Category Archives: planning

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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.

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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Willmott Dixon adds Barking PRS site

Developer Willmott Dixon has agreed to buy a site for 650 private rented homes in Barking, east London. The flats will be developed under the group’s Be:here PRS brand, occupying a 3.88 acre site adjacent to a planned Sainsburys supermarket.

The site has been bought from Estates & Agency Group, which previously won permission for the supermarket development on the Abbey Retail Park site. “Barking is a key milestone in Be:here’s plans to create vibrant rental communities at scale across London and other major cities,” said Andrew Telfer, chief executive of Willmott Dixon’s development division.

The addition means Be:here now has a pipeline of around 1,300 private rented sector units, including a development at East India Dock, which is just completing construction and will shortly be let. It is also under way with another project, this time in west London at the Vinyl Factory site in Hayes.

Iain Murray of Criterion Capital

Land must be unlocked to solve homes crisis

Guest post from Iain Murray, Director of PRS at Criterion Capital

As we head towards a general election politicians of all hue are finally acknowledging the severity of London’s housing crisis. The variety of economic, social and geo-political forces that have colluded to create this crisis are too complex to solve in one fell swoop, but there are incremental changes that can, and should, be applied to alleviate at least part of the problem.

There is a received wisdom that the current housing crisis is at least in part down to a constraint of development land. Yet, as well-developed as London is, there is no real shortage of available land. All 33 London boroughs have pockets of space available that they have not yet had the vision or incentive to convert into development opportunities.

Recent well-publicised initiatives, such as the Government Property Finder and Permitted Development Rights have gone some way to unlocking land and encouraging development in some areas, but there is still a long way to go.

London’s population is set to reach 11 million by 2050 and the current rate of housebuilding in the capital is worryingly out of step with this projected growth. Given that home ownership is increasingly beyond the reach for all but a minority of under 35’s and that London’s new inhabitants are likely to be younger, it stands to reason that there is growing pressure on the build-to-rent sector to deliver a significant volume of new homes.

Heavyweights such as Legal & General have stated that they are committed to investing £1bn into the sector, yet this has yet to convert into new homes ready for people to move into. At Criterion Capital, we have a pipeline of 4,000 units for delivery by late 2016 in areas such as Basildon, Croydon and Sutton and are actively looking for more development opportunity. In short, the demand is there but, as an industry, we just can’t build it out quickly enough.

Despite the weight of capital heading towards the sector, we have still not seen the level of development required to alleviate the housing shortage. We know from experience that the large institutions have an appetite for investment, but there aren’t currently enough development opportunities to build enough product, quickly enough to deliver the required scale.

This is where both central and local government must take a proactive stance in encouraging development in the build-to-rent sector. Unlike the traditional housebuilders, build-to-rent operators cannot be accused of siting on landbanks and manipulating values through a lack of development activity. To succeed, they need product out of the ground and generating income quickly. By any measure, this should sit comfortably with a government that needs to house a growing population in accommodation that is fit-for-purpose, sustainable and responsibly managed.

If this sounds too tall an order, let us remember that London’s government recently oversaw a powerful development corporation with the power to over-rule individual boroughs and unlock huge swathes of land for development quickly to facilitate the London 2012 Olympics. If this could be replicated to ensure the speedy delivery of much required new homes throughout its boroughs, that really would be a lasting legacy.

Iain Murray
Director of PRS at Criterion Capital

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Grainger adds two Hampshire PRS projects

Grainger has won planning permission for two major build to rent developments in Hampshire. The schemes, at Berewood, Waterlooville and Wellesley in Aldershot will deliver 212 homes for rental.

The projects are both phases of larger phased residential developments, and have been brought forward from a planned start date that would have been years into the future. The permission at Berewood an innovative planning agreement with the local authority – another demonstration that planners can help unlock PRS projects in their neighbourhoods.

“These new build-to-rent developments will not only deliver much needed new homes in the local area but also support our desire to provide purpose built, quality private rental accommodation as well as accelerate the provision of amenities for the community as a whole,” said Grainger executive director Nick Jopling.

“Today’s news supports Grainger’s strategy to grow its market rented business and our increasing focus on investment outside of London, where we have extensive experience managing residential portfolios. Grainger is committed to the market rented sector where we can bring our long and established track record of managing homes to the highest standards for people across the UK for the benefit of all our stakeholders.”

At Berewood, Grainger has reacted to local market conditions. Local authority Winchester Council saw a major increase in the number of privately rented households in its area, up 50% between 2001 and 2011; an even more dramatic 100% increase was observed in neighbouring Havant. A deal with planners sees 104 new homes built with a guarantee they will remain PRS housing at market rents for at least 12 years, after which 40% of them – 42 units – will become affordable housing, and will revert to Grainger’s social housing subsidiary Grainger Trust. The deal effectively gives Grainger a 12 year guarantee of returns at open market rents, to recover their investment.

At Wellesley, the permission for the 108 homes for rent is not tied to future conditions. The project as a whole, which includes  3,850 homes, already has a provision that 35% of the total will be affordable.

The company says its commitment to the Hampshire developments proves that purpose built PRS development can work outside city centres, in more suburban environments.

Home shortage needs action on every front to beat NIMBYs

Brave, probably politically unattractive decisions are needed, if the UK is to solve its housing crisis and increase the construction of new homes. Garden villages, new towns, construction on the green belt and more centrally imposed decisions could all play their part, according to participants at a strategic housing debate this week.

The worry is that, with an election coming up, few decisions will be taken for the next year. And with politicians desperate to appeal to the masses, strategic thinking may be sidelined for popular soundbites. However, the panellists at the annual strategic land debate agreed the scale of the problem is such that every avenue needs to be pursued. The event, hosted by law firm Hogan Lovells and arranged by the International Building Press, drew together the thoughts of Nick Taylor, head of planning at Carter Jonas; Emma Cariaga, head of residential development at British Land; Bill Hughes, managing director of Legal & General Property; and Waheed Nazir, director or regeneration at Birmingham City Council.

“We’ve had planning by appeal,” said Taylor of the recent National Policy Planning Framework regime. “We have to go back to regional planning.” A macro approach was the only solution, he insisted, as nobody had the commitment at a local level, to take decisions based on the broader good. “It seems to me that’s the only way. We remain a nation of NIMBYs – people don’t vote for growth.”

One exception is Birmingham City Council, where a shortage of land means the authority is taking tough decisions, in order to meet housebuilding targets. Nazir said the city had identified an upcoming need for at least 80,000 homes, but has capacity within its existing boundaries for just 45,000. Having reviewed its local green belt, it saw opportunities to build on those parts of it that are not high quality, attractive landscape – and is now seeking high level approval to do so. “We’re still short of our target,” said Nazir, who is now asking neighbouring local authorities to conduct the same exercise, in order to give up poor quality green belt land to housing development.

Alternative forms of tenure all have a part to play in meeting the demand. Hughes warned that current interest in the growing private rented sector was not a panacea. “If you believe in build to rent, you have to get through the planning system. We’re looking for a new type of product that’s going to take some time to procure.” Nazir said his authority was intervening directly in the market, and is building 1,500 homes for private rent, but noted such projects need a different treatment by planners, in order to help them succeed. “The challenge for us is how you negotiate your scheme.”

New towns, or the less aptly named garden cities, may also help meet housing need, but cannot be delivered overnight. Cariaga, who spent time working on the massive Ebbsfleet project, said that development had stalled due to other areas such as Stratford taking the attention of developers, but its time would come. Panel members wondered why the planning of the new HS2 rail line did not include a new settlement somewhere along its route, as it presented the ideal opportunity to deliver a town with immediate transport infrastructure.

There are also concerns that the current situation in the UK, where landowners can negotiate much of the value uplift due to nearby infrastructure projects such as HS2, was unhelpful. The French system provides for only a modest overage to be paid to landowners, with the balance in the value uplift of sites being subsequently ploughed back into paying for new transport infrastructure. And Philip Barnes, group land and planning director at Barratt, noted during a Q&A session that previous new town settlements in the UK had paid landowners the current value of their land as it stood, not any hope value; the lower cost of the land was a key consideration in helping to fund new developments.

Government support for PRS is substantial, argues Stanford

Speaking at a MIPIM UK breakfast seminar Andrew Stanford, head of the government’s private rental taskforce, outlined the steps government has already taken to encourage the sector. And he had bad news for those arguing for a change in planning regulations.

Stanford said the government had already made a significant commitment to the sector, with the Build to Rent fund and the debt guarantee scheme. “That’s really helped to get things moving,” he insisted. On planning he noted: “Yes, it would be great if all local authorities would embrace build to rent,” perhaps through section 106 flexibility, or getting projects built on their own land. “Do I think the government needs to do more? I think the government is doing a lot already.”

On planning, he had bad news for those calling for changes in the definition of housing developments: “It is not going to introduce a new use class.” But he believed that options such as a 10 to 15 year private rental covenant, or flexibility on CIL or section 106 agreements, were the answer. “I genuinely believe we are making a difference.”

Stanford was responding to questions at a debate organised by Estates Gazette and sponsored by Macfarlanes, held at MIPIM UK during October; speakers included Bill Hughes of Legal & General, Elliott Lipton of First Base and Ryan Prince of Realstar.

Miflats private rented brand launched into PRS market

UK developer and property investor Miflats has launched a new private rented brand, Miflats, which it intends will become a major player in the professional private rented sector in the UK. The newly formed brand promises to deliver a level of service and flexibility into the rental market, similar to that prevalent in the upper levels of the US home rental market.

The launch comes as Criterion readies its first private rented schemes, with projects including up to 2,000 flats in the planning stage. The company says it has a pipeline of around 10,000 units for delivery by 2020, and will establish Miflats as one of the most active landlords in the PRS.

“The landscape for the private rental sector is changing apace and being a passive investor is no longer an option,” said Iain Murray, director of PRS at the company. “The launch of the Miflats brand has been brought about by consumer demand for a rental product and service that suits their lifestyle. We have responded with a consumer facing brand and service that redefines the landlord/tenant relationship and brings it into the 21st century.”

East India Dock, where Criterion Capital plans to convert offices to create 1,500 rental flats

East India Dock, where Criterion Capital plans to convert offices to create 1,500 rental flats

Criterion’s private rented pipeline includes:

former Ford offices at Trafford House, Basildon where permission has been sought to convert the building to create 384 flats

Canterbury House, Astral House, 5 Bedford Park and Delta House in south London, which the company purchased with the intention to convert to flats for rental

East India Dock in London’s Docklands, where 1,500 flats are planned through the conversion of four existing office buildings – one of which is currently the town hall for Tower Hamlets council.

Criterion Capital has property development and investment interests across London, with its most famous asset being the Trocadero building on London’s Piccadilly Circus, where the company recently announced it will be creating the largest Ibis hotel in the UK.

 

Essential Living hit by planning u-turn in Swiss Cottage

PRS developer Essential Living has had a setback in its plans to develop a site in Swiss Cottage, north London. Despite being recommended for approval, Camden council’s planning committee turned down the proposal for a 24 storey tower that would have delivered 188 flats, mostly for private rent.

Planning committee members bowed to pressure from a campaign led by local residents, which gathered a 3,000 signature petition against the project. A former English Heritage director involved with marshalling opposition branded the project “monstrous” and “grotesque”.

Objections to the tower came despite improvements the development would bring to Swiss Cottage underground station, and the fact that the proposed height is in keeping with the four 23 storey towers on the nearby Chalcot estate. Currently, a six storey office block sits on the site.

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

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

Despite the rejection by Camden councillors, the project may yet receive approval, as London mayor Boris Johnson has the power to overrule local planners on the project, due to its scale and significance. Johnson is also keen to get more homes built in London, and the Essential Living development would deliver 152 flats for private rent, plus an additional 36 affordable housing units.

This is not the first time Essential has had its development plans thwarted by London borough planners. Earlier this year, it had to appeal to the Planning Inspectorate after Islington council failed to determine an application to reclad an office tower in Archway. There, the objection was to the loss of office space as Essential converts it to housing; councillors also criticised the quality of the proposals.