breakout 4: market rent opportunities and...

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

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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

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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

22 ©FizzyLiving Reinventing Renting

MARKET RENT - OPPORTUNITIES AND CHALLENGES

Richard Evans

NHF London Development Conference Dec 2013


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?


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


NATURAL PROGRESSION

Successful keyworker operation (>2,000 units)

Separate business unit established in 2008

1 volume London schemes <1% void rate


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


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


PICTURE DIVIDER PAGE HEADLINE

THE TARGET CUSTOMER


PICTURE DIVIDER PAGE HEADLINE


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

FIZZY BUILDINGS


FIZZY EPSOM

Completed March 2013

Fully occupied

Next to mainline station

36 mins central London


FIZZY POPLAR

Completion Jan 2014

0.5 miles to DLR

7 mins to Canary Wharf

19 mins the City


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


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


CHALLENGES

Target is to deliver 200-300 new apartments pa

Land market

Viability

Sales market

Management costs


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

breakout 4: market rent opportunities and...

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