanted properties, it already has a small but growing PRS portfolio. This market rented portfolio saw a 9.1% increase in new lets in 2013-2014 which, said Cunningham,“is a very strong performance, it is one area where active management pays dividends in terms of returns, so we’re always looking for refurbishment opportunities.”

Rental prices outside London now higher than in capital

Areas in the Home Counties are now more expensive for those renting their home, than areas of Greater London. A new survey reveals that four districts in the South East see private renters typically paying more than half of their income out in rent.

Three Rivers, South Bucks, Oxford and Forest Heath top the ranking of the 20 most expensive locations outside London. In Three Rivers, north of London, renters typically pay 54.3% of their income out on an average monthly rent of £1,372 per month. Even in East Dorset, ranked twentieth in the league table drawn up by the National Housing Federation, renters are paying out 43.1% of their income in rent.

rentercosts

The figures provide a contrast to those recently drawn together by Homelet, which showed how some cities away from London still provide great rental value for tenants. Private renters in Plymouth, for example, pay just 27% of their income in rents, while Welsh capital Cardiff offers good value with rents typically 29% of incomes.

NHF works to support housing associations, and blames the increasingly unaffordable rent levels on a fundamental shortfall in housing provision. It is lobbying the government to solve the shortfall in housing construction in the UK. Unless something is done, rents will continue to rise, it warns.

“Private renters today are getting a raw deal and are paying the price for a housing crisis that’s been decades in the making,” said NHF chief executive David Orr. “Unless we build the affordable homes we desperately need, ordinary working families and young people will continue to struggle to pay their rent, and will have less and less money left to cover basic bills like food and heating.
“We need a long term plan from politicians to put this right. We’re calling on all political parties to commit to end the housing crisis within a generation.”

Renters keen to deal direct with new PRS brands

With new brand names starting to emerge in the rental market, evidence is emerging that tenants are already seeking them out, in a bid to find their new home in London.

The news will provide a boost for new PRS operators, who are refining their offer for tenants and working out what additional services to include in their rental packages. What is immediately clear is that established names such as housing associations are trusted, and their new PRS brands stand to be well received by private renters.

Notting Hill Housing has reported a spike in inquiries via property listing websites such as Zoopla and Rightmove, since launching its new Folio private rental brand.

Folio London will take forward Notting Hill Housing's PRS activities

Folio London will take forward Notting Hill Housing’s PRS activities

The new PRS landlords all deal direct with their prospective tenants, preferring not to use traditional letting agents. And their rental deals typically avoid the additional costs that letting agents often add, such as referencing fees, check-in fees, and administration fees. Some letting agents in London have also attracted criticism for the small print in their agreements which allow them to charge a substantial fee when a tenant signs to continue renting the same property under a fresh agreement. Both Foxtons and Felicity J Lord have been criticised for charging fees of up to £500.

In contrast, most PRS landlords charge no sign-up or reference fees, and do not charge for tenants choosing to lengthen their rental period; some offer a longer tenancy agreement with the option for earlier termination.

The news lays down a challenge to letting agents and smaller buy to let landlords, as they will increasingly need to be transparent about additional fees charged, or do as the new PRS landlords do, and include them in the rental charged. What is clear, is that tenants prefer no surprises and no upfront payments, when renting – and they are now looking for a brand they feel they can trust.