Monthly Archives: April 2019

Happy People Give You Money

Designing for BTR requires the creation of an architecture that supports excellent customer service, integrating an efficient operating model into an attractive product that creates a sustainable long term income for the investors and a good living experience for residents.

 

Architects have to ask the strategic and searching questions about what the BTR business model expects from its building, at what cost, and how the building could be expected to perform over time. To do this, we must ‘create differently’ as the design for long term revenue is about starting with the customer: defining what products, services and amenities will be offered, and how the customer interaction with the business model should be managed.

 

In BTR the source of revenue is the individual resident or customer and is generated through rent and services. This places BTR firmly in the culture of a consumer market where keeping the customer happy and loyal is key to securing ongoing revenue. In good BTR the customer is at the center of design, operational and income generation dynamics.

 

Good quality BTR design will offer a product that will be attractive to the market and also provide flexibility to respond to trends or shifts in consumer behaviour. The Architect and Operator must work closely together to define the customer experience and to agree on the optimum balance between capital expenditure and operating costs. With this information, a design team can create solutions that support these business objectives. In other words, defining and controlling the customer experience is the key to defining good design, predictable operational costs and sustainable revenue.

 

We call this creating a brand. It can be limited to a single project or underpin a portfolio. Geraghty Taylor has a proven methodology that starts with setting the expectations for revenue, product, service and business requirements. These are the ‘brand business objectives’ and will inform the creation of ‘brand values’. These values describe the experiential, cultural and communicable elements of the brand, and with them, the process of creating the ‘BTR customer experience’ can begin. As designers, we must translate these into a product proposition, and for this we use our ‘brand chassis’ ME, WE, FRONT, BACK that describes the four key elements of customer experience:

 

ME - my private spaces
WE - shared spaces and places
FRONT - front of house or technology interaction with customers
BACK - back of house support and logistics

 

 

Ideally, a BTR brand is built up independently of a site or location. The brand is then used to inform and guide the architecture, interior design and placemaking on specific sites. A brand helps to describe the requirements of all stakeholders from investors, operators and through to customers. The more richly detailed this information, the easier it will be for the architect to design better solutions for you and your customers.

 

From a purely design perspective, it is very important that both the interior and architectural design is closely integrated from the beginning of this process. At Geraghty Taylor, we believe that the best way to do achieve this is to ‘design from the inside out’ thereby ensuring that the customer experience and operating requirements are central to all design decisions. The customer experience is not limited to the building itself, it extends to placemaking and the integration of the new building into the local community. Thorough context analysis enables designers to develop ideas for the building and its amenities that will support the new the BTR customer experience and complement the local community and amenities.

 

A well thought through brand also creates benchmarks that will underpin your business, bringing consistency and predictability to the design of the product, its procurement and operation. It will also help with site selection. Design your Brand Before your Building so you, your architect, your procurement and operational teams, but most of all your customers, know what to expect. Done well, this will result in a marketable BTR offer with efficient and predictable operating costs. With a solid product and operating base, revenue-generating strategies can be deployed. This is all underpinned by a commitment to customer satisfaction and providing an attractive product.

 

In very simple terms happy people will give you money. So in BTR, our priority is to get them happy with a well thought through offer, and then keep them happy!

 

#BTR   #BuildtoRent   #Brand  #Brandbeforebuilding

Designing for BTR requires the creation of an architecture that supports excellent customer service, integrating an efficient operating model into an attractive product that creates a sustainable long term income for the investors and a good living experience for residents.

 

Architects have to ask the strategic and searching questions about what the BTR business model expects from its building, at what cost, and how the building could be expected to perform over time. To do this, we must ‘create differently’ as the design for long term revenue is about starting with the customer: defining what products, services and amenities will be offered, and how the customer interaction with the business model should be managed.

 

In BTR the source of revenue is the individual resident or customer and is generated through rent and services. This places BTR firmly in the culture of a consumer market where keeping the customer happy and loyal is key to securing ongoing revenue. In good BTR the customer is at the center of design, operational and income generation dynamics.

 

Good quality BTR design will offer a product that will be attractive to the market and also provide flexibility to respond to trends or shifts in consumer behaviour. The Architect and Operator must work closely together to define the customer experience and to agree on the optimum balance between capital expenditure and operating costs. With this information, a design team can create solutions that support these business objectives. In other words, defining and controlling the customer experience is the key to defining good design, predictable operational costs and sustainable revenue.

 

We call this creating a brand. It can be limited to a single project or underpin a portfolio. Geraghty Taylor has a proven methodology that starts with setting the expectations for revenue, product, service and business requirements. These are the ‘brand business objectives’ and will inform the creation of ‘brand values’. These values describe the experiential, cultural and communicable elements of the brand, and with them, the process of creating the ‘BTR customer experience’ can begin. As designers, we must translate these into a product proposition, and for this we use our ‘brand chassis’ ME, WE, FRONT, BACK that describes the four key elements of customer experience:

 

ME - my private spaces
WE - shared spaces and places
FRONT - front of house or technology interaction with customers
BACK - back of house support and logistics

Ideally, a BTR brand is built up independently of a site or location. The brand is then used to inform and guide the architecture, interior design and placemaking on specific sites. A brand helps to describe the requirements of all stakeholders from investors, operators and through to customers. The more richly detailed this information, the easier it will be for the architect to design better solutions for you and your customers.

 

From a purely design perspective, it is very important that both the interior and architectural design is closely integrated from the beginning of this process. At Geraghty Taylor, we believe that the best way to do achieve this is to ‘design from the inside out’ thereby ensuring that the customer experience and operating requirements are central to all design decisions. The customer experience is not limited to the building itself, it extends to placemaking and the integration of the new building into the local community. Thorough context analysis enables designers to develop ideas for the building and its amenities that will support the new the BTR customer experience and complement the local community and amenities. 

 

A well thought through brand also creates benchmarks that will underpin your business, bringing consistency and predictability to the design of the product, its procurement and operation. It will also help with site selection. Design your Brand Before your Building so you, your architect, your procurement and operational teams, but most of all your customers, know what to expect. Done well, this will result in a marketable BTR offer with efficient and predictable operating costs. With a solid product and operating base, revenue-generating strategies can be deployed. This is all underpinned by a commitment to customer satisfaction and providing an attractive product.

 

In very simple terms happy people will give you money. So in BTR, our priority is to get them happy with a well thought through offer, and then keep them happy!

 

#BTR   #BuildtoRent   #Brand  #Brandbeforebuilding

Rented residential appealing to investors across the globe

Well over a third of all the cash raised globally last year, for sector-specific private equity real estate funds, targeted funds aiming to invest in multifamily rented residential. This latest survey by PERE shows the funds amassing a war chest of over $10 Billion. With typical debt leveraging, this would give those funds buying-power in the order of $20billion.

 

Pension funds and insurance company investors across the globe are appreciating the favourable investment characteristics of rented residential. Their quest is to find investment assets that match their liabilities. Typically, these liabilities are linked to inflation in the long term and often to wage inflation. Our home is such an important part of our well-being that most of us spend more than a third of our income on it. The rent we pay or the purchase price we are willing to accept reflects the current state of the economy and has traditionally grown in line with that economy.

 

With this positive macroeconomic background, get the investment characteristics right and you are onto a winner. Flexible shorthold tenancy contracts work for both parties. A broad income base from multiple occupiers reduces void risk and, if operated as a business and managed like hospitality, we can achieve rapid re-letting and maintain high occupancy rates. Working hard to establish a community within each scheme will increase the length of stay of your residents. And ultimately, remember one of our catchphrases at Geraghty Taylor, “Happy customers pay you money!”

 

So now you can see what these global investors are thinking. This is an asset that delivers a solid long-term income from a wide potential customer base. But be sure this requirement was built into the scheme from the start. Be mindful of the play-off between upfront cap-ex and ongoing ops-costs. Appreciate the cost of management and future cap-ex and understand the life cycle of the building. Take a look at our BTR Timeline.

All the funds raising money will hope to benefit from rental growth in the long-run. The brave ones will take on development risk to enhance their returns to investors by making a development profit. In the UK it is interesting that we are at the very beginning of our journey into multifamily investment, but despite this being an “emerging” market, we already have pricing which is very reflective of a mature institutional market. There seems to be little if any, obvious first-mover premium for the early adopters. We seem to have imported the idea but also the pricing.

 

The old-world order of cash raising has continued with North America taking 42% of all cash raised and Europe just over 20%. In the UK, Hearthstone Investment Management announced at the end of February that it had closed Hearthstone Residential Fund 1 with just over £200 million raised. The Fund has seven local authority pension fund investors and welcomed The Merseyside Pension Fund and The Tyne and Wear Pension Fund in this latest round. They clearly see the investment case, but just as important, the social significance of funding housebuilding in the UK.

 

#BTR   #BuildtoRent   #Brand  #Brandbeforebuilding

In Search of Scale

One of the biggest challenges facing operators in the new BTR market in the UK at present is how to create scale in their business. Recent weeks have seen two fascinating and novel approaches to this challenge; partnering with developers and simple acquisitions.

 

At the start of last month, Telford Homes told us that they anticipate that 50% of the units they will deliver this year would be for rental. Just a few weeks later they let us know how they will finance them. They are partnering with seasoned BTR investors, Invesco Real Estate and M&G Real Estate. M&G will be forward funding schemes with less than 200 units with Invesco coming into fund the larger developments. In capital terms, 200 units is likely to represent deals of between £75 million and £100 million. With Telford homes existing land-bank to draw upon we can anticipate some 1,000 units being delivered in the next couple of years.

 

Towards the end of last year, we saw a deal between Blackstone and Sage Housing, a housing association operator, to fund the delivery of affordable housing in the UK. Blackstone needed scale in the operation and couldn't afford to wait to build its own portfolio. This route could see them involved in the delivery of more than 20,000 homes over the next 5 years. Funding an existing operator clearly appeared an innovative, if mildly controversial, way of investing in UK housing at scale, quickly.

 

In January, CBRE Global Investors announced it, too, will partner with registered providers. Its CBRE UK Affordable Housing Fund has held a first close of £250 million with 13 institutional investors, including social investment institution The Big Society Capital. The chosen registered providers will manage the assets and will be responsible for the rental income, maintenance and property management.

The other way of achieving scale is, quite simply, by buying it. Clearly, it takes time to build scale organically by developing out your own units. American giant Cortland announced in March that it is intending to acquire the £400 million Dandara regional rental portfolio. This will give them a further 2,000 units across the UK, in cities like Manchester Birmingham and Leeds. There is also an option to buy further sites in the future in Glasgow and Aberdeen, to deliver another 3,000 units

 

Cortland is looking to have 50-65% of their units in outer London and the M25, with the remainder in regional centres. It plans to build a £4 billion pipeline of 10,000 homes across the UK.

 

Invesco has already used this approach having acquired the Platform portfolio from Westrock; a £116 million, 580 unit portfolio split across five buildings, in March 2017.

 

In the light of all this activity, Geraghty Taylor has been busy providing due diligence advice to help clients review existing built schemes, as well as schemes moving to planning, to review their suitability for BTR operations. The experience built up, in delivering 10%+ of the existing built stock of BTR, positions us well to add value and suggest interventions to get the most out of investments.

 

No doubt, these deals will herald many more where existing owners looking to cash in their hard-earned profits from creating rental portfolios and we will see other volume house builders and Housing Associations forming similar funding relationships to Telford Homes with other BTR investors in the future.

 

#BTR   #BuildtoRent   #Brand  #Brandbeforebuilding