Taken from the Residential Property Investor (RPI), the RLA’s member magazine, Rosalind Renshaw talks to Neil Young. He is a private landlord who is also a leading pioneer in the build-to-rent sector. They discuss if this is the future…
Neil Young started out as a private landlord. Today, he still has an active portfolio but he is also the CEO of the biggest build-to-rent companies in the country, Get Living London.
Its best known project is East Village, which was the famous Athletes’ Village for the 2012 London Olympics. Recently named the ‘development of the decade’, East Village is now a collection of residential rental apartments which are owned, let and managed by Get Living.
There are currently 1,500 homes on the site, with another 2,000 homes in the pipeline.
The Development of the Decade title was bestowed by members of the industry itself at the RESI Conference this autumn.
At the same conference, new housing minister Gavin Barwell was making his first major speech. Coincidentally, he chose to focus on build-to-rent, saying: “A growing number of families and young professionals are choosing the private rental sector, and while home ownership is still the goal for the majority, many will rent for some years before they buy.
“I’m very clear that our ambitions will never be achieved without a significant boost in institutional investment to the private rental sector, to ensure more choice and quality for people living in rented accommodation.”
Barwell’s reference to “institutional investment” underlines the significant difference between the traditional private rented sector and build-to-rent.
In the traditional sector, private landlords make their own investments, either on an all-cash basis or with the help of a buy-to-let mortgage.
In the build-to-rent sector, institutional investment comes from the likes of pension funds.
In the case of Get Living London, the three backers are Qatari Diar Real Estate Investment Company, which is owned by the Qatar Investment Authority; property investment company Delancey’s flagship client fund DV4; and Dutch pension fund AP Asset Management NV, a Dutch pension fund asset manager in the Netherlands. Each owns a third.
It is not a set-up that most private landlords would begin to recognise – but it is not the only difference. In accepting the ‘Development of the Decade’ award, Young emphasised: “From the very beginning, we set out to change the norms of renting.
“Place-making is at the absolute heart of our proposition – creating meaningful ways for our residents to meet each other and taking time to find the most interesting independent retailers to join us.
“We survey our residents on a monthly basis and they regularly tell us it’s this sense of community that makes East Village so special. “I am very proud of what we have all achieved and it’s fantastic to see that our efforts have not gone unnoticed.”
Young became a private landlord in the late 1990s. An accountant by profession, married to Sylvana, a chartered surveyor, the couple were working and living in Hong Kong.
They felt it made sense to invest in rental properties in the UK – and indeed, there remains a strong culture of UK property investment in Hong Kong.
On their return the couple set up a property consultancy, Young Group, aimed at private investors, and a letting agency, Young London.
The most ambitious project centred around two new residential tower blocks in Canary Wharf. At one, Young Group bought all 665 apartments and sold them on to investors. At the other, all 276 apartments were sold within seven months.
Purchasers wanting to rent apartments out were able to do so through Young London.
Both the Young businesses weathered the financial crisis of 2008, but that was when Young began talking to institutional investors.
In 2011, he became involved in discussions about the Athletes’ Village and its legacy after the London Olympics.
Up against the likes of Savills and Knight Frank, it was Young London which was chosen as consultancy for the project. “They liked our model, including the fact that staff were rewarded on customer service and not sales,” says Young.
The consultancy clearly went well, with Young subsequently being offered the full-time role of CEO. The Youngs then PROFILE sold their lettings business, Young London, to Countrywide, and while they still have the consultancy side of the business, it has clearly taken something of a back seat.
Future of the private rented sector?
Currently, government economic policy is harsh on private landlords, appearing to want to discourage them in favour of the build-to-rent sector. While Young prefers not to discuss his own rental portfolio, he does say that it represents his belief in the private sector – and he clearly thinks that there is room for both types of landlord, institutional and private, in the sector. He says: “I have said for many years that the private rented sector is going to grow and I think that the traditional buy-to-let investor will remain very important.
“As the housing minister said, there is not one part of the housing market that will solve the crisis – it will be all parts, working together.
“I think institutions buying into the sector is a good thing. While I think some letting agents have improved, increasing their levels of customer service, this is an area in which some smaller landlords could improve. Professionalising the sector should help that happen.”
He is hopeful, too, that plans to cap the amount of mortgage interest that private landlords will be able to claim against tax will be re-thought.
If there is room for both, there are key differences between the build-to-rent and traditional private rented sector.
The biggest difference, says Young, is the relationship between tenant and landlord.
While some build-to-rent projects are handed over to letting and managing agents, he prefers to keep everything inhouse at Get Living London.
“We handle everything from the first inquiry, all the way through. We rent and manage all the properties, with our focus being on the tenant.”
The approach seems both individual and community minded, despite the sheer scale of the projects. East Village will soon have 3,500 homes, while at Elephant & Castle another 700 homes are taking shape in phase one, with another 1,000 to come.
Nor is Get Living London – despite its name – wedded to operating only in the capital: “We are looking at cities outside London, for example Manchester and Birmingham. What we look for is good access to transport links – it’s incredibly important to us.”
What tenants look for
Young does not think that build-to-rent tenants want different things from those looking to rent from private landlords.
“People want a good standard of accommodation that is well connected and well located, and they want quality of service,” he says.
There are, however, obvious differences in the type of tenant: at East Village the average age is 29 and only 10% of residents are families.
Tenants represent 80 nationalities and are firmly of the millennial generation. Many have lived in the east London area previously, and 30% came to East Village after living with their parents – meaning that they have had little or no experience of independent living.
Many seem to have no aspirations to become home owners. As Young points out, we are in a time of social transition, with a shift away from home ownership to renting as a choice of lifestyle.
He cites the example of one tenant who had been living in New York but then decided to move to London. This is someone who wants to experience life, not home ownership.
The focus at East Village is on creating a neighbourhood community. As well as homes there are over 30 retailers on site, all independents.
Lots of events are held – firework evenings and a chocolate festival among them. For the Wimbledon final, a huge TV screen was set up in the grounds.
It clearly works, with 20% of new residents referred by existing tenants.
Does it come at a cost?
At East Village, rents do seem on the high side – and it is often said that the cost of renting in the build-to-rent sector compares unfavourably with rents charged by private landlords.
One-bedroom flats start at £380 a week and two-beds at £430 a week.
However, Young points out: “When the Athletes’ Village was being designed the International Olympic Committee insisted that all bedrooms should be doubles. Around 80% of our two- and three-bedroom homes are occupied by sharers, which means that the properties are quite affordable on that basis.
“The headline price might seem high but not when you take that into account.”
It is also worth noting that there are no fees for new tenants, although they do have to hand over deposits equivalent to six weeks of rent. The deposits are protected by the TDS.
Nevertheless, Young concedes that affordability is “a big issue for us”. The business constantly monitors average earnings against its rents.
In future developments, including the one at Elephant & Castle, the firm will ensure a good spread of properties, including studios.
Because the project is so new – East Village’s first tenants moved in during the second half of 2013 – there is not yet a sense of tenant churn.
In any case, tenants are offered one-, two- and three-year Assured Shorthold Tenancies, with the default tenancy being three years.
During that period the landlord cannot evict the tenant unless there has been a breach of the agreement. However, a tenant can give two months’ notice at any time after the first six months.
There has been a pattern of tenants moving around East Village. For example, someone who has shared a three-bed property might move into a one-bed home because they wanted more privacy; equally, there are tenants upgrading from one bedrooms to two.
What is in it for investors?
The most important question is whether institutional investors will do nicely out of build-to-rent.
This has always been the major doubt, because property is an illiquid asset and the returns are hardly earth-shattering. Young agrees that there has been a reluctance for institutions to join what the Government seems to think is a party.
“A few years ago there was a lot of talk but very little action, but that is changing,” says Young. “We live in a lowinterest environment, and more investors are thinking long term.”
That sounds more like the private rented sector we are familiar with, where a landlord’s profit one year can become a loss the next, but where virtually all landlords are in it for the long haul.
Undoubtedly there are more players in the build-to-rent sector, with names including Legal & General and Essential Living.
If private landlords are being hit by increased regulation, what of the buildto rent sector? Clearly, much of what applies to small landlords applies to the bigger ones too – for example, fire regulations. However, overall regulation of both private landlords and letting agents has not come into being, at least in England. Private landlords and high street letting agents do not have to sign up to a mandatory register – as, for example, they will have to do in Wales from this autumn.
The regulatory threats are also the same for both sectors: if Labour were to get into power under Jeremy Corbyn, it is entirely possible that Right to Buy would be extended to the private rented sector.
Private landlords are represented by the likes of the RLA.
The build-to-rent sector is represented by a new trade body, United Kingdom Apartments Association (UKAA), while the British Property Federation tirelessly lobbies the build-to-rent cause.
However, it is worth pointing out that Get Living London does sign up for voluntary regulation and was the first build-to-rent business to join the Association of Residential Letting Agents.
Since Get Living London actually cuts out letting agents by acting as its own agent, it is interesting that there has not been a murmur from ARLA’s existing membership.
So, while the build-to-rent sector seems like more of an enemy than a friend to the traditional private sector at the moment, will the Residential Landlords Association soon be counting institutional providers among its members?
At the moment this seems unlikely. But if it ever did, it is more than likely that Get Living London would be the first to join.