If 2020 put pressure on the residential sector, 2021 revealed the outcome of that pressure.
Developer administrations, company and cabinet shuffles and a string of new build-to-rent ventures from household names reflected a sense of make or break in the industry.
The year started with optimism and a hope that the worst of the pandemic was over. However, the casualties quickly started to pile up.
The first troubles emerged in January, as office-to-resi developer Magna Capital was revealed to be on the brink of insolvency. Magna had aimed to build a £1bn business through permitted development conversions, with schemes backed by unregulated loan notes. But despite spending millions, it lost every scheme it worked on.
The developer blamed banks that refused to mortgage, a poor sales market, contractor fees, Brexit, jittery lenders, media reporting and the pandemic for its failure. Similar struggles saw a string of problems for The High Street Group, which lost deals, entered legal disputes, transferred assets – and ultimately collapsed.
In September, after failing to secure a sale of the business, co-living pioneer The Collective fell into administration. The developer was widely recognised as the poster child for co-living, and had been working to deliver 100,000 beds by 2025, but had been hit with loss of income and development delays during the pandemic.
BTR goes mainstream
But 2021 also delivered a number of winners – not least in build-to-rent, where new players emerged, new investment flowed, and an industry united in campaigning.
Grainger, PGIM Real Estate and AIMCo all inked deals at the start of the year.
In the summer, John Lewis confirmed plans to develop 10,000 homes over the next decade as part of a BTR strategy unveiled in 2020. The retailer said it would use space above Waitrose stores and car parks, and had already identified sites for 7,000 homes across its property portfolio.
The alternative asset appeared to become mainstream, with even UK banks throwing their hat into the ring to buy new homes for rental. In July, Lloyds Banking Group announced its first move in PRS with the launch of Citra Living. Having worked closely with former L&Q chief David Montague, the bank embarked on a hiring spree and began lining up strategic partnerships with housebuilders to grow its portfolio.
Funding flowed into residential investment, and the biggest blue chip names had their eyes on BTR. Later in the year, master-developer Urban&Civic secured a £200m deal with Goldman Sachs. KKR teamed up with Moda Living and Apache Capital to back separate strategies targeting city fringe hotspots and prime urban products.
And years after mooting plans for BTR, AXA IM finally took the plunge, teaming up with Packaged Living to develop single-family housing.
Government wrangling
Hot on the heels of finally approving the London Plan and unveiling plans for design in development, housing secretary Robert Jenrick set his sights on a new challenge.
In February, he unveiled plans for a tax on developer profits to raise £2bn for cladding remediation. Speaking in the House of Commons, he said the new mechanism would “make the industry pay for the faults of the past”. The news came alongside the announcement of a £5bn cladding fund. Leaders from the build-to-rent industry put their heads together to try to understand how a tax might work for their long-term investments, fearing a bill that could stifle supply.
Further pressure for government came with the shock departure of Homes England chief executive Nick Walkley, after four years leading the agency. His exit was followed by that of chief of staff Amy Casterton in June, and later chief land and development officer Stephen Kinsella.
The flux in leadership under new chair Peter Freeman gave the industry pause for reflection. Influential figures in policy and development issued a call to action for Homes England to refocus on quality and design.
Then, in the summer, former City lending guru and boss of the Hyde Group Peter Denton was revealed as the successor for the Homes England top job.
Denton stepped into the role in September and set about work on the agency’s new strategy, expected next spring. Speaking in front of the housing committee he later identified modern methods of construction, social impact and sustainability as key criteria. However, he was quick to stress that Homes England must respond to central government, awaiting clarity on policy from the newly formed Department of Levelling Up, Housing and Communities.
Levelling up and settling up
A surprise cabinet shuffle saw housing secretary Jenrick replaced by Michael Gove in September. Gove inherited an agenda for reform – with planning in the air, amendments to the Building Safety Bill and promises of reform from rental tenancy to leasehold, to further demands from the industry.
Gove’s appointment came with a rebranding for the Ministry of Housing, Communities and Local Government to form the new “DLUHC”. Speaking in front of the housing committee later in the year, Gove lambasted cowboy developers and called for justice in the cladding scandal. He promised a levelling up white paper, a strategy to increase housing supply and strengthened local leadership.
“Gove is clever enough to understand that to be successful, he needs all the help he can get,” Jackie Sadek wrote. “Whether that be more scrutiny, or him providing information, or listening to people in the know. So our industry could help. And, I believe, we would be listened to.”
The new department also put an end to the controversial approval of the £1bn Westferry Printworks under Gove’s predecessor. Jenrick’s approval of the 30-storey scheme in January 2020, against the advice of the planning inspector, was later quashed because of “apparent bias” in favour of Desmond, a Tory party donor, provoking a major political row. The final refusal from minister for rough sleeping and housing Eddie Hughes said the plans would cause harm to the local heritage assets.
A ‘sector-defining moment’
After months of talks with government ministers and housing officials, the BTR industry won an exemption from the £2bn Residential Property Developer Tax. “It is a defining moment for the BTR sector that came together over a wide range of disciplines to clearly explain to the government the challenges and impact of including BTR in the legislation,” said Ed Crockett, head of residential investment at Aberdeen Standard Investments.
The number of BTR homes continued to climb, topping 200,000 at the end of Q3. EG took a dive into some 20,000 operational homes in London, examining rents and what investors are offering to entice tenants and create a premium offering. And a mystery shopper investigation revealed a chasm in service and quality at the UK’s biggest BTR schemes.
EG’s second BTR supplement offered a smorgasbord of stories with the biggest names in the industry – including Quintain Living’s new chief operating officer Danielle Bayless and Get Living’s chief executive Rick de Blaby.
Get Living’s investors were one of the few to raise funds in 2020, and in 2021 they sought to use that for BTR expansion – targeting developments, forward funding, standing stock and corporate acquisitions. De Blaby said the next few years will see a divide of “winners and losers” and the company was gearing up for consolidation.
Confidence returns
That sector consolidation started at the tail-end of the year. A spree of acquisitions from FTSE 100 Landsec included a £190m take-private for regeneration specialist U+I. In December, Greystar agreed a £2.2bn partnership with the Abu Dhabi Investment Authority, which included taking Metropolitan Thames Valley’s stake in Fizzy Living. Greystar will take over Fizzy’s portfolio and plough £1.8bn into new development around the capital.
Finally, confidence seemed to be rising. Looking ahead, it was time to “bring the wonder back” – to borrow a phrase from Earls Court Development Company boss Rob Heasman. Outlining plans for arguably one of the most contentious and uncertain schemes, Heasman painted a picture of diverse tenures and mixed-use development in a masterplan due in 2023. “We want to do things from the get-go and really start to derive benefits,” he said. “I’m a firm believer that time is everyone’s enemy.”
But Laura Mason, chief executive of L&G Capital, had a different take. She told EG how incremental change over time can add up, when speaking on diversity and workplace culture. “Everyone has their part to play,” she says. This is from broader D&I through to collective efforts to tackle climate change: “You can hopefully make your own small difference that gets some momentum – and we are in a very good place to be able to do that.”
To send feedback, e-mail emma.rosser@eg.co.uk or tweet @EmmaARosser or @EGPropertyNews
