Rationalisation, Optimisation & Intensification
SEC Conference – Strategic Asset Management Zone
Speakers
Colin Farrell, Senior Partner
Stuart May, Head of Housing Consultancy
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Introductions and Overview
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• Strategic Asset Management in context
• To outline the principles, purpose and objective of undertaking options appraisals of social housing assets,
• To explore Rationalisation, Optimisation and Intensification as three means of improving the potential return from assets
Business Plan Basic Principles
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Income
Rent from Property Assets
Service Charges
Paid-for services
External funding sources and grants
Expenditure
Property Maintenance and Investment
Central operating costs and overheads
Staff salaries, training and benefits etc
Finance / Debt servicing
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Getting the balance right?
Comparative Performance
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Comparative Performance
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Yrs 1-5 Yrs 6-10 Yrs 11-15 Yrs 16-20 Yrs 21-25 Yrs 26-30
Comparison of Forecast Income and Expenditure Two House Types
SCS and D2D Costs - Edwardian 3BH SCS and D2D Costs - 1995 3BH Gross Rent
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Comparison of Forecast Cumulative Cash FlowsEdwardian vs 1995 House
Cumulative Gross Cash Flow - Edwardian Cumulative Gross Cash Flow - 1995 House
Financial vs Strategic Performance
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Strategic Objectives
Location
Housing NeedAffordable
Homes Provision
Growth aspirations
Placemaking
Yield / NPVRental Income
Planned Maintenance Repairs
Improvement Costs
Management Costs
Statutory Compliance
Management Cost
Cyclical Maintenance
Strategic Asset Management
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Data Gathering
Data Validation and Analysis
Asset Performance Appraisal
Options Appraisal
Rationalise Optimise
IntensifyBAU - Retain and Manage
Rationalisation, Optimisation & Intensification
A Case Study
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Ambitious strategic asset
management commission from
a large traditional RP client
Open brief - Pilot approach a
holistic evaluation of their
‘estate’ aligned to LA priorities
Defined geography comprising
several thousand homes
and related property assets.
Multi phase project - Tight
timeframe with phase 1 of
approximately 3 months
The challenge
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To align the client’s objectives of optimising its asset
performance and delivering new supply with the
Local Authority’s vision for meeting housing needs
and aspirations between now and 2030.
Our mission
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GOALSLocal
planning
authority
RP client
Strategic
housing
authority
Defining the geography
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MARKET PLANNING NEEDS
Current state v target state
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• Whole portfolio interrogated
and described - Archetypes,
locations, densities, tenures,
demographics and
performance.
• Identified where the estate
could contribute more to the
strategic goals of the client
and key stakeholders, by
intervening to optimise these
characteristics.
• Developed a table of key
metrics comparing the
current state and target state
to set out clearly
theanticipated evolution of
the portfolio.
Stock groupings
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• Schemes further
divided into:
• Restricted
• Street properties
• Estates
• Clusters
Interventions
• A set of potential interventions devised
• Range from retain and maintain, to market
interventions, tenure flexing, tenanted transfer, site
intensification, redevelopment to large scale
regeneration.
• Intervention matrix devised - mapping against stock
groupings
Rationalisation, Optimisation & Intensification
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Rationalisation
• Non-core housing products to be
considered for tenanted transfer
to local/specialist providers, eg
rural, supported.
• Regularise leases and exit
commercial property
• Disposal of freehold reversions
• Acquisitions from other local RPs
Intensification
• Conversion of large family homes to
smaller dwellings.
• Remodelling sheltered schemes.
• Regeneration: master planning and
phased demolition and rebuild at higher
densities and mixed tenure
• Targeted interventions to maximise
value of properties with vacant
possession prior to disposal.
• Possible windfall infill where appropriate
Optimisation
• Maintain and invest, cap ex vs routine
• Tenure conversion to shared ownership.
• Tenure conversion to market and
sub-market rents on ASTs to
preserve/maximise later opportunities for
intervention.
• Garage site portfolio – revisit and optimise
Target state - 12 years’ time
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QUANTUM 25% increase in homes under management
ARCHETYPES Shift away from houses and bungalows towards flats, and particularly ‘high’ rise
TENURE Increase in intermediate and sale tenures whilst maintaining significant majority affordable
AGE PROFILE More than 10% increase in working age residents
DEMOGRAPHICS Maintain majority of households in ACORN groups M-Q, but increase in groups I-L
DEMAND Reduce void loss by 30%
SOCIAL SUBSIDY Reduce to release latent value to increase housing supply with the estate, including affordable
STOCK AGE Reduce proportion of older properties by 30%
LOCATION 25% increase in proportion of stock in priority areas for strategic partners
NOI 10+% increase
Stock classification
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Geographical ‘pull’ factors:• Market / planning opportunity areas
• Specific adjoining site opportunities
Lowest asset utilisation:
• weak demand
• extreme poor financial performance NPV
Highest opportunity cost of retaining current use or
Social Subsidy
• Logic test applied
• Combinations of these factors led to schemes being put in ‘baskets’ to definitely, or possibly, assess against potential interventions
Outcomes
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Intervention matrix devised and mapped to stock
grouping for whole estate
Roadmap to 2030 devised for the whole ‘estate’
•Partnership solution for the client and the LA
High priority - 35 schemes comprising 1,125 assets selected for phase 1 options
appraisal and possible intervention
Medium priority - 26 schemes comprising 1,096 assets selected for phase 2 options
appraisal and possible intervention
282 Street Properties in 31 schemes to be assessed against a range of potential
interventions at the next void event
26 key recommendations made and set out in an action plan
The next stage
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• Every scheme identified for definite or possible assessment will have option appraisals carried out.
• Each option appraisal will include every possible intervention for that stock grouping.
• Each intervention will be evaluated for its potential to contribute towards moving the estate from the current to the target state.
Stuart May MSc MRICS CIHCMHead of Housing [email protected] 2018