Using your assets to fund the affordable homes of tomorrow. Robert Grundy Director Savills Herts Housing Conference

Transcription

1 Using your assets to fund the affordable homes of tomorrow Robert Grundy Director Savills Herts Housing Conference 23 rd April 2012

2 A truism If you want subsidised housing..you need a subsidy.

3 Grant Shapps: funding the future Grundy: You won t like this question. How is new housing going to be funded beyond 2015? Shapps: (Nervous grin). Let s look at what ideas emerge between now and then. In other words the sector has to come up with the ideas.

4 Sector Current Financial Position Inefficiencient HA s - 63 billion 2.5 m homes HCA Affordable Programme c 15bn of debt = 150,000 homes LA s - 30billion 1.7 m homes LA debt potential c 45 billion but debt cap/ willingness to engage?? Sector total debt c 90 billion

5 I will cover Big numbers Stock rationalisation Making better decisions Sustainability Regeneration Releasing market value Rents New Investors

6 Some big numbers..

7 Market Value vacant? Nearly 500 billion

8 Market Value: Subject to tenancies? About 280 billion

9 Existing Use Value Social Housing? About 150 billion

10 Answer: Active Asset Management Make better use of capital Integrate business planning and asset planning Assets are not uniform Challenge the notion of unchanging asset ownership

11 Stock Rationalisation

12 Are we in the right places? How do we look strategically? Are we in the right Local Authorities? Are you too thin on the ground in some places? Could someone else Do a better job? Operate more efficiently? Have more impact?

13 Marketing Website

14 Marketing Website

15 Marketing Website

16 Marketing Website: Virtual Dataroom

17 Savills Stock Rationalisation Total Receipts 800m 14,000 units Clients Include: Home Riverside Places for people Viridian Metropolitan Aracadia A2 Dominion Soho Nottinghill Origin Indicative recent evidence per unit Houses: 65-80k Flats: 45-55k Gross Initial yield % % VP c 50% Uplift over EUVSH % Lotting critical

18 Does location matter? 160, ,000 Average Max Bid by Local Authority 120, ,000 80,000 60,000 40,000 20,000 0

19 Savills Stock Rationalisation: bidders view Competition drives highest price Forces maximum leverage from bidders existing assets Successful bidders: strong local/ regional HA s/ adolescent LSVTs/ HA s excluded from development Marginal management costs Comparisons with development costs Easy way to add proven stock

20 Savills Stock Rationalisation: vendors view Surplus created if sold at more than Net Book Value Receipts used as quasi grant to fund new homes Actual grant passed on with the stock No units lost to the sector Money reinvested will improve cash flow Capital reinvested in core areas

21 Make better decisions To extract more capacity Be selective where you spend

22 Do all properties make an equal contribution?

23 Do all properties make an equal contribution?

24 Do all properties make an equal contribution?

25 Do all properties make an equal contribution?

26 Do all properties make an equal contribution?

27 Do all properties make an equal contribution?

28 Do all properties make an equal contribution?

29 Do all properties make an equal contribution?

30 Do all properties make an equal contribution?

31 Do all properties make an equal contribution?

32 Do all properties make an equal contribution?

33 Do all properties make an equal contribution? Decision made?

34 Contribution to business worth Typical profile of net present value per unit by Asset Group 0

35 Cash Flow Codes What shape are you in? Ranked Average 30 yrs NPV Per Unit ,000-40,000-30,000-20,000-10, ,000 20,000-50, , , , ,000

36 Net cash flow for unit per annum Example of different properties

37 Ideally value & debt capacity will increase over time

38 But value & debt capacity can fall

39 Is debt capacity/value increasing or decreasing? It depends on the stock KingsHay Bedsit Trad Gen ExNT (13) KingsHay Flat Trad Gen ExNT (49) HighSt Flat (+1xBung) Trad Gen ExNT (176) Woollam House Trad Gen ExNT (25) Arleston House Trad Gen ExNT (130) BarnFarm House (+4xBung) Trad Gen ExNT (131) Arleston House NTrad Gen ExNT (36) Arleston Flat NTrad Gen ExNT (27) Arleston Flat Trad Gen ExNT (27)

40 Whether to invest or not? OK TO INVEST OPTIMISE PROCUREMENT RECOVERY AND IMPROVEMENT PLAN OPTION APPRAISAL

41 Do you have hidden debt capacity? 1000M

42 Do you have hidden debt capacity? 1000M 1000M

43 Do you have hidden debt capacity? 1000M 1250M 1000M

44 HRA stock: Different futures for the stock or preparing for the borrowing cap to be lifted Retain: Fund investment within debt cap out of revenue Part transfer/ alternative mechanisms: Debt in excess of cap is needed to fund investment. There is potential to achieve positive receipt. Negative worth: Consider regeneration/redevelopment Retain more if borrowing cap is raised PART TRANSFER/ALTERNATIVE FUNDING MECHANISMS

45 Sustainability It s not all about money

46 Estate Sustainability Mapping & Modelling Indicator Accessibility to Employment Crime Health Deprivation and Disability Accessibility to Key Services Quality of the Living Environment

47 NPV s vs Neighbourhood Sustainability

48 Mapping positive worth

49 Mapping negative worth

50 Regeneration potential Density??

51 Regeneration potential?

52 Regeneration potential?

53 Regeneration potential?

54 Regeneration: is it feasible? Scope to increase density: 5 London Boroughs No of Units Estate Existing Proposed Estate 'A' Estate 'B' Estate 'C' Estate 'D' Estate 'E' Estate 'F' Estate 'G' Estate 'H' Estate 'I' Estate 'J' Estate 'K' Total Source: Savills Planners

55 Releasing market value

56 Can we release capital from poor NPV assets? Any really high market values? Market Value? NPV

57 Targeted Individual Sales Market Value Older or worn out stock higher costs on horizon Not long term future Probably Negative/ low NPV Individual sales Depends on turnover rate Wrekin sold 700 negative/ low NPV flats and bought twice that number Peabody multi million disposal programme worst housing assets best business benefit

58 Sheltered Housing Open Market Sale Sheltered Obsolete/ obsolescent Redevelop/ remodel? Really the best option? Decant Sell locally Building worth much more than site 1.5-2m typically

59 Student Housing Open Market Sale Student Housing case study: Sydney Webb House on behalf of P4P 446 ensuite bed spaces LSE lease 30 years fixed rental uplifts of 3% pa 23m + achieved

60 Shared Ownership Open Market Sale Shared Ownership freeholds of portfolios 60 70% of vacant value of unsold share Simple Conditions: The residents must be consulted The terms of the lease must be honoured. Management must be delivered by a Registered Provider. Price based on certainty of rent (indexed) Stair - casing receipts play on house prices 160,000 shared ownership units

61 Carehomes Open Market Sale Care Homes The value reflects the whole business Requires a specialist operator Eg s mainly out of sector 5 homes for Anchor 2 homes for Stonham/Home Group 2 'special needs' homes for L&Q (former Ujima) 1 home for Hanover 1 closed LD home for Aldwyck

62 Understand rents Scope to charge more rent?

63 Savills Partnership Executive summary Market rent & sales valuation with confidence level Create pdf Property attributes Click here to view sales valuation

64 Savills Partnership Review the comparables Remove inappropriate comparables and recalculate value

65 Uplift from target rent (inc. service charge) to market rent 1 and 2 bed properties Uplif t f rom target rent to mkt rent (pwk) Over to to to to 50 0 to 25 Less than 0 Uplif t f rom target rent to mkt rent (pwk) Over to to to to 50 0 to 25 Less than 0 Source: RightMove, TSA, Savills

66 Uplift from target rent (inc. service charge) to market rent 3 and 4 bed properties Uplif t f rom target rent to mkt rent (pwk) Over to to to to 50 0 to 25 Less than 0 Uplif t f rom target rent to mkt rent (pwk) Over to to to to 50 0 to 25 Less than 0 Source: RightMove, TSA, Savills

67 Impact of the Universal Credit Cap on Affordable Rent Universal Credit Cap will be set at the median level of earnings for working families (after tax and national insurance) This level will be 500 per week or 26,000 per annum Introduction of the new system will commence in October 2013 and the process is expected to be completed during 2017 We ve adopted 35% of Credit Cap = 175 max affordable weekly rent Affordable Spend (% of credit cap) 35% % % 250 Maximum affordable weekly rent (now) Source: Department for Work and Pensions

68 Looking into the future the impact of inflation 5yrs Universal Credit Cap inflated using CPI c 2% to 2017 Rents inflated using Savills Research forecasts for UK rental growth c 4% to 2017 Rents outstrip Credit Cap What does this mean for max affordable rents in 2017? Affordable Spend (% of credit cap) 35% % % 274 Maximum affordable weekly rent (2017) Source: Savills Research, Oxford Economics

69 1 bed properties 80% market rent Now and 2017 Pink = above the cap 80% weekly market rent (now) Over to to to to 80 Up to 60 80% weekly mkt rent (2017) Over to to to to 80 Up to 60 Source: Savills Research, RightMove, Oxford Economics

70 2 bed properties 80% market rent Now and 2017 Pink = above the cap 80% weekly market rent (now) Over to to to to 80 Up to 60 80% weekly mkt rent (2017) Over to to to to 80 up to 60 Source: Savills Research, RightMove, Oxford Economics

71 3 bed properties 80% market rent Now and 2017 Pink = above the cap 80% weekly market rent (now) Over to to to to 80 Up to 60 80% weekly mkt rent (2017) Over to to to to 80 Up to 60 Source: Savills Research, RightMove, Oxford Economics

72 4 bed properties 80% market rent Now and 2017 Pink = above the cap 80% weekly market rent (now) Over to to to to 80 Up to 60 80% weekly mkt rent (2017) Over to to to to 80 Up to 60 Source: Savills Research, RightMove, Oxford Economics

73 New Investors

74 Who are these Investors? What do they want? A Range of Different Investors Funds & Institutions Longer Term Low Risk Alternative to Gilts Indexed Linked Scale & Spread Prop Cos Europe, Asia and US A new product? Quality Management Increase Rent / Reduce Costs Private Equity Sovereign Wealth HNWI Trophy Assets High Value London South East? Something Different? Aberdeen AVIVA AXA L&G London & Stamford Moorfield PRUPIM Schroders 74

75 Who are these Investors? What do they want? A Range of Different Investors Property Cos Europe, Asia and US A new product? Quality Management Increase Rent / Reduce Costs Akelius Dorrington Grainger Grosvenor Delancey Archstone Lefrak 75

76 Who are these Investors? What do they want? A Range of Different Investors Contractors Developers Managers Changing Model? Contractor Returns? Maintenance Contracts? Bouygues Berkeley Barratt Skanska Capital & Counties plc Urban & Civic Grainger 76

77 Who are these Investors? What do they want? Private Equity A Range of Different Investors Sovereign Wealth HNWI Trophy Assets High Value London South East? Something Different? Addington Qatari Diar Saudi Cheng Yu-tung Terra Firma Family Trusts 77

78 Using your assets to fund the affordable homes of tomorrow Robert Grundy Director Savills Herts Housing Conference 23 rd April 2012