Monthly Archives: June 2019

Will BTR modernise residential construction?

The customer-focused culture of BTR is challenging us to rethink the rental market; now it looks set to disrupt residential construction and modernise its delivery. Offsite assembly suits the high quality and rapid deployment requirements of Build to Rent. An increasing number of new BTR developers are exploring the offsite route and some are lucky enough to secure supply in a somewhat low capacity market.

 

Major players like Greystar are bringing forward schemes in Croydon and Greenford which involve the delivery and assembly of thousands of modular units.  So is this the way forward? The approach suggests a shift towards vertical integration with greater control of the design and delivery of the product being sought by experienced BTR players. The benefits are better product quality, predictability and supply chain control, which together can help to reduce cost and risk. BUT it is not always as easy as aligning design and procurement. When developers approach their investor’s investment committee or their bank for construction funding, they are met with questions about:

  • the procurement risk of tying their product delivery to the output of a single supplier
  • the risk, in a restricted market, that the product supply might not be picked up by a new supplier in the event of the corporate failure of the original off-site manufacturer....and that the scheme has to start again from scratch
  • the problem that these considerations pose to obtaining contract  insurance for the build contract at all; and
  • the fact that the industry's own efforts with BOPAS accreditation has only resulted in some 70 accredited businesses so far.

 

And so, all too often, the developer opts for a traditional build... and the off-site industry misses out on revenue that could help it expand to meet the growing demand. However this is not always the case, and despite some of the risks, progressive BTR companies recognise that in building a BTR portfolio, it needs to adopt different approaches to design and procurement.

 

Just this month, legal experts, Trowers Hamlin released a collaborative report entitled “Funding Barriers to offsite housing – Separating fact from fiction”.  They conclude that there is no reason why appropriately delivered offsite should be treated any less favorably than traditionally built homes for the purpose of charging.  They should not be viewed as depreciating assets. Indeed, there is evidence that manufactured homes represent an opportunity to achieve a design life that exceeds that of traditionally built homes. But traditional approaches to performance security must adapt to allow for the specific features of offsiting to deliver confidence.

 

Shaun Grainger of PIB Insurance Brokers has some very interesting comments about his company’s proactive approach to underwriting offsite construction. Ultimately, this is the key to securing the necessary construction and investment funding.

 

Our take on his view can foresee a world where insurance premiums are actually lower for offsite construction because the insurer is underwriting a “product” that is itself already BOPAS accredited, reducing costly on-site inspecting.  Greater control and clarity should reduce claims but to get there the industry must tackle specific concerns of safety and durability in use and added risks like those in transportation. 

 

Let’s set the scene by looking at the recent development of the off-site industry.

 

Like every market innovation new names and definitions abound; so you will hear Offsite Construction, Design for Manufacture and Assembly (DfMA) and Modern Methods of Construction (MMC) used pretty interchangeably.  The whole industry is not as recent as you may think.  In reality, it has had a long and laboured development. Early work was done in the late 1990’s which led to the “Rethinking Construction report” - often referred to as the Egan report.  Interest, most recently, has been crystallised by Mark Farmer’s review of the construction labour market in the UK for the Ministry of Housing, Communities & Local Government (MHCLG), known as, “Modernise or Die”.  This has found widespread resonance in an industry struggling with mistrust, poor value, poor delivery and poor quality, along with a legendary inability to meet program or budget.  The house building industry today, for instance, is required to increase output by 50% just to meet Government targets, but set this against a backdrop of a workforce forecast to decrease by 25% to 2026.  We currently aren’t growing new builders!

 

Offsite finds a new champion

 

Offsite at its simplest, is a system which is based on a kit of parts, produced in a factory environment, with the aim to assemble this high quality product quickly and efficiently on site.  The process has found favour already with sectors that have a very repeatable product like the hotel and student accommodation industries.  There are many solutions ranging from full volumetric modular which literally allows you to crane in a room to more componentised solutions.  The MHCLG released its “MMC definition framework” in March which gives a very helpful introduction to the entire spectrum. See below:

 

 

BTR schemes aspire to high quality and robustness in the longer term and they have significant levels of repetition with relatively small variations between unit types on offer. This aligns with brand placement, volume production, predictably and the capacity to quickly turn capital into revenue.  To do this, systems must be standardised across schemes to maximise buying power and minimise maintenance costs, delivering Facilities Management efficiency.  Offsite seems to have found its new champion; look at these key matches:

 

 

Production: as with any mass produced items, once you have set your production line up, you want it running with minimum disruption at ‘full tilt’; you want your systems, assemblies and finishes to be standardised and efficient - just as you would with BTR - and you want that speed of output-to-site to allow the capital investment to generate income quickly.

 

Risk management: Once the system is created and tested, the risk so prevalent with traditional construction - where every scheme is a prototype - is virtually eliminated. If it worked under test on one scheme, with equivalent parameters there is no reason for it not to work on the next, or the one after that...

 

Longevity: The use of repetitive, tested detailing and predictable servicing means that you know exactly how and where to maintain the building; you can be assured that the traditional construction industry’s penchant for making it up as you go has been avoided... in effect you have taken your building away from a poorly supervised site environment into a managed, safe, supervised environment in a factory where Quality Assurance can be rigorous and continuous. Further supporting this is the BOPAS scheme, led by major insurers, the OffSite industry and other key stakeholders which provides surety of quality, longevity and production quality.

 

Design quality: No one wants boring buildings, or repetitious “prefabs” so most schemes are hybridised to a greater or lesser extent, allowing different systems to exploit their key benefits, delivering exciting, good looking buildings which reflect the brand and quality of their owners. 

 

Once the strategic decision to use off-siting has been made, we at Geraghty Taylor focus on product definition, appropriate standardisation and supply chain management.  We look to design the Mods, Pods and Cogs  (room modules, pod components like kitchens and bathrooms and micro components like utility cupboards) that will fit together to create the building.

 

Leading to a new generation of construction employment

 

The move to factory based production brings with it some key advantages for growth.  The appeal of this environment over the cold, wet, site-based employment of traditional build is clear.  It can appeal to a wider cross section of employees, both by age and gender.  It is also digitally empowered so can literally “key” into the career aspirations of the young.  You might be interested to know that both Lego and IKEA are looking to “disrupt” in this space.

 

BUT managing a growth path is not without its difficulties.  The UK market is dominated by a handful of systems and capacity to deliver at peak has been questioned.  Securing your supply can very quickly be difficult in strong markets where there are insufficient “fall-back” suppliers of sufficient quality.

 

The quality point is important, as the “prefab” of old carried with it concerns about robustness and finance, which, in the form of mortgages, was often limited.  Insurers are asking ‘Will these buildings last’?  The industry is convinced they will and has created its own accreditation system; BOPAS.  This is a risk-based evaluation which demonstrates that homes built from non-traditional methods & materials will stand the test of time for at least 60 years.  But there are currently fewer than 70 BOPAS accredited operations and when you see the reduced options available for building at height, you can appreciate why insurers worry that the developers are placing a lot of risk with one supplier.  But isn’t this just the same as a contract with a traditional main contractor over whom you have little real control.

To address this, volume consumers are developing their own systems like L&G’s  and large international developers are simply extending their supply routes from their existing domestic or international procurement centres into the UK.  Geraghty Taylor has just completed a full modular design plan for a major client wanting to adapt their own domestic model to the UK, or you could say design “British multifamily”.  They will look to deploy 10,000 units over the next 5 years or so and achieve substantial cost savings due to the volume.

 

It is clear that the Government have identified the need to support and encourage the sector.  There are grants and funding available and the initiatives of the MHCLG through the Construction Leadership Council are invaluable.

 

 Buildoffsite is an organisation set up to promote the adoption of offsite solutions. It’s membership include Developers, Contractors, Consultants and Suppliers and it is an excellent source of information for all aspects of offsite strategies and technical solutions.  Their recently created BTR group aims to promote offsite solutions specifically to the BTR industry. 

 

It is generally accepted that Construction needs to be modernised and this process is already underway. There are going to be challenges along the way, but  BTR presents a significant opportunity for our new sector to drive meaningful, technology-rich change into the construction industry through offsite solutions. To be successful all parties will need to co-operate to ensure delivery of the bright ambitions of BTR.

 

Offsite thinking is in Geraghty Taylor’s DNA and we always design with offsite in mind.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

The customer-focused culture of BTR is challenging us to rethink the rental market; now it looks set to disrupt residential construction and modernise its delivery. Offsite assembly suits the high quality and rapid deployment requirements of Build to Rent. An increasing number of new BTR developers are exploring the offsite route and some are lucky enough to secure supply in a somewhat low capacity market.

 

Major players like Greystar are bringing forward schemes in Croydon and Greenford which involve the delivery and assembly of thousands of modular units.  So is this the way forward? The approach suggests a shift towards vertical integration with greater control of the design and delivery of the product being sought by experienced BTR players. The benefits are better product quality, predictability and supply chain control, which together can help to reduce cost and risk. BUT it is not always as easy as aligning design and procurement. When developers approach their investor’s investment committee or their bank for construction funding, they are met with questions about:

  • the procurement risk of tying their product delivery to the output of a single supplier
  • the risk, in a restricted market, that the product supply might not be picked up by a new supplier in the event of the corporate failure of the original off-site manufacturer....and that the scheme has to start again from scratch
  • the problem that these considerations pose to obtaining contract  insurance for the build contract at all; and
  • the fact that the industry's own efforts with BOPAS accreditation has only resulted in some 70 accredited businesses so far.

 

And so, all too often, the developer opts for a traditional build... and the off-site industry misses out on revenue that could help it expand to meet the growing demand. However this is not always the case, and despite some of the risks, progressive BTR companies recognise that in building a BTR portfolio, it needs to adopt different approaches to design and procurement.

 

Just this month, legal experts, Trowers Hamlin released a collaborative report entitled “Funding Barriers to offsite housing – Separating fact from fiction”.  They conclude that there is no reason why appropriately delivered offsite should be treated any less favorably than traditionally built homes for the purpose of charging.  They should not be viewed as depreciating assets. Indeed, there is evidence that manufactured homes represent an opportunity to achieve a design life that exceeds that of traditionally built homes. But traditional approaches to performance security must adapt to allow for the specific features of offsiting to deliver confidence.

 

Shaun Grainger of PIB Insurance Brokers has some very interesting comments about his company’s proactive approach to underwriting offsite construction. Ultimately, this is the key to securing the necessary construction and investment funding.

 

Our take on his view can foresee a world where insurance premiums are actually lower for offsite construction because the insurer is underwriting a “product” that is itself already BOPAS accredited, reducing costly on-site inspecting.  Greater control and clarity should reduce claims but to get there the industry must tackle specific concerns of safety and durability in use and added risks like those in transportation. 

 

Let’s set the scene by looking at the recent development of the off-site industry.

 

Like every market innovation new names and definitions abound; so you will hear Offsite Construction, Design for Manufacture and Assembly (DfMA) and Modern Methods of Construction (MMC) used pretty interchangeably.  The whole industry is not as recent as you may think.  In reality, it has had a long and laboured development. Early work was done in the late 1990’s which led to the “Rethinking Construction report” - often referred to as the Egan report.  Interest, most recently, has been crystallised by Mark Farmer’s review of the construction labour market in the UK for the Ministry of Housing, Communities & Local Government (MHCLG), known as, “Modernise or Die”.  This has found widespread resonance in an industry struggling with mistrust, poor value, poor delivery and poor quality, along with a legendary inability to meet program or budget.  The house building industry today, for instance, is required to increase output by 50% just to meet Government targets, but set this against a backdrop of a workforce forecast to decrease by 25% to 2026.  We currently aren’t growing new builders!

 

Offsite finds a new champion

 

Offsite at its simplest, is a system which is based on a kit of parts, produced in a factory environment, with the aim to assemble this high quality product quickly and efficiently on site.  The process has found favour already with sectors that have a very repeatable product like the hotel and student accommodation industries.  There are many solutions ranging from full volumetric modular which literally allows you to crane in a room to more componentised solutions.  The MHCLG released its “MMC definition framework” in March which gives a very helpful introduction to the entire spectrum. See below:

 

 

BTR schemes aspire to high quality and robustness in the longer term and they have significant levels of repetition with relatively small variations between unit types on offer. This aligns with brand placement, volume production, predictably and the capacity to quickly turn capital into revenue.  To do this, systems must be standardised across schemes to maximise buying power and minimise maintenance costs, delivering Facilities Management efficiency.  Offsite seems to have found its new champion; look at these key matches:

 

 

Production: as with any mass produced items, once you have set your production line up, you want it running with minimum disruption at ‘full tilt’; you want your systems, assemblies and finishes to be standardised and efficient - just as you would with BTR - and you want that speed of output-to-site to allow the capital investment to generate income quickly.

 

Risk management: Once the system is created and tested, the risk so prevalent with traditional construction - where every scheme is a prototype - is virtually eliminated. If it worked under test on one scheme, with equivalent parameters there is no reason for it not to work on the next, or the one after that...

 

Longevity: The use of repetitive, tested detailing and predictable servicing means that you know exactly how and where to maintain the building; you can be assured that the traditional construction industry’s penchant for making it up as you go has been avoided... in effect you have taken your building away from a poorly supervised site environment into a managed, safe, supervised environment in a factory where Quality Assurance can be rigorous and continuous. Further supporting this is the BOPAS scheme, led by major insurers, the OffSite industry and other key stakeholders which provides surety of quality, longevity and production quality.

 

Design quality: No one wants boring buildings, or repetitious “prefabs” so most schemes are hybridised to a greater or lesser extent, allowing different systems to exploit their key benefits, delivering exciting, good looking buildings which reflect the brand and quality of their owners. 

 

Once the strategic decision to use off-siting has been made, we at Geraghty Taylor focus on product definition, appropriate standardisation and supply chain management.  We look to design the Mods, Pods and Cogs  (room modules, pod components like kitchens and bathrooms and micro components like utility cupboards) that will fit together to create the building.

 

Leading to a new generation of construction employment

 

The move to factory based production brings with it some key advantages for growth.  The appeal of this environment over the cold, wet, site-based employment of traditional build is clear.  It can appeal to a wider cross section of employees, both by age and gender.  It is also digitally empowered so can literally “key” into the career aspirations of the young.  You might be interested to know that both Lego and IKEA are looking to “disrupt” in this space.

 

BUT managing a growth path is not without its difficulties.  The UK market is dominated by a handful of systems and capacity to deliver at peak has been questioned.  Securing your supply can very quickly be difficult in strong markets where there are insufficient “fall-back” suppliers of sufficient quality.

 

The quality point is important, as the “prefab” of old carried with it concerns about robustness and finance, which, in the form of mortgages, was often limited.  Insurers are asking ‘Will these buildings last’?  The industry is convinced they will and has created its own accreditation system; BOPAS.  This is a risk-based evaluation which demonstrates that homes built from non-traditional methods & materials will stand the test of time for at least 60 years.  But there are currently fewer than 70 BOPAS accredited operations and when you see the reduced options available for building at height, you can appreciate why insurers worry that the developers are placing a lot of risk with one supplier.  But isn’t this just the same as a contract with a traditional main contractor over whom you have little real control.

To address this, volume consumers are developing their own systems like L&G’s  and large international developers are simply extending their supply routes from their existing domestic or international procurement centres into the UK.  Geraghty Taylor has just completed a full modular design plan for a major client wanting to adapt their own domestic model to the UK, or you could say design “British multifamily”.  They will look to deploy 10,000 units over the next 5 years or so and achieve substantial cost savings due to the volume.

 

It is clear that the Government have identified the need to support and encourage the sector.  There are grants and funding available and the initiatives of the MHCLG through the Construction Leadership Council are invaluable.

 

 Buildoffsite is an organisation set up to promote the adoption of offsite solutions. It’s membership include Developers, Contractors, Consultants and Suppliers and it is an excellent source of information for all aspects of offsite strategies and technical solutions.  Their recently created BTR group aims to promote offsite solutions specifically to the BTR industry. 

 

It is generally accepted that Construction needs to be modernised and this process is already underway. There are going to be challenges along the way, but  BTR presents a significant opportunity for our new sector to drive meaningful, technology-rich change into the construction industry through offsite solutions. To be successful all parties will need to co-operate to ensure delivery of the bright ambitions of BTR.

 

Offsite thinking is in Geraghty Taylor’s DNA and we always design with offsite in mind.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

Insurance Implications of Modern Construction

Geraghty Taylor is pleased to present our first guest article by Shaun Grainger of PIB Insurance Brokers, picking up on the vital insurance issue covered in our earlier MMC article.

 

The UK national housing crisis and ongoing pressure to provide new housing is showing no sign of abating. More housing is required to ease the strain on the housing market and hit the proposed government targets. The natural solution is to build cost-effective new homes, rather than conversion or alternative housing arrangements. Furthermore, the demand in rental sectors such as student accommodation, build to rent and retirement living, is also seeing an increase in building activity for developments with purpose-built solutions. Modern Methods of Construction (MMC) and modular construction are being utilised throughout the industry as efficient and quicker ways of building to meet the ongoing demand, with its predominant use in the development of high-rise apartment blocks.

 

While modular and other forms of MMCs for residential and commercial property are nothing new, having been part of the industry in various forms for many decades, they do present some important insurance considerations for those insuring their pre-build and construction.

 

Insuring the ‘product’ – Warranties and Indemnities

As technology, and the building methods that follow, improve then naturally so should the quality in design and manufacture of modular units. This leads to a primary focus of inspecting the build off-site and reducing the time spent on-site reducing defects, which have been known to delay completion on a large-scale project and use the time and resources of multiple contractors.

 

For the insurance sector, the units finished offsite are now being viewed as ‘products’ in themselves, from a design, build and installation perspective. Therefore, placing increasing importance on having the correct insurance warranties and contractual obligations. Current insurance warranties would provide protection for up to 12 years from practical completion, notwithstanding the usual contractual requirements. Within the residential market, these warranties are a requisite particularly by funders, especially if the properties are being sold/financed. However, the same benefits can also apply to commercial units.

 

Does using modular construction mean higher claims?

As a ‘product’, there is greater clarity of control and therefore better control of the delivery, which may, in turn, reduce the number of claims brought about in construction. However, due to the type of construction, these claims would likely be greater than in traditional construction as the whole unit may need to be replaced in a problem occurs.

 

Other insurance considerations and risks to be considered which may lead to increased claims costs include:

  • Buildings using MMCs will often only be designed to satisfy local Buildings Regulations which typically only cover life safety issues, not fire resistance. Using lightweight and combustible materials also mean there will be less resistance to fire spread.
  • Timber framed buildings are of concern to insurers and will require fire suppression measures.
  • External cladding panels with foam fillings have excellent insulation properties but are highly combustible.
  • Fire/smoke and water can get into the voids between modular units leading to much larger claims than would otherwise be the case.
  • Connection of services to pod units may be made by non-specialist tradesmen which can lead to problems over time.
  • Accessibility for repairs and maintenance may be difficult, repairs are potentially less straightforward if a whole pod has to be removed, especially if at the bottom of a high-rise building.
  • The fire break integrity of the building is easily compromised by drilling into panels to install new services.
  • Many MMCs are new and innovative, their resistance to damage and performance over time is unknown.
  • There may be problems in obtaining replacement parts in future, particularly if the manufacturer has gone out of business.

 

Insuring the modular developer

The advantage for developers lies in the fact the modular companies have improved supply access and stock capacity than those with specific onsite construction. Modular companies can plan the build more efficiently without reliance on multiple parties or contractors. Further benefits include faster construction times, less people on site and less wastage. Quality control is improved as works are carried out in a controlled environment and less prone to human error and services (plumbing & electrics) can be pre-installed so that the only connections are required are to the external supplies once in situ. The modular constructions are also are highly energy efficient.

 

Modular buildings can be cheaper to insure as the industry is still in its infancy for the insurance market. In future, this could lead to less complicated placement, which in turn could also result in lower premiums although there is little evidence for this in the current market.

 

Modular construction – what are the pitfalls?

Although MMCs do have many benefits, the risk of the completed modules themselves can be damaged or destroyed in transit is possible, which results in longer delays to the programme. These may not be covered under a Delay in Start up (DSU) section of a Developers Project insurance programme, especially if responsibilities for storage or delivery have not been clearly defined.

 

Also, if a contractor or supplier becomes insolvent in a traditional build contract, the developer can obtain alternatives. If a modular producer goes insolvent or the units are damaged beyond repair before reaching the site, it would prove more difficult to obtain replacements in a suitable timescale.

 

The insurance broker and BOPAS

Working with your insurance broker and MMC insurers can address the concern of using modular construction during the design phase. It is also worth considering the Buildoffsite Property Assurance Scheme (BOPAS) Scheme, which provides an assurance of the integrity of offsite construction systems delivered in a consistent and competent manner conforming to contract specifications.

 

The BOPAS assessment involves all aspects of the business operation including systems, processes and procedures, together with handover interfaces from design through offsite manufacture and construction/assembly to client handover. These are all being tested against the arrangements for sustaining quality delivery, dealing with environmental and project changes and the control measures that are applied to mitigate delivery risks.

 

Set up by BLP insurance, the BOPAS scheme provides industry wide accreditation for the modular products used in construction. Using BOPAS approved contractors gives your insurer confidence in the quality of the product and relinquishing the need for additional surveys and inspections by the insurer. In time, this may also result in lower premiums and the market confidence increases, however this has not yet been evident.

 

The importance of disclosure

The use of MMCs is an important feature which should be disclosed to insurers who may require additional precautions to be undertaken. If you are buying a property, the use of MMCs may not be immediately obvious.

 

The Insurance Act of 2015 introduced a duty of fair presentation, meaning that the insured must make the insurer aware of all the risks of insuring the building or home. Therefore, if you have any doubts as to the construction of a property it is important that you investigate and establish if this is the case. If an MMC has not been disclosed to the insurer, they are within their rights to impose a rateable settlement in the event of a claim or, even worse, avoid the policy which could potentially leave Property Owners or Developers many £1000s out of pocket.

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding

 

 

 

To discuss with a property specialist about insuring your property, where built with MMC or traditional methods, please contact – Shaun Grainger, PIB Insurance Brokers – Sales Manager, Property and Construction on 07496980612 or shaun.grainger@pib-insurance.com.

Why is brand so important to Build to Rent

....or put another way...why are architects embracing brand when what they do is design buildings?

 

Ultimately, we can't design the building without a thorough understanding of the business strategy that the building is supporting. This is best defined by its Brand.

 

Brand in most peoples’ minds means a fancy logo. But if you consider it for a moment, you realise that logo conjures up a mental picture of what the product is, who it is created for, its quality, the service behind it and, ultimately, the price you will have to pay for it; all gleaned from that fancy logo. So clearly, from the business operator’s perspective, the brand associated with the logo embraces the entire business philosophy and strategy of the company.

 

Put this into the Build to Rent context and you can quickly see how the brand defines the target audience, the style of the building, the level of services, the provision of amenity and even the price point; all crucial factors in good design. We call this #BrandBeforeBuilding

 

Many of the businesses that we are working with do not come from a consumer product background. They are typically from a real estate development, property investment or housebuilding background. Brand, in so far as it applies to their product, has not previously been a mainstay of their businesses.

 

You might think this only has relevance to the long-term operator/investor.  Surely a developer looking to exit on completion or even at planning doesn't need to be bothered by brand. Well, they do if they want to reach the widest buyer market and get the best price.

 

We are working now on schemes where the developer will exit on planning, but we are integrating what you might call a white-labelled, loose brand into the scheme to allow the future operator to shoe-horn in their own brand.

 

Brand in BTR is very new with only a few operators having a completed model.  Even those internationals with long-established brands need to put it into a UK context. When we work for an established US multifamily operator, for instance, we must first get a thorough understanding of their existing brand values. We then need to discuss how these might be adapted for the UK marketplace and then the specific building in question.

 

A true brand integrates all parts of the provider’s business plan and BTR offer. It acts as a differentiator between providers and helps the consumer navigate and select between them. A good customer experience builds trust and loyalty and gives more brand buy-in. As a brand develops, it generates engagement with its customers, making them feel comfortable with its specific lifestyle offering.

 

In BTR, this will deliver lower voids by increasing renewals, extending the length of leases and increasing the number of customer referrals to like-minded buddies. Done well, it will maximise net operating income and deliver business success. This builds a reputation and enhances the customer experience.  We have explained this BTR Brand Value Loop in a recent infographic. Take a look.

 

 

Geraghty Taylor. Create differently

 

 

#BTR #BuildtoRent #Brand #Brandbeforebuilding