Regeneration Leaders NetworkBuild to Rent 15 April 2014

Joanna Embling PRS Taskforce

Agenda

AGENDA

Build to Rent Context/ Current state of playWhat is Build to Rent and what does it look like?Government Initiatives/Financial SupportTaskforce InitiativesPart of the Regeneration Toolkit*

*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.

Context

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Owner occupied

Social housing

Private renting

Proportion of dwelling stock in England

Sheet1

Owner occupiedSocial housingPrivate renting

191823.00%1.00%76.00%100.00%

193123.67%2.77%72.49%98.93%

193224.00%3.66%70.74%98.40%

193324.33%4.55%68.98%97.86%

193424.67%5.43%67.23%97.33%

193525.00%6.32%65.48%96.80%

193626.67%7.20%63.72%97.59%

193728.34%8.09%61.97%98.40%

193830.01%8.98%60.22%99.21%

193931.67%9.86%58.46%99.99%

194031.70%10.49%57.81%100.00%

194131.73%11.09%57.18%100.00%

194231.75%11.69%56.56%100.00%

194331.78%12.27%55.95%100.00%

194431.81%12.84%55.36%100.01%

194531.83%13.39%54.78%100.00%

194631.85%13.94%54.21%100.00%

194731.88%14.47%53.65%100.00%

194831.90%14.99%53.11%100.00%

194931.92%15.50%52.57%99.99%

195031.95%16.00%52.05%100.00%

195131.97%16.49%51.54%100.00%

195231.99%16.97%51.04%100.00%

195332.01%17.45%50.55%100.01%

195433.49%18.23%48.29%100.01%

195534.94%18.99%46.07%100.00%

195636.35%19.74%43.90%99.99%

195737.74%20.48%41.78%100.00%

195839.10%21.20%39.70%100.00%

195940.44%21.90%37.66%100.00%

196041.75%22.60%35.65%100.00%

196143.90%24.50%31.70%100.10%

196244.70%24.87%30.52%100.09%

196345.50%25.24%29.34%100.08%

196446.30%25.61%28.16%100.07%

196547.10%25.98%26.98%100.06%

196647.90%26.35%25.80%100.05%

196748.70%26.72%24.62%100.04%

196849.50%27.09%23.44%100.03%

196950.30%27.46%22.26%100.02%

197051.10%27.83%21.08%100.01%

197151.90%28.20%19.90%100.00%

197252.66%28.29%19.06%100.01%

197353.42%28.38%18.22%100.02%

197454.18%28.47%17.38%100.03%

197554.94%28.56%16.54%100.04%

197655.70%28.65%15.70%100.05%

197756.46%28.74%14.86%100.06%

197857.22%28.83%14.02%100.07%

197957.98%28.92%13.18%100.08%

198058.74%29.01%12.34%100.09%

198159.50%29.10%11.50%100.10%

198260.36%28.48%11.25%100.09%

198361.22%27.86%11.00%100.08%

198462.08%27.24%10.74%100.07%

198562.94%26.62%10.49%100.06%

198663.80%26.01%10.24%100.05%

198764.66%25.39%9.99%100.04%

198865.52%24.77%9.74%100.03%

198966.38%24.15%9.49%100.02%

199067.24%23.53%9.23%100.01%

199168.1%22.91%8.98%100.00%

199268.3%22.64%9.10%99.99%

199368.3%22.38%9.34%100.00%

199468.4%22.07%9.58%100.00%

199568.4%21.78%9.84%100.00%

199668.3%21.56%10.13%100.00%

199768.4%21.27%10.30%100.00%

199868.9%20.93%10.21%100.00%

199969.4%20.66%9.97%100.00%

200069.8%20.33%9.91%100.00%

200170.0%19.97%10.06%100.00%

200270.0%19.67%10.30%100.00%

200369.01%19.12%11.87%100.00%

200469.42%18.66%11.92%100.00%

200569.33%18.20%12.47%100.00%

200668.45%17.97%13.58%99.99%

200767.91%17.75%14.34%100.00%

200867.10%17.53%15.37%100.00%

200966.07%17.49%16.44%100.00%

201065.17%17.48%17.35%100.00%

201164.20%17.48%18.33%100.00%

201263.22%17.48%19.30%100.00%

201362.25%17.48%20.28%100.00%

201461.27%17.48%21.25%100.00%

201560.29%17.48%22.23%100.00%

201659.32%17.48%23.20%100.00%

201758.34%17.48%24.18%100.00%

201857.37%17.48%25.16%100.00%

201956.39%17.48%26.13%100.00%

202055.42%17.48%27.11%100.00%

*The New Institutional Build to RentWhat 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 buildingProfessionally ManagedValued as an Investment

*What Does It Look Like

BUTPhysically can be low rise, medium rise or high riseUrban or suburbanPools / Concierge Not ObligatoryLow Rise SuburbiaLow Rise UrbanHigh Rise - UrbanBusiness CentreRoof TerraceATMCinema RoomConciergeShared SpacePool/Gym

*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

Developers / Land Owners& Investors / Banks*Government Initiatives:The Taskforce One Year On

Stakeholders 500 plus MeetingsGovernment/Govt AgenciesLand Owners/DevelopersInvestors/Funders (inc Banks)RPs/Local AuthoritiesContractors/DevelopersConsultants / AgentsRoleSupport Government Initiatives: Build to Rent & Debt GuaranteesLink Supply & Demand: Land, Developers & InvestorsImprove Standards: Management/Valuation Design/Planning

*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. NPPF Planning GuidanceGovernment Initiatives - Planning

* Up to 1bn commercial development finance 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.

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

Build to Rent FundPRS Debt Guarantee SchemeGovernment Initiatives: B2R Fund & Debt Guarantee

Taskforce IntiativesValuationRICS Red BookTwo Approaches1.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)Scale 20 units vs 50 units vs 100 units vs 200 units plus(b)Housing Type Houses vs apartments(c)Local Market break-up potential, demand for sale vs rent, competition etc*

Taskforce InitiativesULI Best Practice Guide*

Taskforce InitiativesData

Need for Independent Reliable Data Source to Benchmark Investment Performance

IPD Index IPD Commercial Index respected by the IndustryIPD Residential Index Insufficient modern stockNeed to enlarge and upgrade the data poolFind a way for all the owners of Build to Rent Stock to engage such as Local Authorities and RPs *

Taskforce InitiativesLocal Authorities and RPs

PRS Can Work Outside London

ResearchEC Harris/HometrackLocal Authority Based Analysis ConsiderationsDevelopment ViabilityPlanning ViabilityInvestment Viability*

Build to RentPart of the Regeneration ToolkitModel 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 controlAdditional windfall housingImproves financial return of the overall schemeBrings life/people to the Town CentreAdded Revenue Stream perhaps preferable to a public sector landlordGround floor uses offer amenities to tenants

*

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 chargesEarly rental receipts improve financial dynamicsAbility to place make more effectively and more quicklyEnables mixed use elements to be brought forward with fewer subsidiesPromotes 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*Build to RentPart of the Regeneration Toolkit

*Andrew Stanford Head of the Taskforceandrew.stanford@communities.gsi.gov.uk Julian DArcy Member of Taskforcejulian.darcy@communities.gsi.gov.uk

Dominic Martin Member of Taskforcedominic.martin@communities.gsi.gov.uk Joanna Embling Member of Taskforcejoanna.embling@communities.gsi.gov.uk

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