Regeneration Leaders Network Build to Rent 15 April 2014 Joanna Embling PRS Taskforce

Agenda

AGENDA Build to Rent Context/ Current state of play What is Build to Rent and what does it look like? Government Initiatives/Financial Support Taskforce Initiatives Part of the Regeneration Toolkit

Context
Demand is Growing: PRS houses 3.8 million households in England, compared to 2 million in the early 80s.

Small Landlords: Much of the growth in the rented sector has been driven by individual landlords. Only 1% own more than 10 properties. Institutional Ownership Other Countries: This is in sharp contrast to international comparators where institutional ownership is prevalent.

The New Institutional Build to Rent

What Does Build to Rent Look Like

Wholesale not Retail preferably c.100 to 200 units Commercial Product Income driven like a shopping centre or a multi tenanted office building Professionally Managed Valued as an Investment

What Does It Look Like

BUT Physically can be low rise, medium rise or high rise Urban or suburban Pools / Concierge Not Obligatory

High Rise - Urban

Low Rise Urban

Low Rise Suburbia

Concierge

Pool/Gym

Shared Space

Cinema Room

ATM

Roof Terrace

5 Business Centre

Government Initiatives: Overview

Recognition of Tenure: x 4 Housing Tenures: Private ownership, shared ownership, social/affordable rents and market rent (Build to Rent) Sir Adrian Montague review (summer 2012): Taskforce and two Government funding schemes: Build to Rent Fund and Long Term Debt Guarantees National Planning Policy - Specific Recognition: Market rent to be taken account of within the assessment of Housing Need, and LPAs to understand that viability drivers are different than housing for sale
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Government Initiatives: The Taskforce One Year On

Role Support Government Initiatives: Build to Rent & Debt Guarantees Link Supply & Demand: Land, Developers & Investors Improve Standards: Management/Valuation Valuation Design/Planning Developers / Land Owners & Investors / Banks

Stakeholders 500 plus Meetings Government/Govt Agencies Land Owners/Developers Investors/Funders (inc Banks) RPs/Local Authorities Contractors/Developers Consultants / Agents

Management / Lettings

Design

Data / Research

Planning

Government Initiatives - Planning

NPPF Planning Guidance

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. 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.

Government Initiatives: B2R Fund & Debt Guarantee

Build to Rent Fund

Up to 1bn commercial development finance

PRS Debt Guarantee Scheme

Up to 6.5bn of direct debt 30 year guarantees to support long term ownership enabling long terms owners to borrow at a lower rates than wouldt otherwise be possible Min project size 10m (can be more than one site) Maximum loan/equity: 80:20 Maximum rent/interest cover net 1.2:1 Probable dual approach direct and indirect First direct proposals received and being considered Aggregator being sought 9

at rates lower than would normally be available in the market Large-scale (100 units plus) professionally managed institutional quality homes for rent

Round 1. 5 deals contracted. 12 more due to complete by end May 2014

c225m. Circa 3,000 units. Across England. Round 2. c775m. 2.7bn of bids. 36,000 units. Weighted to London, SE & Manchester Shortlisted with a Reserve Pool March 2014 Initial DD underway aim to complete end May 2014 leading to detailed due diligence. Programmed to contract by end 2014.

Taskforce Intiatives Valuation

RICS Red Book

Two Approaches 1. Net Operating Income,or. 2. Discount to Vacant Possession (ie Open Market for Sale)

Valuers will be asked to consider long term use of the property and the purpose for which it has been built, with particular reference to
(a) (b) (c) Scale 20 units vs 50 units vs 100 units vs 200 units plus Housing Type Houses vs apartments Local Market break-up potential, demand for sale vs rent, competition etc

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Taskforce Initiatives ULI Best Practice Guide

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Taskforce Initiatives Data

Need for Independent Reliable Data Source to Benchmark Investment Performance IPD Index IPD Commercial Index respected by the Industry IPD Residential Index Insufficient modern stock Need to enlarge and upgrade the data pool Find a way for all the owners of Build to Rent Stock to engage such as Local Authorities and RPs

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Taskforce Initiatives Local Authorities and RPs

PRS Can Work Outside London

Research EC Harris/Hometrack Local Authority Based Analysis Considerations Development Viability Planning Viability Investment Viability

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Build to Rent Part of the Regeneration Toolkit

Model 1 As part of a mixed use Town Centre Scheme As an added element within a mixed use scheme, using retail & restaurants, to provide free land. Advantages

Owner retains control Additional windfall housing Improves financial return of the overall scheme Brings life/people to the Town Centre Added Revenue Stream perhaps preferable to a public sector landlord Ground floor uses offer amenities to tenants

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Build to Rent Part of the Regeneration Toolkit

Model 2 As part of a Town Extension Scheme Include 25% Build to Rent as part of a town extension alongside private sale, social and affordable housing. Advantages: Reduces the build period with consequent savings in interest charges Early rental receipts improve financial dynamics Ability to place make more effectively and more quickly Enables mixed use elements to be brought forward with fewer subsidies Promotes mixed communities

1,000 units 300 social and 100 for sale per annum = 7 year programme with 400 units completed in Year 1 1,000 units 250 social/250 BtR/ 100 for sale per annum = 5 year programme with 600 units completed in Year 1
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Andrew Stanford Head of the Taskforce andrew.stanford@communities.gsi.gov.uk

Julian DArcy Member of Taskforce julian.darcy@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

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