Building value
Breakout 4: Market rent opportunities and challenges Chair: Pippa Read, Policy Leader, National Housing Federation Speakers: Kurt Mueller, Director of Corporate Affairs, Grainger Tracey Hartley, Private Rented Sector Taskforce, CLG Richard Evans, Assistant Director – Strategic Partnerships, Thames Valley Housing
Tracey Hartley MSc MRICS MNAEA
National Housing Federation – London Development Conference 3rd December 2013
Kick-starting a New
Private Rented Sector
3
Overview
• The PRS Today.
• Institutional Demand.
• Government Initiatives to Stimulate
PRS.
• Registered Providers and PRS.
4
The PRS Today – Growing in Size
Structural change in demand
Sources: Savills, CLG, Survey of English
Housing
Long term mean
proportion of
PRS dwelling
stock.
5
The current PRS
trend – a long
term regression
to the mean.
6
The PRS Today – Dominated by Smaller
Landlords
7
The PRS Today – Cottage Industry
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Institutional Demand Increasing
Why?
• Good long term prospects.
• Good liability matching credentials.
• Low volatility. • A good diversifier.
• Government support. Stable
regulatory environment.
“We are at a tipping point [in the PRS]. The journey from niche to mainstream is just beginning.”
Martin Moore, Chairman PRUPIM – 16th April 2013
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Private Rented Sector Taskforce Kick-starting the New Private Rented Sector
KEY STRATEGIC OBJECTIVES
BUILD PARTNERSHIPS
HELP SHAPE GOVERNMENT POLICY
Increase
institutional &
private sector
investment
Increase
supply of large
scale new
build PRS
housing
Raise
standards &
encourage
innovation
DEMAND SUPPLY STANDARDS LEGACY
Leave a
lasting
legacy
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PRS and Registered Providers - A Taskforce
Perspective
• Provide a scalable investment product to
support core business activities.
• Potential appeal to institutions.
• Increase housing supply.
• Leverage in-house multiple tenancy
management capability and innovations.
• Leverage long-term credibility and strong
balance sheets.
• Enhance efficiencies through greater
scale.
• Provide a source of stable,
sustainable income streams at
market levels.
• PRS – Often more affordable &
more accessible than owner
occupation.
• Create sustainable communities.
• Help to drive out rogue landlords.
Investing in the New PRS – Advantages to Registered Providers:-
Market rent – opportunities
and challenges
December 2013
Kurt Mueller, Director of Corporate Affairs
• First year of our second century
• FTSE250 company, c. £850m market cap
• Significant expertise in the residential real estate sector
• Diversified portfolio comprising:
– c. 9,300 UK wholly-owned reversionary properties: market
value £1.3bn, vacant possession value £1.8bn
– c. 4,000 wholly-owned market-rented properties in UK and
Germany: c. £0.5bn
– 21,500 properties under management, market value of c.
£2.8bn
– On-going development activities
12 12
UK’s largest listed residential landlord and property manager
Business Overview
Source: Hometrack
Build to rent
viability
Important considerations
for build-to-rent
• Does not compete with owner-
occupation market
• Demographics (25 to 35 year
olds)
• Local economic performance
• Rental growth prospects and
current demand
• Employment levels
• Land and build costs
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Appetite For Risk
Stabilised Assets
Off Plan/Forward Purchase
Development
Re
wa
rd
Risk
14
What are investors
looking for?
• Net yields >5%
• Rental growth
• Scale
• Blocks/ concentrations
• Good quality assets
• Capital value growth
• Robust operational platform
15
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Grainger plc is currently enabling built-to-rent projects through the following routes:
• Local Authority Partnerships – The Royal Borough of Kensington & Chelsea
• Forward Purchase – London Road, Barking
• Develop Part of Larger Scheme – Berewood, Hampshire
How we make PRS work
Local authority partnership
with RBKC
The project outline
• Grainger as development management partner
• 84 new homes
• (53% PRS, 31% Private sale, 11% Affordable Rent, 5%
Intermediate)
• Mix of homes for sale, for private rent and for affordable rent
• Including six affordable, four bedroom homes
• Public sector land
• Redevelopment of two Council-owned sites
• New, high quality homes, mixed tenure (for sale, for rent,
private and affordable)
• Grainger is granted a long lease and will manage and let
the properties on the Council’s behalf
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Forward purchase – London
Rd, Barking
Canary
Wharf –
20 min
Olympic
Park –
20 min
A forward purchase of a bespoke design build-to-rent block from
contractor, Bouygues UK
Investment outline
• 100 units
• Investment value: £13.7m
• Wholly owned
• Net yield: circa 7%
Product
• Well connected location
• Designed for efficiency
• Equal bedroom sizes
• Durable finishes
• Wifi enabled, concierge
Customer profile
• City workers
• Young professionals
• Young families
• £25k to £60k+ income
Rents ranging from approximately £900/pcm - £1200/pcm
Timeline • Start on site – Jan 13
• Completion – Q2 2015
• Fully rented in 6 months
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Accelerated housing delivery
– Berewood, Hampshire
• Master planned by Robert Adam based on
the principles of Garden cities
• 2,550 new homes
• Phase 1 under construction by Bloor Homes
(194 homes)
• Phase 2 sold to Redrow (c.250 homes) – 15
acres for £14.75m an increase of 9% on
Phase 1
• Phase 3 – first Grainger Build to Rent product
(c.106 units)
• Demonstrates accretive delivery as
Montague outlined
• Next stage planning and on site in 2014
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Design will play increasing
important role CLG have asked ULI to form a panel to explore possibility of producing a
‘Design Guide’ for PRS. Grainger’s Nick Jopling is chairing the panel.
• Focus on difference between PRS and ‘for sale’ market
• Developers, architects, public bodies, engineers, RPs, property companies and
advisers involved
• Output planned for Q1 2014
• Impacts on cost of build and on-going operational cost are main drivers
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www.graingerplc.co.uk
Thank you
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MARKET RENT - OPPORTUNITIES AND CHALLENGES
Richard Evans
NHF London Development Conference Dec 2013
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Why would Housing Associations develop
market rented homes?
What should HAs consider before moving into
the market?
What are the key risks and challenges, and how
can they be overcome?
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WHY WOULDN’T WE?!
Tomorrow’s subsidy for ‘core’ activity
Increase supply
Capability, capacity, credibility
Healthy diversification…but not completely off-piste
Natural progression
Raise standards
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NATURAL PROGRESSION
Successful keyworker operation (>2,000 units)
Separate business unit established in 2008
1 volume London schemes <1% void rate
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THE ORIGINAL CHALLENGE IN 2010/11 WAS
DUAL PURPOSE:
Help traditional 1st time buyers access quality
rented accommodation until they could afford
to buy / mortgage liquidity improved
Provide an exit strategy for developers and
their funding banks
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THE STRATEGY EVOLVED…
It became apparent that a whole generation
of young people is getting a very raw deal in
the rental market
The need for a professionally managed, long
term and secure private rental sector is deep
and here for the long term
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PICTURE DIVIDER PAGE HEADLINE
THE TARGET CUSTOMER
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PICTURE DIVIDER PAGE HEADLINE
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THE RENTYSOMETHINGS ARE…
Young professionals
Mobile / commuters
Hard working
THEY WANT…
A landlord they can trust
Hassle-free, quality accommodation
Quick and easy communication
Safe and connected locations
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FIZZY BUILDINGS
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FIZZY EPSOM
Completed March 2013
Fully occupied
Next to mainline station
36 mins central London
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FIZZY POPLAR
Completion Jan 2014
0.5 miles to DLR
7 mins to Canary Wharf
19 mins the City
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FIZZY CANNING TOWN
Completed August 2012
Fully occupied
0.2 miles to tube and DLR
5 mins Canary Wharf
15 mins the City
FUNDING FIZZY
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BUILDING UP TO INSTITUTIONAL INVESTMENT
2012: seed investment of £30m from TVH
2013: debt funding of £40m from Macquarie
2014: institutional grade equity investor…
WHAT DO INVESTORS NEED?
Scale
Focus and clarity of purpose
Management platform and expertise
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CHALLENGES
Target is to deliver 200-300 new apartments pa
Land market
Viability
Sales market
Management costs
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QUESTION DU JOUR…
Can and should the planning system be used a tool to
incentivise and enable the delivery of a professionally
managed new build private rental sector at scale?
SOME POTENTIAL BENEFITS…
First phase of large scale development
The lights are on!
Sense of place
Economically active residents