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Affordable Home
Ownership Conference
B4: Growing the PRS and engaging with investors
Speakers:
Dominic Martin, Member, PRS Taskforce, DCLG
Kurt Mueller, Director of Corporate Affairs, Grainger
Chair:
Daniel Kaye, Director, Special Projects, Guinness Partnerships
Affordable Home Ownership
Conference
Dominic Martin MRICS – PRS Taskforce
14 May 2014
Government Overview
Demographic Backdrop / Considerations
What is It & Market Activity
Planning
Viability Considerations
Government
Overview / B2R
Context
20
21
Government Overview
Recognition of Tenure: x 3 Housing Tenures
- Private ownership
- Affordable Housing (shared ownership & affordable rents)
- Market rent (PRS)
Sir Adrian Montague review (summer 2012):
- x2 Government funding initiatives (Build to Rent Fund &
Debt Guarantees, Long Term)
- Taskforce (Developers / Investors / Key Issues)
National Planning Policy - Specific Recognition (March ‘14)
Developers / Land
Owners
&
Investors / Banks
22
Government Initiatives:
The Taskforce One Year On
Stakeholders 500 plus Meetings
Government/Gov’t Agencies
Land Owners/Developers
Investors/Funders (inc Banks)
RPs/Local Authorities
Contractors/Developers
Consultants / Agents
Role
Support Government Initiatives: Build to Rent & Debt Guarantees
Valuation
Design
Planning Data /
Research
Management / Lettings
Link Supply & Demand: Land, Developers & Investors
Improve Standards: Management / Valuation / Design / Planning / Data
23
Gov Funding Initiatives:
i. Build to Rent Fund:
Round 1: 5 transactions down. More in the pipeline.
Round 2: £2.8bn Loan App. Shortlisted. C.10,000 units. London &
Manchester.
ii. Debt Guarantee: PRS DG: Aggregator Procurement (Spring 2014)
PRS Taskforce Update
Taskforce:
i. Management: Code of Practice event @ RICS & Industry.
ii. Design: ULI – Build to Rent Best Practice Guide
iii. Valuation: RICS ‘Information Paper’
iv. Planning: NPPF Guidance
Local Authorities Recognise PRS in Local Housing Strategies
Viability Guidance, recognition different ‘economics’, different
approach to planning obligations
Demographic
Backdrop /
Considerations
24
0%
10%
20%
30%
40%
50%
60%
70%
80%
1918 1940 1950 1960 1970 1980 1990 2000 2010 2020
Pro
port
ion
of d
wel
ling
stoc
k in
Eng
land
Owner occupied Social housing Private renting
25
Small Landlords: Much of the
growth in the rented sector has
been driven by individual
landlords. Where 10% all stock,
LL’s with 4 or less properties
Context
Management Considerations
Rental Demand is Growing: PRS houses 4.0 million
households in England, compared
to 2 million in the early ‘80s. Now
greater than AH housing stock
Location 25-34
Manchester 114
Liverpool 90
Birmingham 64
Bristol 64
Sheffield 62
Leeds 61
Newcastle 47
Nottingham UA 44
% Change in employed with
high level qualificationsLiving in PRS
Location 2001 2011 Growth
%
change
Manchester 26,885 58,170 31,285 116
Birmingham 34,508 73,405 38,897 113
Bristol 21,711 43,028 21,317 98
Liverpool 24,604 48,290 23,686 96
Sheffield 18,544 35,760 17,216 93
Leeds 30,599 57,456 26,857 88
Nottingham UA 16,307 29,098 12,791 78
Newcastle 13,466 22,318 8,852 66
186,624 367,525 180,901
26
By Way of Example: 8 ‘Core Cities’
26
Manchester: PRS up by 116% + High Level Qual up by 114%
Liverpool: PRS up by 96% + High Level Qual up by 90%
CLG / ONS
CLG / ONS
Demographic Trends
27
Affordability & Sharing – 8 Core
Cities
Savills – Jacqui Daly (020 7016 3779 / JDaly@savills.com)
Affordability & Culture of Sharing:
1. Particular to cities / local markets
2. Will influence mix of units
3. Eye on:
- Initial Let-up
- Long term: limiting void turn around
- Long term; matching long-term
demographic changes
What Is It
28
Form and Layout
‘Large-scale purpose-designed’ private rental residential
developments can fall into three different building typologies:
Suburban
Urban
Central
Market Activity &
Context
31
32
Market Activity
Not primarily the volume housebuilders
Developers: Dev Sec, Grosvenor, Quintain, Delancey
Housing Associations: Notting Hill, Fizzy Living
Investors: International presence (institutional, sovereign wealth)
Geographic: London, South East & North West
Transaction Type Example Location
Frwd Commitment to Purchase APG: Delancey London
Frwd Commitment to Purchase L&Q & Bellway London
Joint Venture Sigma Barking
Joint Venture Amcorp Properties: Native Land, Grosvenor London
Long-dated Income M&G: Popula HARCA & Be:Here Now London
Site Acquisition Qatari Diar: Delancey (East Village) London
Joint Venture ADIA: Fizzy Living / Thames Valley London/South East
Joint Venture Notting Hill Group & Sellar Properties London
Joint Venture Keystone: Quintain London
Site Acquisition Gatehouse: Sigma Manchester / Liverpool
Site Acquisition Washington State Pension Board: Essential Living London
BTR1 R1 & R2 London,South East,
33
Construction vs Demand
0
50
100
150
200
250
300
350
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Permanent dwellings completed (thousands)
Projected new household formation (thousands)
34
NEW / RECENT HISTORIC
Skyline Central (130 units)
Manchester
Dolphin Square (1,200 units)
Pimlico, London
East Village (1,500 units)
Stratford, London
Hamlet Gardens (150 units)
Hammersmith, London
Halo (400 units)
Stratford, London
Genesis & M&G
Sales & Leaseback
Waverley Court (90 units )
Horsham
Fizzy Living (120 units)
Canning Town, London
Off-Plan Purchase
Viney Court (16 units)
Clapham, London
Existing Examples
Exists Already
Not ‘specifically designed’ as rental
Planning: NPPF &
Viability
35
36
B) PRS & Viability:
“The viability of individual development types, both commercial and
residential, should be considered. Relevant factors will vary from one land
use type to another. For residential schemes, viability will vary with
housing type. For example, in respect of developments of multiple units
held in single ownership as private rented sector housing intended for long
term rental, viability considerations in decision-taking should take account
of the economics of such schemes, which will differ from build for sale.
This may require a different approach to planning obligations or an
adjustment of policy requirements.”
NPPF Planning Guidance
March 2014
A) PRS & Local Housing Strategies:
“Plan makers should look at the household types, tenure and size in the
current stock and in recent supply, and assess whether continuation of
these trends would meet future needs.”
Text thereafter follows in respect of PRS.
37
Viability Negotiations / Local Requirements
Considerations / Examples
- Every LA / Needs Are Different
- Negotiation therefore specific to those needs (no right or wrong approach)
Examples
Local
Authority &
Partner
Date Site Commentary
Birmingham
City Council
& Evenbrook
2010
Browns
Green /
Evenbrook
- AH % Provision: 35% to 25%
- AH Tenure: 100% intermediate
- AH intermediate 20yr covenant
- Local RP annual oversight
City of
Westminster
& Mercers
2014Covent
Garden
- 24 units
- Recognition of PRS value less than OMV
- AH off-site contribution reduction
- Covenant against breakup.
- If converted, requirement to pay back the
discount, indexed by RPI
Local
Authority &
Partner
Date Site Commentary
Birmingham
City Council
& Evenbrook
2010
Browns
Green /
Evenbrook
- AH % Provision: 35% to 25%
- AH Tenure: 100% intermediate
- AH intermediate 20yr covenant
- Local RP annual oversight
City of
Westminster
& Mercers
2014Covent
Garden
- 24 units
- Recognition of PRS value less than OMV
- AH off-site contribution reduction
- Covenant against breakup.
- If converted, requirement to pay back the
discount, indexed by RPI
Viability
Considerations
38
Construction Costs (Height / Region - ECH)
Rents (Annual / Region -
Hometrack)
Cost vs Value
Viability Across UK? (End Value vs Delivery Costs)
Modest
Construction
MMC /
Offsite
40
Andrew Stanford – Director of Taskforce
andrew.stanford@communities.gsi.gov.uk
Dominic Martin – Member of Taskforce
dominic.martin@communities.gsi.gov.uk
Joanna Embling – Member of Taskforce
joanna.embling@communities.gsi.gov.uk
Growing the PRS and engaging with investors
Kurt Mueller, Director of Corporate Affairs
Grainger plc
May 2014
41
Agenda
1. About Grainger
2. Future of PRS
3. Examples
42
Introduction to Grainger
We own. We manage. We develop.
And we offer our skills and expertise to third parties.
Income derived from sales, rents and fees.
• Est. 1912
• FTSE250 company, c. £1bn market cap
• 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, c. £2.8bn
– On-going development activities
44 44
UK’s largest listed residential landlord and property manager
Business Overview
Future of PRS
45
Sustained growth in demand
for renting
English housing survey for 2011 to 2012
• Total value of residential sector valued at £5 trillion
• £2 trillion of that in London and the SE
PRS is the only growing tenure…
% of homes privately rented
…and owner occupation has been
in decline since 2005.
% of homes owner occupied
1999 2005 2012 1999 2005 2012
30%
10%
50%
70%
Public perception
• 3 in 5 people agree that renting
is becoming more commonplace
(Grainger survey, 2012)
• More than half believe that more
people will be renting than
owning in the future (Grainger
survey, 2012)
• Half the population believe that
there is still too much pressure
on people to buy a home
(Grainger survey, 2012)
• But owning is still a very strong
aspiration (7 in 10 want to own)
(Grainger survey, 2014)
• Big ‘4’ Drivers for renting:
• Accessibility and Connectivity
• Rental Levels
• Safety & Security
• Management & Landlord
47
Build to rent
• Making it stack up
• Land cost
• Section 106
• Build cost
• Management cost
• Whole life costings
Front of
house –
driving gross
yield
Back of
house –
driving net
yield
Appetite For Risk
Stabilised Assets
Off Plan/Forward Purchase
Development
Rew
ard
Risk
49
Design is critical
50
• Residents should feel as if they are renting
the whole building, not just their flat
• Housing Minister, Kris Hopkins, writes in
the Guide:
“With millions of people renting their homes
from private landlords, it’s vital we do all we
can to increase the numbers of high-quality
properties on offer.”
• To order a copy, go to http://europe.uli.org
51
The future of PRS
• Customer is king
• Learn from the hospitality sector
• Think like a retailer
• Long term investment horizon
• Greater integration between development, engineering,
asset management and property management
52
Examples
53
GRIP – A leading PRS
Fund
INVESTMENT OUTLINE
• £430m market value
• 75:25 owned, APG and Grainger
• Target IRR: 9%
• Rental and capital value growth
• Grainger provides fund, asset and property
management
PORTFOLIO OUTLINE
• Over 1,500 units (ASTs)
• Blocks and clusters
• London and South East focused
• Very high levels of occupancy
• Sustainability a key focus area
• Asset performance
• High quality tenant management
Backed by Europe’s largest pension
fund asset manager
Public sector land
and build to rent
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
55
Royal Borough of Kensington and Chelsea
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 Development
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
56
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 – possible Build to Rent product
(c.106 units)
• Demonstrates accretive delivery as
Montague outlined
57
Thank you
58
Affordable Home
Ownership Conference
B4: Growing the PRS and engaging with investors
Speakers:
Dominic Martin, Member, PRS Taskforce, DCLG
Kurt Mueller, Director of Corporate Affairs, Grainger
Chair:
Daniel Kaye, Director, Special Projects, Guinness Partnerships
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