Monthly Archives: June 2015

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Market starts to understand PRS development valuation

Andrew Yates, commercial real estate partner at Berwin Leighton Peisner, says the private rented sector is maturing, though there is still a short of stock for investors.

Yates says valuation, taxation and planning are all issues that those active in the sector are wrestling with, in a bid to establish a profitable model for development of homes for rent around the UK. While the market started in London, he now sees other locations in the UK providing attractive opportunities for those looking to build for long term rental.

“The market’s getting more used to whats going on in the sector. Ttinking is evolving and clarifying around how you value these assets, how you value a PRS block. That’s involving more approaches to valuation which are more like valuing a business than just an empty apartment.”

Speaking in an interview that can be viewed online at BLP’s website, he also notes that tax issues need careful planning, to maximise incomes in what can be tight margin business. And negotiations with local planners are also carefully finessed: “People again are getting used to the idea of what’s going on in planning, and dealing local planning authorities and negotiating better terms; often tied up with restrictive terms use covenants that mean you get a preferential deal on planning, but you have to commit to leaving the asset only available for PRS for a minimum number of years.”

Yates also notes that residential developers – and some of the traditional housebuilders – are now getting their heads around the opportunities that PRS presents. “One of the benefits is that by building a PRS block,, they can  sell it in one go, they can sell several hundred apartments in one transaction, and they they can move onto the next development. What they don’t have to do is plan for the slower release of apartments on an individual sale basis, so hopefully more homes get built much more quickly.”

One recent deal that illustrates the last point is the recent sale by Crest Nicholson of homes at its Bath development. There, investor M&G has paid £25.2m for a block purchase of homes for long term private rental. The pair are hoping to conclude similar deals at other development sites around the UK.

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Call for planning changes to support private rental

Ryan Prince, CEO at Realstar Living, has renewed calls for a change in the planning system, to support the development of dedicated private rented sector homes. Until such change happens, he insists the economics of development means not enough homes for rent will get built.

Prince says the private rented sector could probably add around 500,000 homes right away, and if rents were in the range of up to £1,000 per month, they would be full immediately. “So, why don’t we have it today? The answer is planning policy.”

Writing in Property Week magazine, he argues: “At present, the planning system is geared towards ‘private for sale’ (expensive) or ‘affordable’ (council housing for those in dire need). There is nothing of note for the independents in the middle.”

These “independents”, also called the “squeezed middle” by affordable home developer Pocket, are people in regular jobs, who in London can typically be earning between £25,000 and £45,000 a year. Working on the rule of thumb that no-one should be paying more than one third of their gross income in rent means, says Prince, a practical maximum of £1,000 rent per month.

With rental home builders such as Realstar fighting for development sites against housebuilders constructing for sale, there is little opportunity to buy land at a price that makes financial sense to build for these mid market renters.

Prince says his company does have one 225 unit apartment block in Stockwell, south London, that fits this description of “indy” housing. The block is full, at rents of around £250 per week. But he says he was only able to win the site “because of a quirk of history” that meant it had a sui generis flexible planning use – meaning no housebuilders could grab it.

The solution, says Prince, is for London’s next mayor to amend the planning system, either creating a definitive new use class for rental housing, or varying the current rules. He also wants to rename rental homes as “indy housing”, in place of PRS.

New Bailey development, Manchester

L&G invests £16m in Manchester PRS development

Legal & General has forward funded a development of 90 apartments for rent in central Manchester. The 10 storey block will be part of the New Bailey mixed use development, which English Cities Fund and Muse Developments is promoting on a site behind Spinningfields.

L&G won the £16 million project after open market bidding. The site already has planning permission, though some design revisions are now likely to make it better suited to long term rental block management. The scheme designed by architects AHR could start on site this autumn, with the potential for tenants to be moving in to the mix of one, two and three bed apartments before the end of 2016.

“The renaissance of Salford is one of the best success stories in UK urban regeneration,” said L&G’s director of direct investments, Laura Mason. “Situated in a waterside location, within walking distance of Manchester Piccadilly and 200m from Salford Central, we have the ability to provide a new class of rental accommodation, based off fair value rents but with a higher quality offer, and greater tenant service and flexibility.”

This is L&G’s second private rented sector investment, as the company recently took on a regeneration site in Walthamstow, east London where permission has been granted for more than 300 flats. The investor has said it will put up to £1 billion into rental homes over the long term, and is seeking an investment partner “with like-minded international capital” to grow what it expects to be a significant portfolio of private rented homes across the UK.

 

Proposals for the new Brent Cross development

Argent and US developer Related head into UK rental market

Established British development company and US developer Related have formed a joint venture to tackle major mixed use projects in the UK. The pair, working under the brand Argent Related, will be looking to grow a rented housing element to schemes they involve themselves in, drawing on Related’s US experience, where the company has more than 50,000 homes for rent.

Together, the two partners will pursue large schemes, building on Argent’s experience of creating urban spaces around the UK in locations including King’s Cross and Birmingham. “Related’s industry leadership in such areas as sustainability and construction supply chain, and expertise in developing and operating their portfolio of more than 50,000 build-to-rent homes in the US, will enable us jointly to deliver a significant contribution towards the homes London and the UK desperately needs,” said Argent managing director David Partridge. “Together we will be able to complete projects with the scale and impact to make a real difference, and keep Argent at the forefront of the UK property sector.”

The joint venture has already been selected by Barnet Council to deliver a substantial mixed use development on a 192 acre site south of Brent Cross Shopping Centre in north London. The pair expect to start work on the project in 2017, using a masterplan already prepared by architects Allies + Morrison; the site already has a planning permission for around 7,500 homes, 350,000 sq ft of retail space and 4.2 million sq ft of commercial space.

Residential property will be a key part of the pair’s interests – as the launch statement made clear: “Argent Related will develop open-market and affordable housing, offices, retail and leisure space, and hotels, with a commitment to sustainable and sensitive development. Drawing on Related’s extensive experience in build-to-rent developments and strong management capability in the United States, the venture will place a distinct focus on purpose-built rented homes, where the company sees great opportunity in the market.”

A flavour of what is to come can be gleaned from a visit to the Related Rentals website, where the company leases a range of luxury apartments and offers tenants a wide variety of supporting services.

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Sigma expands £1 billion PRS finance

Urban regeneration specialist Sigma has expanded its arrangement with Gatehouse Bank, to finance its expanding rental homes portfolio. Gatehouse will now support Sigma towards a larger target of 10,000 rental homes, to be developed over the next five years.

Sigma, which is listed on the AIM junior stock market, is already under way with a first phase of homes across Merseyside and Greater Manchester, investing around £106 million. A quarter of the planned 927 homes are already built or under way, with the first tenants having moved in to their homes in February 2015.

Sigma is working with Countryside Properties to deliver the homes, and is working with Direct Lettings (part of Shepherd Direct and linked to the Century 21 estate agency chain) to arrange rentals. It has also created DifRent, a lettings brand as its customer facing name.

“This is a significant moment for Sigma, which brings to fruition the work we have done with our local authority partners, Gatehouse Bank, Countryside and Shepherd Direct to establish our Private Rented Sector model,” said Sigma chief executive Graham Barnet.

“I would like to express our thanks to all our partners for their support. We see considerable potential to create one of the largest new build privately rented residential portfolios in the UK and I am delighted that construction of the first phase of over 900 new homes for rent across Greater Manchester and Liverpool is now starting.”
“We believe the joint venture with Gatehouse and our new partnership with Grainger plc firmly establishes blueprints for further large scale housing programmes across cities throughout England with other partners and additional local authorities.”

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British Land plans rental homes in Ealing

Landlord British Land will create 55 apartments for rent, as part of its makeover of the Ealing Broadway shopping centre. The flats will be converted from redundant office space at 54 Ealing Broadway, while adjacent offices and shops will be improved as part of the project.

Unusually for a commercial property company, British Land has committed to becoming a long term residential landlord. Its proposals state: “We will own and manage homes for rent, accommodated above the shops and in two additional floors on top of the existing building. These homes will help address local rented housing needs, provide a variety of homes for town-centre residents; and continue to be owned by British Land, which will be responsible for their up keep and condition.” As well as the additional floors, Crystal House will also be reclad in brick, removing the dated mirror glazing currently on the site.

British Land’s decision to convert offices in Ealing to flats for rent is not unique. Schemes at 64 Broadway and 16-20 New Broadway have recently sought similar conversions. The area is something of a residential development hot spot, with upcoming rail connectivity improvements via Crossrail, and nearby Berkeley Homes is building its Dickens Yard development with apartments for sale.

The company has spent the last few years gaining full ownership of the shopping centre development and its connected buildings, buying in separate ownerships to assemble the site.