Right to Manage – The Outcome (Part 5)

Early last year we started the Right to Manage process for a scheme where Young London manage all the privately  rented units, with the remainder occupied by the owners. The freehold is owned by The Consensus Group (part of the Vincent Tchenguiz empire).

On completion in summer 2008, County Estates (one of the Peverel/Consensus Group companies) was appointed to be the managing agents. As we had a good relationship with the developer we tended to deal with the developer for a year of so post completion rather than County Estates when there were any issues to deal with.

However in late 2009 we felt that the block could be managed better, both in terms of service and cost. We spoke with the managing agent  Chainbow and worked with them to set up a Right To Manage company. My earlier blogs show how we went about this – you can read parts one, two, three and four here. Then, in the summer of 2010 when we had a resounding level of support, we served the appropriate notices on the incumbent managing agent. The response from County Estates was to challenge the notice. However, following some further communications, it was agreed that Chainbow could take over the block management on 1st January 2011.

It is a case now of not expecting all the issues of the past to be solved overnight, or for the improvements we want to be in place immediately. It is a case of being able to work with a company (Chainbow) who we can plan with, and further enhance the quality of the scheme.

Along with the other owners, we are pleased we went through this process. Although it takes sometime, we feel this demonstrates how a good asset manager can add value for the owners, and enhance the development for the residents. Landlords in general also recognise the importance of good property management, something we noticed in the results of our quarterly Young Index survey towards the end of 2010.

IPD Residential Index – 10 years old

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Yesterday, the results for the Investment Property Databank (IPD) Residential Index for 2010 were released at One Moorgate Place.

Mark Weedon, Head of UK Residential at IPD presented the results, Trevor Moross from Dorrington responded, then there was a panel who gave their thoughts on the results followed by some questions from the audience. The panelists were from Allsop (Alan Collett) , AXA REIM (Alan Patterson) and myself from Young Group.

The key results I pulled out were:

  1. Over 10 years residential annualised returns were 10.1% – property is a long term investment, this is a strong consistent return
  2. Returns across the UK (9-10% annualised) were similar over the last decade
  3. Over the last year, Central London was leading the way with returns of over 13% – adopting what seems to be its usual role of leading the property market upwards after a downturn
  4. Most regions had an annualised income return in excess of 4% over the last decade
  5. Annualised capital growth across the UK was over 6% – strong for such a volatile decade
  6. 2008 was the only year in the last 10 that the index was negative
  7. Over the last 5 & 10 years residential property showed greater returns than any other mainstream asset class
  8. Gilts was the only asset class with a lower risk profile than residential property

Additionally, I commented (as I often do) that population growth and the rise of the solo household is set to grow at a faster rate going forward thus supporting the argument for future returns in this sector.

Finally, pleasingly for me, was that the best performing region was ‘inner London’ – broadly defined as travelzones 1 and 2 excluding West End, The City and Midtown. Exactly the area we at Young Group have been investing in with our clients and our own portfolio.

It was a real pleasure to be on the panel. Any way that I can assist in encouraging more people to invest in this asset class is worthwhile. Bringing more investment to the private rented sector not only generates returns but also has a social benefit and that cannot be said about many asset classes.

Where is the Residential Investor Market?

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Earlier in the month I presented at a conference entitled “Residential Money – Funding to unlock development 2011“.

There was a strong array of speakers from Savills, GVA, Investec, Council of Mortgage Lenders and Santander to name a few. The conference was attended by 150+ senior executives from Banks, Developers, etc.

The day ran through the current state of play in funding. In summary there are only about five lenders worth approaching for development funding according to a number of the speakers. They are Barclays, Close Brothers, HSBC, RBS and Investec. Others may entertain a conversation, however, the banks are looking at cashflow of the project and the track record of those involved. Where you would have an advantage is if you have dealt with one of the banks before.

My presentation was entitled “The Residential Investor Market”. I started by running through the current dominance of the private investor in the private rented sector (PRS), risk/returns of investing in the PRS and the demographic changes in the next 20 years which will have a huge impact on housing demand.

I then showed how investors in the PRS are looking at the asset class as a long term investment. I talked through the different investors in the market, and how Young Group are looking at raising money to buy land so we can build more stock for the PRS.

The slide below gives a summary of my presentation, and also an overview for the whole day.

Next up, I am on the panel on Wednesday (16th March) at the IPD Residential Index Launch. This will be the 10th year IPD have issued the index, and will be interesting information. Let me know if you wish to attend.

Goodbye MIPIM, Hello London

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My MIPIM 2011 is over, and I am back in the office. So, how was it?

As ever, there was the mix of seminars, networking, events and meeting people – some new, some from the past. Visitor numbers were up 6%, and there was an array of stands from lots of cities with buildings planned dotted all over them. The UK was the country of honour this year, although from what I saw this seemed to be read as the Republic of London not the UK.

There seemed to be a realism around, that the market/lending environment has stabilised and it will stay at the current level for sometime – I tend to agree with this. Lenders were talking about lending on cashflow, so not the speculative lending of the past, but back to focusing on where the money will be coming from to pay the loans/bills. Not rocket science.

The seminars were very good, I attended one regarding real estate as an asset class going forward. It was far more bullish than I expected. The economist had a very good grasp of many economies, and was making a clear distinction between economies that were reliant on natural resources rather than industries. To this point, he felt that Russia should not be grouped with the other BRIC countries (Brazil,  India and China). His reason was that Russia was very reliant on natural resources, and this benefit was not shared for the greater good of the country therefore not building long term benefit.

The Mayor of London, Boris Johnson, attended on Tuesday, and spoke at various events during the day. He certainly has his own style, but I think it is fair to say nobody who heard him could leave without thinking there are some great investment opportunities in London and that the city is busy growing with many areas of regeneration, including The Royal Docks, Earls Court and Kings Cross. Of course, the Olympics was a key part of the London message, and the fact that the development is on time and on budget is a strong selling point for London. In fact, the Mayor suggested the Olympics could take place this year!

I often found myself taking about the Private Rented Sector (PRS), and as MIPIM is predominately a commercial property event I found the usual pushback on why back in the UK more institutions do not invest in it. I still find these arguments astounding. I am on the panel for the IPD residential index results next Wednesday, and this will provide another opportunity to push the case for greater investment in the PRS – just look at he UK demographics!

Finally, social media was a topic that was discussed quite a lot. There are some using it, however they are a minority. The depth of scepticism surprised me – wake up property industry! And, finally, finally, the other area that needs addressing is service within the property industry, especially if we are to engage more with the tenants / occupiers of the buildings in the UK, an area social media can help so much with.

See you at MIPIM

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MIPIM 2011

You may have seen my blog about MIPIM and the online world. I am lucky enough to be able to follow MIPIM online and also attend in person.

I am flying out early on Tuesday morning with our Director of Communications,  staying in an apartment (well studio) on Rue d’Antibes for two nights, then returning to London on Thursday night.

As a company our focus is the private rented sector (PRS) in London. So why do we go to France, meet people who generally work within a few miles of our offices in the West End, talk about London business and then fly back to the place we have been talking about for 3 days in France?

I am sure this is a question many people ask. However, you could ask that of many conferences you attend. I presented at a conference last Thursday about investment in the PRS, and it is going to presentations that make MIPIM worthwhile for me. Attending sessions where for example the Mayor of London, Boris Johnson, will present why investors should be coming to London. This helps see how London is viewed from overseas (London is an international city and helping it retain such a global appeal is imperative).

It is also the networking opportunity where we share our views and learn from our peers. At an event such as MIPIM attendees are very focused and want to come away with a better perspective in a changing market. This year I have decided to generally not have individual meetings with people I know and could meet for a coffee locally, rather I will go to events where there will be a good mixture of senior executives. I also want to ensure I have time to go round the exhibition where there are quite literally hundreds of exhibitors; it is often fascinating to see how something operates in a city thousands of miles from London that uses some aspects of what we practice at Young Group or Young London.

The event in my diary I am most looking forward to this year is the British Property Federation / Real Service roundtable. The theme is to discuss where the property industry will be in the year 2020. The event is being covered in Property Week, and if you have any thoughts on this subject then please feel free to leave a comment below.

On top of this, Cannes is a lovely place to visit and there will be some enjoyable hospitality. This will be the fifth year I have attended and I always return to London having learnt a lot.

MIPIM in the Online World

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MIPIM used to be an event in Cannes that lasted three days. Its no longer quite as simple as that – there are unofficial events occuring beforehand, MIPIM-related talk on twitter and interactive resources appearing online . Below is a quick rundown of some of the best content and events happening now to get you in the mood for Cannes.

Cycle to Cannes

This is the sixth annual bikeride to Cannes, that raises money for five different charities – LandAid, Tom’s Trust, The Duke of Edinburgh Award, The Multiple System Atrophy Trust and Article 25.

6 Days, 85 Riders, 1500 km. The Cycle2Cannes website provides more information about the history of the event and live tweets, commentary and photos as the riders cycle from London to the South of France. You can donate here.

Cycle to Cannes

MIPIM Preview Magazine

MIPIM Preview magazine is 92 pages long, and provides a mix of interesting features about property across the globe and finance, including a piece about Nouriel Roubini, the economist who predicted the current financial state of play. There is also a rundown of some of the events happening in MIPIM itself next week.

Interactive Floorplan

This interactive MIPIM floorplan does exactly what it says on the tin. Search by either building or company name and receive very thorough results!

Estates Gazette

Estates Gazette have compiled an interactive MIPIM preview magazine. Featuring video content as well as text, its fun and informative. Main features include programme highlights and photos of real estate projects completed worldwide.

Stacey Meadwell, otherwise known as @EGStaceyM, is compiling a list of the best MIPIM tips. From suncream to flat shoes to travel kettles, its a MIPIM-related thread that’s fun to keep your eye on.
Property Week have created a special international edition looking at global real estate, in preparation for MIPIM. With news and analysis alongside several lengthy features, pages 99-101 display comparative infographics about property professional’s finances and happiness across the globe.
I arrive on Tuesday – looking forward to seeing you then!

Retail property vacancy rate up to 14.5%

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Last week I was on the panel for a debate at Linklaters offices regarding the latest retail vacancy figures from the Local Data Company (LDC). It showed that vacancy rates in retail space had risen to 14.5%. The debate was entitled “Terminal Illness or Gradual Decline?”.

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The main summary was:

  • Retail vacancy rates have risen 2.5% nationally since the last survey (12-14.5%)
  • We are seeing a continuing separation of the south vs the north
  • Large centres are suffering more than small ones (4.5% rise in vacancy rates for large centres)
  • The retail market has reached the point of no return; the current levels of vacant units are here to stay

My role was to bring a residential perspective to the issue and specifically to see if residential could take up some of the empty space. The issue with residential taking up the space is both one of planning classification and surroundings – would you want to live in the middle of a parade of shops?

I am not a planning expert, however, to change from retail to residential is not straightforward. Clearly, where there is a parade of shops you could not put a residential unit in the middle of it. However, the upper parts could be converted to residential. This has occurred over the years more and more, especially as many shops have storage offsite or equipment centralised (eg Dry Cleaners have equipment away from the retail unit).

You also hear a lot about pubs that are converted into small blocks of flats – this does seem to be continuing. Also, the ‘local (corner) shop’ which often are unable to compete with the supermarkets are being converted.

However, the results are showing that it is the large centres that are experiencing the greatest vacancies – these I suspect will find it the most difficult to convert units to residential. Geographically, there is a North / South divide, with the North experiencing higher vacancies. Again, it is the South which seems to have the greater requirement for housing.

To see more details go to the LDC website, which also includes footage of the event.

Swap Rates put Pressure on Cost of Borrowing

Jane Reeves

A guest blog from Jane Reeves, Portfolio and Finance Consultant at Young Group

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Over the past weeks, two noticeable trends have emerged in the mortgage market and we have seen that:

Higher Loan-to-Value (LTV) mortgages are returning to the market

For borrowers with limited deposits, it’s worth noting that the number of available mortgage products at 85% LTV has almost doubled over the past year to 560 (up from 310 in February 2010) and average rates for higher LTV loans have fallen, see below for a current example 80% LTV mortgage:

  •  80% Loan-to-Value Fixed Rate Residential Product
  • 2 year fixed rate of 3.98% (currently the lowest on the market)
  • For residential purchases or remortgage
  •  Available up to 80% LTV (lower rate of 3.35% available at up to 65% LTV)
  •  £995 Arrangement Fee
  • Free valuation and legal fees on purchases and remortgages

 Fixed rate mortgages rates are increasing

Latest figures from Moneyfacts Group show that 2, 3 and 5 year fixed mortgage rates all reached a 6-month high this month.  The cost to lenders of raising funding on the swap rate market has soared in recent months and they are passing on this cost to borrowers.

Recent reports also suggest that a base rate rise could happen sooner than previously thought and any rise in base rate would push mortgage rates higher, so borrowers looking to fix their repayments should act sooner rather than later.  Indeed, borrowers who have delayed the decision to commit to a new deal will now find themselves having to pay higher monthly payments.  On a mortgage of £150,000, a 0.50% increase in rate would add £42 per month to a borrower’s repayments, and with no signs of swap rates starting to fall, the likelihood is that mortgage rates will rise further.

In this light, the following current residential mortgage example looks extremely competitive:

  •  65% Loan-to-Value Variable Rate Residential Product
  •  Variable mortgage rate, currently 2.99%
  •  For residential purchases or remortgage
  •  Available up to 65% LTV
  • Booking fee of £199 (payable upon application)
  • No arrangement Fee
  •  No valuation or legal fees on purchases or remortgages
  •  No early repayment charges

It may be Base Rate discussions that dominate the headlines, but Swap Rates are the ones to watch…

Social Media and the Private Rented Sector

A guest blog from Carla Bradman, who recently joined Young Group as our Marketing Communications Assistant

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It’s not a question of whether social media is an important tool for your company or the private rented sector in general. If social media is important to your customers or consumers, then it should be important to you.

So is social media important to your customers? Around one third of the British population is on facebook, with 5.3 million users living in London. Therefore if London habitants form part of your demographic, consider social media a set of tools that you must not blindly bypass.

It’s easier than ever to reach a large audience, but harder than ever to really connect with it.

Did You Know 4.0

Social media should be used in two ways – as a means of getting information into the public sphere, and as a way to build relationships that feel personal within the realm of the online world. Self-promotion is the reason behind the majority of forays into social media within a business context, but marketing yourself online involves a large degree of sensitivity. Starbucks do not interact with everyone who follows them on twitter or facebook as they can give away a cup of free coffee as an incentive for someone to ‘like’ them, actively using their product to promote their brand. However a social media strategy like theirs, one without a commitment to ongoing interaction with individual consumers, is a rare example of success and should not be seen as the norm. The reality for the private rented sector is that if you can’t offer a month’s unconditional free rent to everybody that ‘likes’ your facebook page and can only provide a branded pen as an incentive instead, ongoing communication and interaction is your best chance of securing fans online and in reality.

Simon Gordon, Head of External Relations at National Landlords Association, has also commented recently on the future of social media in the property industry.

We do use the social media at the NLA. Like many other organisations we have felt the need to embrace it and while we may not have got it all right we believe this is a powerful tool that cannot be ignored. We live in an age of almost instant communication and if the sector is to keep up with developments there is a role for social media. This is especially true of a sector like ours where there are reputational issues to be addressed and, at times, inaccurate perceptions to be corrected.

He raises an important point by suggesting that people use social media as a way to voice their complaints. Social media can provide a disgruntled customer with a very powerful tool, a loud voice that can travel across cities raising awareness to their cause. If you spend time monitoring feedback across social media platforms not only will you be provided with valuable customer feedback, you will also be in a position to cut negativity when it starts by contacting the disgruntled person immediately and providing them with the excellent service they desire.

Essentially, even a great social media strategy is likely to be worth little if the service or product you offer does not live up to expectations. Yet if your customer is important to you, communication is always key.

Suggested viewing

If you are still unconvinced about the power of social media this short video provides facts and figures illuminating just how many people use it and the numerous ways you can get involved.

Teaser: it took 38 years for radio, 13 years for television and 4 years for the internet to reach an audience of 50 million – it took facebook 2 years.

(Watch on YouTube).