Welcome back to the UK Build to Rent Q&A series. Join us this week as we share a finance& sustainability focused Q&A with Andy Pointon, Head of Build to Rent Investment and Development at Allsop LLP.
Allsop is an independent property consultancy with a market-leading reputation for high quality service and integrity, covering the UK from its offices in the West End, the City and Leeds. In addition to its position as the UK’s largest and most successful property auction house, it offers an extensive range of services for residential, commercial, and mixed-use property.
About
Andy Pointon is a partner in Allsop’s Build to Rent team, having joined the business as a graduate in 2006. Having spent 11 years with Allsop’s National Investment team, Andy developed an extensive institutional client base. He specialises in BtR advisory, which spans research, development and consultancy. Andy’s team works with developers, helping them create the vision for their projects as well as investors.
Andy’s client list includes (but is not limited to) the following businesses: Aviva, BMO Real Estate Partner, Canada Life, ENGIE, Home Group, and Nuveen Real Estate.
Q: What kinds of services does Allsop provide within the BtR sector?
A: I lead the Investment & Development Agency and Consultancy team, and we also have a strong lettings and management business (Allsop Letting & Management or ALM) and valuation services. All divisions work collaboratively, and there is a particular cross over with ALM – the operation of schemes post-acquisition is an important component of the value we can add on behalf of our clients, which include large institutional investors and property developers.
Q: Given then events of the past 24 months (i.e. the Covid pandemic), what have been the biggest lessons you’ve learnt both as an individual and with regards to your company?
A: The status quo is constantly being challenged, meaning things change quickly and you have to react and be open to doing things differently.
The construction industry has faced unprecedented challenges in the past few years, and so we as a team, together with the rest of the property market, need to constantly innovate and find ways to adapt.
Q: Developments face different viability challenges due to the ever-increasing high construction costs. How does that shape the kind of schemes developers deliver? (Such as size /amenity /unit numbers).
A: The number of locations where BtR developments are viable has contracted as the pressures of build cost inflation affect the viability of development.
In order to be able to carry higher construction costs, deliver the required profit and produce a land value, investors and developers have no choice but to focus on higher revenue-generating areas.
For multi-family BtR in particular this means London and prime sites in strong regional locations, like Manchester, Birmingham and Leeds.
Q: In addition to the above, how can developers safeguard against the unpredictability of the construction cost market we’re witnessing and heading into as we navigate the bounce back of covid and uncertainty of Brexit + high inflation?
A: Developers should continue to aim to secure fixed price construction contracts with contractors, although there is likely to be a substantial cost inflation premium within the fixed price.
When working with third party investors, they can look to share some of the cost inflation risk if it isn’t possible to fully fix a build contract. Ultimately, increased cost and risk mean that land prices need to reflect the challenges.
Q: With Cop26 still in everyone’s mind – how do you see the priorities of the investment strategy changing over the next 18 months as the world moves to make better choices for the longevity of our planet?
A: Most investors in BtR have significant ESG targets and are likely to pay higher prices for investments that have strong ESG credentials.
Recent and future changes in building regulations mean that developers need to design buildings with energy efficient features from the outset to make them relevant to the investment community.
Consumers are becoming increasingly aware and conscious of sustainability, so investors and developers will need to continue to respond to the market sentiment.
Q: What impending trend do you perceive will change the way the industry invests in and develops new schemes?
A: We expect to see the continued growth of modular construction, particularly in BtR single-family housing. Cost inflation pressures are proving to be more measurable, and as a result, there is greater certainty around costs, along with faster construction programmes. However, modular will take some time to scale up for us to start reaping the benefits it can offer.
Q: Development costs are usually the adversary of sustainable practices – what are the practices you see as having the best ROI? And how do you quantify the benefits to a tenant in order to get funder approval and to incorporating at the front end?
A: Unfortunately, cost remains the main obstacle to pursuing high ESG standards within new schemes for many developers, although the initial cost of installation can be balanced out by lower operational costs.
For example, better insulated buildings, with PV panels and air source heat pumps will have higher initial development costs, while offering reduced running costs to the investor/consumer. Therefore, lower operational costs should have a positive effect on initial value.
Q: We’re seeing an ever-increasing demand from the government, investors, and local councils for BtR contribution to the climate crisis – how do you see the design of a BtR evolving to match this requirement and is it possible to design a carbon negative building?
A: Developers recognise that there is both a regulation-driven and consumer demand for better ESG credentials in development – indeed, a number are targeting net zero development via a range of design and construction considerations. Better insulated homes, more efficient heating systems and electric vehicle charging points as standard specification are a good place to start.
Q: What are your priorities for the next twelve months?
A: Over the next year, we’re planning to continue to work with our established developer and investor client base to assist them in meeting the challenges of development, offering constructive and honest advice.
By working closely with Allsop Letting & Management and our professional advisory team we can keep our clients up to date on any important changes at the coalface of the market. We look forward to working on an ever-greater number of transactions involving BtR single-family housing given the volume of interest it is attracting.
It is one of our areas of expertise, and it’s great to see so many UK and overseas institutional investors view the sector so positively.
A Big Thank You… to Andy Pointon for taking the time to respond.
If you have any other questions regarding this interview, you can reach out to SEC Newgate UK at allsop@secnewgate.co.uk
Our content calendar has enough free space for one or two more contributors to this series. If you feel you would offer value and have experience in build to rent investment, design, management or ESG – contact us here.
Thank you for reading.
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