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More PRS for Olympic village project

Balfour Beatty has signed a £35m investment deal with the London Legacy Development Corporation to develop more new homes around the former Olympic site in Stratford.

Two new neighbourhoods, named East Wick and Sweetwater, will be created over the next eight years, in a joint venture with Places for People. Together, the pair are destined to include 450 affordable homes, 530 units for market sale and 500 private rented sector homes.

There will be a mix of townhouses, mews homes and apartments, while the new settlements will also include a new nursery, library and health centre, with shops and office space. East Wick is to the north west of the former Olympic site, adjacent to the former press centre, which is itself being transformed into a new centre for digital business under the brand Here East. Sweetwater, also on the western side of the park, will be to the south of East Wick.

 

East Wick and Sweetwater will sit to the west of the Olympic Park

East Wick and Sweetwater will sit to the west of the Olympic Park

“This project marks our entry as an investor and developer into the UK’s regeneration and housing sector,” said Leo Quinn, chief executive of Balfour Beatty Group. “This market is growing and offers significant opportunities for the Group in the coming years. I look forward to continuing our strong partnership with the London Legacy Development Corporation to ensure that commitments made as part of the London 2012 Games are delivered. With our partner, Places for People, we are very excited to be able to create these new, vibrant, sustainable communities for East London.”

David Cowans, chief executive at Places for People, said: “With our partner, Balfour Beatty, we have the perfect opportunity to work with LLDC to create a truly unique and exciting place to live. This is exactly what Places for People is about, making great places and ensuring that the true Legacy of 2012 lives on by creating opportunities for the existing communities around the park to share in its success.”

Designs include these funky round towers

Designs include these funky round towers

Designs for the two new settlements have already been prepared. An architectural team includes Studio Egret West, Sheppard Robson, Alison Brooks Architects, ShedKM, Piercy & Co and Astudio.

Croydon key to Criterion PRS growth in 2015

Developer and property investor Criterion Capital will deliver more than 1,500 apartments into the private rented sector around London and the south east, during 2015. And more than 580 of the new units will be in Croydon.

The company has recently signed construction contracts to begin work on a number of sites, principally converting redundant office buildings into flats for rent. It has projects live in Basildon, Colliers Wood, Croydon and Sutton. All of the completed homes will be offered for rent under Criterion’s Miflats brand, which promises to provide additional services and amenities for tenants including car pooling, cleaning, a concierge, fitness facilities and self storage.

More than a third of the new flats will be delivered in Croydon, where three separate projects are under way. Delta Point, formerly an office block occupied by BT, will convert to provide 404 apartments. Nearby Canterbury House and Bedford Park will produce a further 180 apartments. A £48m trio of design and build contracts has been agreed with contractor Longcross to carry out the conversions.  The design and specification of the flats is tailored specifically from the outset for rent, meaning a distinctly different look to apartments being built locally for sale, by developers such as Berkeley.

Delta Point, former offices being converted to provide 404 apartments for private rent

Delta Point, former offices being converted to provide 404 apartments for private rent

How Delta Point will look after conversion to flats

How Delta Point will look after conversion to flats

At Delta Point, work will include fitting a new roof and facades. Longcross London office director Paul Thomas said: “This significant award reinforces our visibility in the capital, establishes us as a lead provider in the PRS market and consolidates our secured workload for the next financial year.”

Elsewhere, in Basildon, Essex, the company is converting a former Ford Motor Company office block to add 384 apartments to rent. This too should be ready for tenants by the end of 2015.

Iain Murray, who joined Criterion Capital several months back as director of PRS, commented: “While last year was about planning and preparation, this year is about construction and delivery.  Now that work is under way across our first developments, we are working hard to ensure that we will offer unparalleled management services for when our first tenants move in later this year.”

Canterbury House in Croydon will also be converted to residential

Canterbury House in Croydon will also be converted to residential

The 1,500 flats should between them have a capital value of around £500m, and an annual rent roll of around £21m. Criterion is likely to be looking for additional financial partners, possibly selling on completed and stabilised blocks to long term investors such as pension funds, once all the flats are let.

Criterion has secured £115m of funding from backers including Barclays, HSBC and RBS for its projects, and has ambitious plans to deliver a further 5,000 homes by 2020. The company has taken advantage of permitted development rights, under a government initiative that has allowed office blocks to be converted to residential use, without planning permission being needed for the change of use.

Delivering the right product is the challenge to successful PRS investment

Dr Tim Harvard, director of professional services UK at Estate Master, sees excitement – but also challenges ahead – in developing an investment grade product for instutional investors in the private rented sector:

Delegates at the recent RESI2014 could have been forgiven for thinking that there is only one game in town as far as residential property goes – PRS, the private rented sector. Session after session focused on the sector.

You might, quite rightly, think that the UK has had a private rented sector since the year dot. It is a sector that has grown in the last 30 years since the demise of the council house sector and is dominated by myriad small, buy-to-let investors building a little property empire or a private retirement fund. Well this is NOT what is strictly meant by the acronym PRS as it is currently being used. What someone talking about PRS today means is the provision of relatively large private sector housing schemes funded and owned by institutional investors – pension funds, life assurance and property companies.

Historically these organisations have not invested in residential property, making the UK almost unique in the developed world. In the US and continental Europe, residential property is an important component in investment portfolios but not here.

So why not?

The reasons are down to investment quality and cost. Residential investments are management intensive, they involve lots of small, often short-lived tenancies that the landlord has to constantly keep on top of.  There are numerous outgoings that the owner has to bear, some but not necessarily all, which have to be recovered from the tenant. Providing this level of management is expensive, particularly when compared with a commercial investment. What generally barred institutional investors though was the quality of the income stream; private tenants tended to be from low income groups making rent arrears more likely. There is nothing an institutional investor likes worse than an expensive to manage investment with an uncertain income stream.

So what has changed?

Essentially the country has. There have been some very profound socio-economic changes over the last 20 years. A big clue can be found in the level of home ownership. Having increased constantly throughout the last century, this one has seen the level of home ownership start to decline. Partly this is due to a rising population and a shortage of supply (we probably never will build enough to satisfy demand) but mainly it is down to a lack of take up by the young professional demographic group.  Often it is because they simply cannot afford it, this is a group that are going into relatively well paid jobs but carrying huge levels of student debt. Combine this with supply constricted house prices and the chances of getting onto the property ladder where the jobs are minimal. The second reason is, however, this group often do not want to buy. A job or career is not for life any more, the professional job market is fluid, short term, insecure. A young professional often needs to be footloose – and owning property ties you to one location.

So suddenly the game has changed. Certainly there is still the need to build houses for owner occupation but these will primarily be for older, more family orientated people. The major need to be met is for a relatively demanding, relatively affluent (ignoring the long term debt), footloose and educated population who want good quality, well located, well specified, easy to manage rented property close to centres of employment. Serving this demographic is far more attractive to an institutional investor, particularly since the future of some of the traditional stars of property investment – retail and offices – is so uncertain given technological change.

This type of scheme appeals to the Government too. They know the provision of housing of all tenures needs to increase but they are not willing to pay for it themselves, the public finances simply cannot stretch to this type of thing, nor are they willing to liberalise the planning system to free up the supply of housing land as voters would soon react to such a move. The idea of the big financial institutions bearing some if not all of the cost is very attractive, even though this will only be in terms of numbers, I personally doubt that PRS will make much difference to low-income families trying to get accommodation.

It was clear from RESI2014 that many institutions are showing an interest in the sector but all are coming up against the same obstacle: the type of PRS vehicle they need to invest in does not yet exist in the UK. It will, therefore, need to be developed.

 

Dr Tim Harvard is director of professional services UK at Estate Master

Dr Tim Harvard is director of professional services UK at Estate Master

Surely an apartment is an apartment?

Well actually no, the type of residential property currently being developed for, say, the owner occupation or buy-to-let investor is often not suitable for an institutional, long term investor. Technically, the product produced must be good quality but it also must be made of durable materials that will last tenant after tenant. The building management systems must be designed from scratch for ease of operation to reducing labour inputs and costs.

In investment terms too, what needs to be created is unlike anything the UK investors are used to. Firstly the financing tends to be in two phases; that for the development and then to fund the long term investment. This is not unusual in development but adds complexity to the appraisal. Secondly though, the investment created is going to be quite alien to a UK institution and is going to be difficult to accurately apprai