Finally, after years of talk, and
long after the term ‘build-to-rent’ became an accepted part of the industry
parlance, there is evidence of real schemes coming through planning and of real
investment in this asset class from private sector funds.
The new activity is a reflection the increasing numbers of people who are choosing to rent
because they prefer to be mobile or cannot see any benefits in ownership or
they simply cannot afford to buy. In the Southeast this is magnified sharply
and plans for large schemes run to many thousands of units already. But these new renters are not prepared to accept the mediocrity that pervades much of the existing market outside of the social rented sector. Private landlords do not generally have the scale that allows for investment and upgrading of existing stock and units are often disparate and not part of a unitary strategy.
The private rented sector has the opportunity to offer much higher quality products, to add in services and to create longer term communities with people who want to stay put. In the USA and most of the rest of Europe this has long been the norm.
I have not, however, seen any
evidence of real management strategies. When looking through the plans for new build-to-rent developments there is scant information on how the assets are to be maintained and enhanced over time in a cost effective way. There is a danger that many of the same mistakes will
be made as were made in the last urban regeneration boom. Developers are still learning from mistakes
made in the early days of the leasehold flat resurgence in the 90s. The issues will
remain the same with build to rent, but I suspect that institutional investors
will be keener to understand the true returns after the real cost of managing
complex buildings is factored in.
New large schemes will temper the
market, add variety and drive up the quality of properties and services to
tenants. But letting agents are not generally able to provide sophisticated
property asset management solutions.
However, in all other respects
the buildings are the same as those that managing agents across the country
already manage for private leasehold owners and freeholders - in excess of 2.5
million units.
Modern blocks require
sophisticated management solutions. They are filled with plant and machinery
that requires adequate maintenance and long term capital expenditure and
sustainability strategies. The compliance and health and safety regimes are the
same. They need fire strategies, parking strategies, they require cleaning, decorating and landscaping and importantly they need customer services and
response lines – just like long leasehold units.
Client landlords will demand long
term strategies and modelling based on accurate budgeting and pre agreed
returns. This is where understanding cost controls and budgetary management
becomes essential. It is where asset register, cyclical plans and energy
efficiencies need to be understood from the outset. It is where early attention
to detail will reward investors. No one has more experience in this area than
managing agents who have been working with developers on large new build urban
blocks for many years.
There is a further opportunity
also. Managing agents are well placed to provide additional services and time
poor young professionals will be looking for hotel style services such as furniture
packs, cleaning, laundry and concierge. Management of rental blocks is not
constrained by leasehold legislation and will allow for considerable innovation
and imaginative costs control, cross subsidy and leverage of purchasing power.
There is one group already gearing up to provide the solution and they have a good deal of experience. Registered Social Landlords have had a few years of taking on developer built apartment blocks and have learnt fast. They understand that cost control is imperative and quality is rising. They have learnt from the private sector. They are far from perfect, but do not underestimate their resolve. One has recently purchased a large managing agent. The risk is obvious.
Managing agents have had a long
and difficult journey in the last ten years but lessons have been learnt and
new and innovative ways of delivering safety, security and quiet enjoyment to
their customers are now becoming the norm. Private rental of the scale that
build-to-rent proposes must be regarded as a significant opportunity for property managers. It is for
the industry to sell its unique skills to this new investment class and the clock is ticking.
