Category Archives: build to rent

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Better Renting for Britain campaign launched

A group of developers, pension funds and housing associations have started a campaign to promote the private rented housing sector. It says potentially £30 billion of finance is looking to invest in the sector, and has called on the new government to get serious about promoting building for rent.

An open letter, supported by the British Property Federation and signed by scores of senior executives from the development and housing world, calls on the new administration to focus on the potential of supporting the private sector to deliver. It calls on the incoming government to address five key action points:

• implement a national policy so that local authorities identify the need for rental homes, and allocate land accordingly
• support a Build to Rent industry team to work with local authorities, getting schemes delivered more swiftly
• modernise the approach to delivering rented housing
• allow the sector to continue operating as a market – in other words, avoid new restrictive legislation
• work with the private sector to promote best practice and help with improving the perception of the sector
The letter in full can be read here.
Among those supporting the initiative is Martin Bellinger of Essential Living, who commented:
“Now it’s our turn to positively disrupt the housing market. Renting can and should be about making people’s lives easier, offering them value for money and long-term certainty enabling them to create a home.”
While Nick Jopling of landlord Grainger added:
“We want to see a rental market that provides long term options as well as good value for money and customer service. By supporting ‘build to rent’, the future British government can encourage companies like ourselves to help increase housing supply and improve standards of living in the rental market.”
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Villafont proposes Salford PRS block

Manchester developer Villafont Homes has put its first private rented sector development across the desk of planners in the city. The proposal will deliver 372 one, two and three bed flats in a block of up to 15 storeys high.

Villafont has committed not to sell off apartments to buy to let investors, something that has become commonplace in Manchester, as its lower property prices appeal to amateur investors. The Salford area has also become a hot spot for rental apartments, with several major blocks in the area providing private rented accommodation, designed to appeal to young professionals working in the city centre.

Villafont is hoping that planners will agree to its request for the regular affordable housing contribution – normally demanded from private developments – to be waived. Under the city’s existing planning tariff, 20% of the units would need to be given over to affordable housing. In addition, it aims to argue for a reduced Section 106 contribution to local environmental improvements.

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.

Essential Living gets £52m support to deliver PRS projects

Private rented sector developer Essential Living has received the first payment from the second phase of the government’s Build to Rent fund. The company will get a £52 million loan via Royal Bank of Scotland and the Homes & Communities Agency to fund projects in Maidenhead, Archway and Bethnal Green.

The three year loan will enable the developments to proceed, getting the first apartments complete for renting in early 2016.
Essential Living has set out to convert office buildings or develop new properties, designed from the outset for rental. It has already received £150 million of backing from investor M3 Capital Partners to start its development programme.

 

Reclad and resused - Archway Tower to be reborn as apartments

Reclad and resused – Archway Tower to be reborn as apartments

The company has received permission for the conversion of its Archway office tower to flats. But in Swiss Cottage, its bid to build a new residential tower has hit a problem, with its planning application turned down after local people objected to the bulk of the proposed development.

Essential Living plans a new, 24 storey residential tower in Swiss Cottage

Essential Living plans a new, 24 storey residential tower in Swiss Cottage

“This funding will help us spread our existing equity even further, enabling us to develop our pipeline of 5,000 homes for long term rent quicker,” said Essential Living’s Daryl Flay.

“There’s a genuine need for the old-style housing market to be disrupted. Renters deserve certainty, great customer service and above all, the confidence to make a place your home and trust in your landlord. We want people to feel they’re at home the minute they walk in the building and this underpins our focus on creating a new style of living with a host of amenities and shared spaces encouraging community living for today’s renters.”

And Phil Hooper of RBS commented: “We are delighted to be supporting Essential Living with these first three schemes alongside the HCA. We hope that this senior debt support will lay the foundations for delivery of a significant PRS development pipeline.”

Build to Rent was established by the government in 2012, to help accelerate private rented sector development. An initial £700 million was topped up more recently to £1.1 billion. Funds are advanced as a repayable loan, potentially easing the funding of construction in situations where development finance may be harder to find from other sources.

“We’re determined to create a bigger, better private rented sector so I’m pleased that we’re working with Essential Living to deliver newly-built homes specifically for private rent,” said housing minister Brandon Lewis.

“Thanks to a contribution from our Build to Rent fund and RBS, 300 homes will now be built across Bethnal Green, Archway and Maidenhead for new tenants. Essential Living is the latest company to move into this new and growing market for private rented homes and I hope others follow in their footsteps.”

Inland Homes signs US investor to boost its PRS programme

Housebuilder Inland Homes has agreed terms with a US investor to back its recently launched foray into the private rented sector. The signing of heads of terms suggests a boost to its activities, which launched with an April announcement that it would build to rent at its Drayton Garden Village development near Heathrow.

The unnamed investor will back Inland’s initial PRS project, which is set to increase the scale of the rental element at West Drayton from an earlier 123 unit commitment, up to more than 200 homes.

Inland chief executive Stephen Wicks suggested the deal would lend scale. “We hope this will be the first of quite a few such developments,” he told Property Week. “We’ve got land in the right locations across the south to play a significant role in the sector.”

In April, Inland secured one of the government’s Build to Rent loans for its West Drayton project. The £8.7 million of financing means work is already under way on a phase of 123 one and two bedroom apartments, which are destined for long term rental. The rental apartments will sit within a larger 773 home development at Drayton Garden Village, where the remainder are being sold as they are developed.

Inland, which was established in 2005 and is listed, recently reported a 66% improvement in profits for the year to June 2014. It has a land bank of 3,743 plots with a potential developed value of £1.1 billion. Among the sites with potential for PRS development are Woolwich, where Inland has permission for 152 flats, Ashford Plaza, also with permission for 152 units, and an infill site in Acton.

Government action demanded to support private rented sector

Two separate calls have come from those in the property industry, calling on the government to involve itself actively in the promotion of the private rented sector. Only with this level of support, they argue, can the sector gain traction, and help solve the UK’s housing crisis.

Agent GVA suggests three initiatives, to help the housing market. In its Development Outlook for summer 2014, the firm suggests there needs to be:

* a substantial expansion of the new town/garden city initiative

* further stimulation of the private rented sector “on sites less suitable for owner occupier housing”

* more public sector affordable homes

However, the researchers at GVA are under no illusions: “All these initiatives would require increases in government expenditure, which seems unlikely to occur in an era of public sector cut backs.”

That said, the government has previously committed itself to substantial support for the housing market including Help to Buy, Funding for Lending, Build to Rent and Get Britain Building. It’s just that, together, these initiatives may have helped in some way, but do not appear to have solved the key issue.

Meanwhile, PRS developer Fizzy Living believes it is only a change in planning law that will help move things up a gear. The company’s managing director Harry Downes says rental housing needs its own planning classification. “We need to get tot he point where the government, local authorities and planners understand the PRS,” he told Property Week, “where it has its own planning classification and where it forms part of a section 106 agreement.”

Downes has suggested his firm would bind itself to work with local authorities, introducing such restrictions as a cap on incomes for those eligible to rent. “If the government is serious about solving the housing crisis, then it just has to give local authorities the policy to make it happen.”

Housing minister defends pace of rental programme progess

Housing and planning minister Brandon Lewis has jumped to the defence of the government’s efforts to promote the private rented sector.

“Thanks to our dedicated Private Rented Sector Taskforce, we’ve identified more than £10 billion in potential investment for homes specifically built for rent,” says Lewis in a letter to the Financial Times, just published. He insists the £1 billion Build to Rent fund, designed to pump prime development of long term rental housing, “is well on track to have contracts in place for up to 10,000 new homes specifically for private rent by March 2015″.

Lewis’s decision to leap to the defence of government initiatives comes after a critical article in the Financial Times, published on July 29. That article noted the failure of a £7 billion guarantee fund, half to support affordable housing development and half for private rented projects. “Whitehall had planned to back investors who bought rented homes, but the structure of its guarantee did not cover the construction period, which is seen as the riskiest part of the housebuilding process,” said the FT.

Emma Reynolds, Labour’s housing spokesman was quoted being critical of the scheme’s failure, while James Coghill of Savills also noted that the market had failed to be inspired by the government plan.

Separately, the Build to Rent funding – a loan from government that will have to be repaid – has seen some take-up and was described by Coghill as a “catalyst”. That initiative has not been without criticism, however, and required developers to bid for a tranche of funds, then wait for due diligence to be completed. The complicated nature of the scheme has, according to other reports, pushed some developers to choose open market sale instead as a simpler exit from housing projects.

In his letter, Lewis insists the original article “portrays an inaccurate picture of our efforts to build a bigger and better private rented sector.”

Genesis plans further private rented sector growth

Housing association Genesis is one of the small numbers of organisations from that sector that has committed to growth into the private rented sector.

The group is looking to build around one third of its 1,000 homes output a year for outright sale, or market rent, according to chief executive Neil Hadden. The balance will be its traditional affordable home format, or some form of intermediate tenure, usually shared ownership. It is already building projects to the private tenure formats in Chelmsford and Barnet, and is looking to exploit the government’s Build to Rent funding programme to advance projects.

Housing associations are – as a group – suffering. The grants being offered to develop homes for rental in the subsidised sector – to those on local authority lists – are reducing. They can borrow from the financial markets, but that has a greater cost long term. Or there are alternative parts of the housing market they can get into, to create additional revenue streams.

Among its peers, it appears that currently the majority of housing associations are shy of taking such a directly commercial move such as moving into the development and management of private rented sector homes. However, some others are getting involved, such as Thames Valley, which has set up arms-length subsidiary Fizzy Living to develop a private rented sector brand and portfolio of property.

Genesis looks after 33,000 homes across London and the south east, including 401 market rent apartments in the Halo tower development in Stratford, which the group sold to investor M&G in a sale and leaseback deal in 2012.

“The reduction in public subsidy for affordable housing has meant we’ve had to look at different ways of providing that subsidy,” Hadden told Property Week recently. “Getting involved in more commercial activities is one way of providing funding to bridge that gap.”

Genesis has already successfully tapped into the government’s Build to Rent funding pot, winning a £45.5 million bid in April this year, to help fund the development of 485 private rented homes – more here.

Tax threat to private rented sector growth

Developers active in the growing private rented sector are warning that tax changes proposed by the government could drive away essential foreign investors.
A consultation currently open to responses suggests introducing Capital Gains Tax on the sale of UK residential property. This could apply, it is suggested, even if the investment was made through an overseas fund, a vehicle that is currently exempt from a CGT charge.
“The government needs to make it very clear that it wants to encourage institutional investment,” said Bruce Ritchie, the chief executive of Residential Land, speaking to Property Week. The developer has built a substantial portfolio of rental properties in London, supported by overseas investors. “Foreign investors bring billions of pounds into the UK. At one end of the spectrum, it is saying that we need more homes and at the other, it’s thinking about taxing foreign investors.”
Also wary of such changes are developers Delancey, Capital & Counties, Land Securities and Grainger, all of whom have made responses during the consultation process. “It’s a very vulnerable time for this market,” said Grainger. “The government should not put securing investment at risk.”
The British Property Federation warns that the progress already made in the sector could be undermined by changes. “Imposing a further tax is very likely to act as a deterrent to those making large scale investments in the UK’s housing stock.” said the BPF’s Ian Fletcher.
The comments around the tax change contrast with views expressed just days ago about the progress of the private rented sector. Speaking at a recent conference and reflecting on the impact of the first year of the Build to Rent fund, Fletcher noted: “Good progress has been made in a short period, and initiatives such as the Build to Rent fund have helped in establishing the model and encouraging delivery. Projects on the ground are being delivered and there is real momentum coming from various players to put in place the market infrastructure that will further help to attract investors.”

Be:Here bids to join the leading brands in private rented sector

Be:Here, the private rented sector development arm of construction group Willmott Dixon, is another new brand looking to make its mark as a professional landlord in the blossoming sector.

The company, which is on site with projects in Hayes, west London and in the London Docklands, will build apartments specifically for renters. And speaking at May’s Forge event in central London, the company’s operations director Simon Chatfield explained some of the company’s thinking.

“At the moment, the PRS is not delivering what renters want,” he insisted. Its ideal is to build two bedroom apartments with equal size bedrooms, ensuite bathrooms and walk-in wardrobes. “We’ve got a pretty good idea what renters want,” he added. “It works incredibly well for people sharing.”

 Be:Here's London docklands development is under construction

Be:Here’s London docklands development is under construction

The sector will continue to be dominated by small, buy to let landlords, he predicted. “But you are going to see the emergence of branded landlords.” These brands will provide longer leases, create private rented communities, and deliver a range of value added services, taking care of dry cleaning and other community support items.

One issue the sector faces, he noted, is competing with developers building homes for sale. PRS has to fight for sites, bidding against those delivering into a frothy residential sales market. “This is our biggest challenge right now, we think it’s viable, but it’s competing for land in a market that’s overheating.” The lack of any distinction in planning terms is one issue holding back the growth of the sector.

Be:Here believes their market is in London, and in suburban locations with up to a 45-60 minute commute to the centre. However, Chatfield cautioned about trying to build too densely in locations where there would, ultimately, be insufficient value.

The company has just completed a forward sale to long term investment clients of Invesco, at its Hayes development – details here. Speaking at the announcement, Andrew Telfer, who heads Willmott Dixon’s development division, gave a clear commitment to the scale he sees Be:Here developing in the PRS market:  “We see this type of investment at scale as an essential part of creating a more sustainable housing market in the UK.  It’s also an important milestone for be:here in its plan to create over 5,000 PRS homes over the next few years, something we are well on track to accomplishing with this and further projects now in the pipeline.”