Selling a multi-million-pound scheme as the prime London residential market takes a tumble might seem like a bad idea but, as Bruce Ritchie tells Alexander Peace, he has seen it all before
The 58 flats at Garden House, 86-92 Kensington Gardens Square, W2, sit in the kind of plush West London spot where an affable, soggy-haired British actor might leap the fence at any moment in the final act of a formulaic rom-com.
It is the sort of spot where white terraced homes are fronted with Greek columns with 4x4s parked outside. And where dogs are inversely proportional in size to the cars.
It is the sort of scheme which, up to a year ago, would have sold for silly money, and attracted investors from far and wide muttering phrases like “prime central London” and “safe haven”.
Now, as the prime London residential market tumbles, it is the sort of scheme that – at thousands of pounds a square foot for a flat – is giving developers a headache.
So why is Bruce Ritchie, chief executive of Residential Land and one of the better-known figures in the prime London residential rental world, bringing it to market now – his first scheme for individual private sale in a number of years?
Keep moving forward
The answers are simple: because it fits into the sub-£1.5m tax bracket – he bought it at a low price in 2001 and it needed refurbishment. And because it is important to keep moving.
Speaking at Garden House, Ritchie says. “When you have institutional partners, it’s very important to prove the model, to show that you can sell something. It isn’t all about what it is valued at every year,”
“Being the kind of partner who can show that the prices put on buildings are actually real is a very important thing to do, particularly if you are going to carry on growing.”
And Ritchie has kept moving. While rental operators struggle to build portfolios at scale, he has amassed 1,500 units around central London, and while that market teeters, he continues to buy and sell – acquiring 39 Hill Street, W1, in December for £100m, and selling Kew Bridge Court, W4, to Grainger in February for £57.3m.
But as Ritchie conducts his first interview in four years, the London luxury residential market is on the verge of a meltdown. Prime values and transaction levels are falling, new-build units are piling up unsold in Vauxhall, SW8, and housebuilders are sweating as share prices tumble. Is Ritchie in danger of getting burnt?
“I like turbulent times,” he says. “It’s an opportunity time. People who need money, who have to sell, are going to find themselves not achieving the prices they did before.
“I am going to get a property at a lower price and at a better yield, because rents have not tailed off. The cheaper I can buy the property, the better.”
Mind you, Ritchie’s not overly negative about prospects for the market. While the super- prime end may be slowing, the sub-£1.5m market is doing fine, he says, because it slips under that all-important 12% tax threshold. That is why he is selling the Garden House scheme now.
Ahead of the times
And even those questioning his strategy would have to admit Ritchie has been in the business long enough to know what he is doing. After founding Residential Land in 1991 and developing units for rent in 2001, he preceded many of the “new breed” of rental operators by a decade.
His successful tie-up with Apollo and Canadian pension giant Ivanhoe Cambridge in 2012 means he now has a substantial portfolio in prime central London, while others still struggle to find sites. Residential Land spent £420m last year and expects to do the same this year.
Ritchie says the key is the firm’s reputation, which he believes gives it the ability to attract those deals.
“We are very experienced and built a reputation as performers. That enables us not just to be the first call on people’s lists, but also the last.”
The price is right
So where exactly does Ritchie see opportunity in turbulence? A lot of it comes back to prime property investment 101: everything can be successful if bought at the right price.
With housebuilders now de-risking, he sees plenty of opportunity for prime residential rental operators. Barratt is not the only housebuilder looking to offload stock in London.
“This is what I was talking to my friend Mr Pidgley about, the concept of multi-billion-pound rental portfolios coming out of housebuilders,” he says.
“How many of them are going to turn to the likes of us and say, could you take out phase three, four five and six of this development, because we have got half way through phase two and I cannot sell anymore? We would consider doing that if it was diverse.”
Even Vauxhall is on the cards, if it can be bought at the right price.
“A year ago, I was trying to buy blocks of flats down there for £1,200 to £1,300 a sq ft. I could not get developers to sell them to me because they all thought they were worth £1,500-£1,600.
“Now I have two or three blocks that I could buy for between £850 and £1,050 and I’m sitting there thinking, do I really want to do that, or is there more to come?”
Stamp duty hike
Despite Ritchie’s bullish attitude, he has strong opinions on some of the challenges facing the UK capital’s prime resi market.
Namely, that a lot – though not all – of central London’s problems come down to tax. Specifically stamp duty land tax, where increases in the £1.5m-plus market have helped lead to a drop of up to 5.3% in the year to March, according to JLL, and have slowed volume by more than 20%.
“As I get a bit older, what I just don’t want to do is find the country goes and f***s up what it’s up to because it’s picking on residential… I know we have a budget deficit to get rid of, but completely slamming residential is not in the best interests of the country.
“It drives so many other factors that are beneficial to us on a larger basis than a few hundred million in extra stamp duty revenue.”
Though he is quick to add that he does not think it is just stamp duty slowing the prime market. Plenty of other macro-economic factors are at play, not least referendums and slowing international demand.
Rock of stability
And what about the man himself? How does he think he is viewed by the market?
“God knows,” he shrugs. “If anything they’re probably bored with us.
“There is a brand or image that comes with Residential Land. It has not stopped being acquisitive all the way through its life, to the point that most people do see us as a rock of stability in a sea of uncertainty.”
Far from modest, sometimes controversial, always supremely confident, few can deny that Ritchie is a force within the Lon don luxury residential sector.
