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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 appraise. We Brits are used to commercial property with long, clean, full-repairing and insuring leases and long periods between rent reviews. PRS investments will have a long life (20+ years) but will involve large numbers of small tenants on shorter leases, subject to voids, extensions, annual reviews that will get out of phase, the expenditure and recovery of a variety of costs, as well as having a management overhead in place to keep everything ticking over and growing.

It is no surprise that many developers and investors have brought in US personnel used to working with this type of investment in the States to assist them in planning their schemes. Investors and developers will, however, also need robust and flexible appraisal models for both the development and investment phase of their projects. We at Estate Master know that we can provide this; our DF and DM suite are ideally suited to modelling projects like this whilst our IA (Investment Appraisal) software was designed for the complex, long term, non-standard investments that PRS will produce.

In the meantime though, PRS is an exciting new world for the UK property industry. Many of us may be uncomfortable with the changes in our society that has brought them about but change, like death and taxes, is inevitable. It is how we tackle change that is the key to whether we make a success of this new world.

Invesco says UK rental market promises strong investment returns

Institutional investors are ignoring the residential market in the UK at their peril. The sector has continued to outperform other asset classes, according to a new research report from Invesco Real Estate, and presents good opportunities for investors as the market grows.
The opportunity is laid bare in a new report from Invesco, harnessing the power of its global research team in a H2 2014 European Market Outlook. The report reviews all types of property investment, from retail to offices, industrial and hotels as well as residential; and sets the opportunities in each market segment against one another and against peer country markets.
The report reckons the UK private rented market to be worth around £990 billion, making it the third largest residential investment market in Europe, at the moment. “Our research shows that despite rented being the fastest growing tenure and the highest performing real estate asset class in the UK, less than 5% of rented housing is owned by institutions,” says the report.
With more institutions entering the market, it is likely to become more transparent, and more liquid. Overseas investors are likely to head to the UK, as existing stock in Germany and Holland looks relatively expensive. And, with the UK population set to grow, and no apparent political will to solve the supply shortage, demand will remain strong.
Invesco says the fundamentals are good. “Forward funding development to create the stock, with the focus on the strongest markets of Greater London, the south east and major UK regional cities, should generate strong returns.”
“We forecast that capital growth should be strongest in London and the south east, where the shortfall of good quality PRS is at its greatest.”

Grainger and Sigma agree PRS joint venture

Listed residential property company Grainger has signed a strategic partnership with Sigma Capital Group that will see the pair build a major private rented sector portfolio around the UK. The four year agreement could see thousands of new homes assembled for rent, under the Grainger brand, many of them outside London in cities around the UK.

Sigma is already familiar to local authorities as it has three partnership agreements in Liverpool, Salford and Solihull, responsible for delivering a mix of residential and commercial properties. The company was founded in 1996 and was listed on the AIM market in 2000.

“The creation of this strategic partnership with Grainger is tremendously exciting and another milestone development for Sigma as it positions itself as a major presence in the delivery of high quality new homes for the rental sector,” said Sigma chief executive Graham Barnet.

“The partnership enables us to accelerate the delivery of large scale PRS schemes throughout the UK, particularly in England’s major cities outside London. This acceleration of our activities will help further expand the breadth of opportunity with our partners as we deliver on this. The combination of Grainger’s funding ability and asset and property management expertise, and our local authority relationships and development management skills, brings gains to both sides – as well as to our associated partners. We are already appraising our first schemes.”

Back in February, Sigma agreed terms to buy its first London site for a PRS project, at Barking Riverside. The site has the potential to accommodate 318 apartments for rent, in four new apartment blocks. And in November 2013, Sigma agreed a joint venture with Gatehouse Bank to help fund the growth of a private rented sector portfolio.

Grainger brings substantial property management experience to the deal. It has a portfolio of around 4,000 homes the company manages, let under regulated tenancies. In Germany, the company owns and manages around 3,000 homes with a further 3,000 in a joint venture with investor Heitman.

“This agreement leverages both Sigma’s excellent relationships with Local Authorities and housebuilding partners across the UK and Grainger’s proven track record in managing residential property, whilst providing an innovative new avenue for investment,” said Grainger chief executive Andrew Cunningham. “We are at the forefront of the private rented sector and remain committed to delivering high quality new homes, benefitting local communities whilst delivering shareholder value.”

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.

Kier and Network Rail seek PRS investment partner

Construction group Kier, and UK infrastructure owner Network Rail are seeking an institutional investment partner to accelerate their development partnership, called Solum, and build more homes for rent.

The pair have already delivered more than 200 homes on sites that Network Rail has adjacent to rail stations. While many of these were sold individually, Solum agreed a portfolio deal in Epsom, selling 63 flats to Fizzy Living for private rented sector use. Fizzy, backed by their own investment partner and supported by Thames Valley Housing Association, are now renting out the apartments under their own brand.

Kier Property’s executive director John Anderson is now looking for a partner to take forward a 150 flat development in Redhill, south of London, ahead of potentially many more sites at other stations.

“We have 150 units in Redhill, and we would be interested to go and see what appetite there is for forward funding,” he told Inside Housing. “Commercially it’s an option we are looking to investigate and if it works, all the developments we do could have an ingredient of PRS.”

Anderson hinted at the rationale behind his bid to open up discussions: “It’s less to do with the funding an institution can provide, and more to do with the fact that they offer the perfect set of ingredients for PRS.”

While private buyers might not appreciate overlooking the railway lines, renters will be more inclined to appreciate the convenience of public transport connections almost on their doorstep. This is something GVA noted in their recent report, suggesting government should “stimulate PRS development on sites less suitable for owner occupier housing”.

“If you look at any wish list for PRS developers, at the very top is a site that has access to transport and ours are in the best possible position in that respect,” added Anderson.

In addition to the Redhill site, Solum’s pipeline includes sites in Haywards Heath, Twickenham and Guildford. Kier has recently launched a new housing division with the aspiration of growing its annual output up to around 4,000 units a year, over the next five years.