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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.