Certainty is by its own definition the thing that differentiates between good and bad in most things, but in the Property Investment world it quite literally has a value. When the RICS introduced the Material Uncertainty Clause right at the start of the Pandemic it caused a ripple right across the investment market. Basically, it threw MUC at all the Project Valuations in play looking for funding. The consequence was a collective pressing of the Pause button. Money stopped flowing!
In the subsequent months something unpredictable happened in the Multifamily (US terminology) and Build to Rent (European terminology) sector. People paid their rents. They did not just pay them, they paid their arrears, and they extended their leases. Okay, the latter was probably a necessity given you could not go and visit a prospective property to rent. However, the rest was borne out from a basic need for “certainty” in what was the world’s most uncertain time. People need a place to live, and they paid their rent to ensure that was not something else they had to worry about.
LIV Consult parent company Cortland and the UK management business LIV Group reported that they collected near normal levels of rent in March, April, May, June and July and given the scale of this collection in the US in particular (58,349 units), it proved that Multifamily/BTR is a resilient Asset Class. Couple this with a high number of positives from a customer care perspective of living in a professionally managed ‘community’ (not the focus of this article) and investors are beginning to press Play again and projects are moving forward.
Investors in any sector love certainty and where they encounter uncertainty they add ‘risk pricing’ to account for it. Where this risk price becomes problematic is when it tips a viable project into the unviable bucket bringing the Sword of Damocles down on Developer’s heads.
The good news for the Build to Rent Sector in Europe, particularly in the UK and Ireland, was that RICS lifted the MU Clause from both BTR and Logistics, or as the industry has christened this “Beds and Sheds”. I was in discussion with a well-known National Family Owned Contractor (who also Invests) and they told me that their new Business Plan was focussed on, Beds and Sheds! Not just ‘any’ beds I hasten to add, but BTR beds. If you have a residential for sale project to fund, you might want to scratch off the ‘sale’ and replace it with ‘rent’. If it says ‘hotel’ then hopefully you have a Plan B.
The consequence of all of this is not the opening of the flood gates for inward investment into BTR, but more of a re-focussing of funding towards it. In the months preceding C19 we saw a significant increase in the interest of American Institutional and Private Capital into the UK and Ireland market because the market was young and the metrics were positive. If anything, some of these metrics have moved towards BTR during the pandemic.
The BTR metrics are:
- Supportive Socio-economic and Demographic data, particularly among the 20+ to 45 age group, although not limited to
- A positive Rental Projection Model with the prospect of Rental Growth
- Good Transport links to Employment
- Employment with income that can demonstrate Affordability
- Demonstrable demand for rental in the location
- Comparable Rents to build BTR rents onto
- Supportive Planning Regime for BTR
- Detailed Operational Cost Model showing the appropriate Net Operating Income (NOI)
- A Lifecycle Model (ideally up to 30 Years)
We have a track record of delivering a BTR Investor Appraisal Reports which have all these metrics and a detailed analysis within it, which is used by Investors to build their own Financial Model and support the approval of the funding.
LIV Consult now produces a Z-Score for the Investment Metrics of every single Postcode of BTR interest across the UK and Ireland to identify the places which deliver the most compelling BTR investment metrics.
In other words, it is not about the inconvenient speedbump that is the erection of the bricks and mortar, but instead it is about the income that it generates when it is open, full, and stable. This is where an Operator led consultant (LIV Consult) and an experienced Development Manager (F3) adds value to the delivered project.
Here are the ingredients to the BTR recipe:
- Operationally driven
- BTR Apartment Design including design for sharing
- Specification from a Whole Life Cost perspective (Lifecycle)
- Best-in-class Amenities (Resident Lounge, Gym, Roof Terrace and more)
- The Fastest Broadband on the Planet
- Back of House Provision
- “Resident First-Living”
- Outstanding Customer Experiences
- Dedicated on-site people who love what they do
- A Customer App
The outcome of this thinking being driven in at the earliest possible stage of the project is the procurement of a project that has the lowest possible blend of Capital Cost, Operational Cost and Lifecycle Cost over say 30 years. An Institutional Investor, Private Equity Funder, Hedge Fund or REIT will look at this Investment Rate of Return (IRR) and if it delivers “certainty”, then they will invest.
If you then add a best in class Customer Experience driven management platform (LIV Group/Cortland) then you have happy customers (you might have called then tenants before) who love where they live and pay their rent.
What is not to love!