Tag Archives for " UK property developers "

UK property developers can be terrified by Institutional investors

Whole development sales threaten net development profit for UK property developers

Private Rented Sector schemes are growing in their popularity as a sales strategy for UK property developers, especially in key central locations near to key transport links. It may be tempting for you to consider a forward purchase of your entire development. Your budget can be set, margins calculated, and profit fixed in advance. But working with a PRS scheme or single institutional investor also has a high degree of risk for UK property developers.

Here, I look at some of those risks – a conversation that institutional backers of PRS schemes will probably never have with UK property developers.

Property investors follow the money

The government backed PRS scheme has taken an incredibly long time to move out of neutral and into first gear. First announced in 2012, after two years no company had come forward to take up the governmental guarantee backing property investors. The problem was those guarantees didn’t cover the period of construction. Investors backing schemes were essentially left on the hook for any shortfalls or cost overruns.

On top of this obstacle, the recovery in the housing market turned the profit switch from renting to selling. In a rising market, it becomes easier to sell at premium prices. Profit margins increase. From a purely business point of view, building to sell makes more sense (especially in a country where home ownership is so embedded in culture).

PRS could limit the scope of investment

When UK property developers sell a development as a PRS scheme, the scope of potential investors reduces. You’re limiting your options to only the big institutional investors with an appetite for PRS. Limit demand and you limit competition. Limit competition and you limit your upside and price potential.

Remember, the institution needs to maintain its margins too. They’ll have their investors and backers to whom they must justify their investment on price and profit margin. In fact, you’re further away from the actual investor.

You’re cutting out the property investors who are buying for capital gain, you turn your back on smaller institutions who may want to invest but on a smaller scale, and you wave away smaller scale landlords who might not drive such a hard bargain on your selling price.

Property investment is a business, not a charity

PRS schemes are seen as ‘charitable’ by some landlords – in October 2014, Keith Exford, CEO of 60,000 home landlord Affinity Sutton told Inside Housing, “We remain unconvinced that [PRS] is a worthwhile activity for us. We don’t believe that private renting is a charitable activity. Therefore, it is a commercial one, and we don’t view the returns on PRS as sufficient. Why would we want to take the profit slowly? The only reason we want the profit is to build more affordable homes.”

Investing in a property for capital gain is a strategy that is used by property investors as their property portfolios grow. The money they make on sales is reinvested on rental properties. A lot of larger landlords and investors don’t want to be tied into a rent-only development, and so simply won’t consider a PRS scheme investment.

Developer margins get squeezed on PRS schemes

If big landlords don’t know how to make the numbers add up, there’s only one way they’re going to get a profitable deal – and that’s by squeezing the developer on price. Supermarkets love their ‘buy-one-get-one-free-deals’, but does the same sales strategy make sense for UK property developers?

Local authority partnerships are needed, but challenging

Developer landlords and specialist PRS companies find that PRS schemes can be difficult to justify. One such company, PlaceFirst, told Inside Housing that it sets its target at households earning £25,000. With the assumption that the family has around £480 to spend on rent, PlaceFirst’s requirement for a yield of 6% means that it only has about £75,000 to spend on building the home.

To make such development economically viable, partnerships with local authorities have to be created – and they can be notoriously difficult to cultivate, grow, and maintain (especially in the current uncertain political climate).

UK Property developers risk: The backer might pull out

PRS funds are a huge business, but they tend to be higher risk. The agreements and investment terms have to be negotiated, agreed, revised, and reviewed. The funds are backed by institutional money – which gives them their gravitas.

There is often a multi-level sigh-off process, moving through to board level. At each level of review, investment agreements can become increasingly complex and bogged down in a legal quagmire. It extends the length of time to get a development moving, negatively impacting UK property developers.

It’s not uncommon for such agreements to fall over at the last hurdle. If this happens, the whole process of finding a backer and getting sign-off has to restart.

An example of this risk is Kampus in Manchester. In 2014, Capital & Centric and Henry Boot Developments bought the Aytoun Street Campus site, near Piccadilly Station. UK fund manager, Lothbury Investment Management agreed to fund the scheme as a £200 million PRS. That deal began its due diligence process, and after nearly two years it fell through. The developer had to look for a new financial backer. American company Ares Management came to the rescue and signed the new agreement in February 2016. The Kampus development is now getting off the ground, though at what cost to the developer remains to be seen.

How can UK property developers still forward sell projects?

Here at Castlereach, we take a different approach. Our decision making is fast, flexible and focussed.

Our commitment to a deal can be made within days. By the time UK property developers have negotiated with a PRS fund, we could have completed. You’ll have the initial funding you need, without the expensive loss of time. Also, we don’t have to buy the whole development. Many of our investments are made on a forward purchase of 25% to 50% of a development. For UK property developers, this:

• Creates rapid momentum for their development
• Underpins the development, providing increased confidence in the scheme to the developer’s funder
• Allows retention of a percentage of the scheme to sell later at a higher price

UK property developers with whom we’ve worked have found our approach works well for them, helping to increase profits and reduce funding costs. We work with huge and small UK property developers, all for very similar reasons.

By holding some property back from the early forward sale, you’ll benefit from selling nearer to completion. You’ll retain the benefit of capital uplift through the build cycle – helping UK property developers realise higher overall returns on the scheme than if you had forward sold the entire scheme too early.

Contact us today on + 44 207 923 5680, and we’ll be happy to discuss our forward buying process and how it could benefit your development.

Keep in touch,

Martin Sadler

How UK property developers unleash technology to untether sales

Connect off-plan property investors using technology

Today, information is freely available to a global audience. For you, selling off-plan property and reaching a global audience doesn’t mean you’ll reach your potential buyers, and off-plan property investors are a canny lot if recent research is anything to go by:

• According to com research in 2014, 81% of shoppers research online before making a purchase.
• A Moz survey in 2015 found that 67% of purchasing decisions were affected by online reviews.
• A 2015 Realtor study found that homebuyers under 50 tend to spend 11 weeks searching and researching before making a buying decision. Their first port of call is an internet search.

The majority of UK property developers’ websites are targeted at home buyers. Yours may be, too. However, when kicking off a new off-plan property development, access to off-plan property investors will be crucial.

In this post, I’ll explain how we use technology to target off-plan property investors with interest in new build developments specifically. You’ll discover a little of why property developers in London and across the UK work with us to sell their off-plan property off-market.

We make it easy for off-plan property investors to get information

We understand that off-market sales only have a limited period of success. The window of opportunity is narrow, but that doesn’t mean our marketing starts that way. In fact, our marketing starts way before we even speak with developers.

Our websites are the first point of contact for off-plan property investors: the first step in us targeting a specific audience for your new development.

Our sites reflect the quality of the developers that we work with and the quality of the developments we offer off-market. They’re optimised for all forms of access (mobile, laptop, desktop, and tablet). We also make sure that asking for more information is easy, requiring only email and name as the first level of client information.

We track our off plan property investors and information they ask for

From this initial point of access, we’ll track our new off-plan property investor’ journey on our sites using technology. This helps us build up a picture of them as an off-plan property investor. Whenever they request a new piece of research or visit a blog or news item, we log this information. Over a period of time, this information gathering enables us to target specific property investment opportunities to particular target investors.

Agents speak to off-plan property investors to get better insights into their needs, and this further informs our marketing process. We factor in previous investments made, and the prices paid.

We then use a combination of email marketing and direct contact to excite investors to new, off-market, off-plan property. By this stage, we’ve reduced our marketing list to those investors that our database says will be most interested in the specific investment opportunity.

The who, the how and the why – using information to sell off-plan property to investors

Our marketing and sales techniques speak to off-plan property investors, not homebuyers. Off-plan property investor motives are different to those of the homebuyer.

The emotional pull of a property is, for the most part, non-existent for our clients. They are interested in the investment potential, so we develop our research and site-specific information to sell to this need. People by a home. Investors buy a box that makes them money. This is markedly different to the sales information provided by estate agents and online resources like Zoopla and Rightmove.

By understanding investor needs, we harness technology to give them the information they need and want. We’ll show them in numbers and facts why your development is a great investment opportunity. We’ll talk about prices, values, infrastructure, regeneration, sales, and rental yield. We’ll contrast and compare with existing properties in the area, helping to close the deal that we know the target will already be interested in.

For most property developers in the UK, undertaking this kind of technology remodelling for each new development is expensive and time-consuming. Our advantage is that we only need to iterate for a new development. We evolve our offering to compliment the strength of our existing and expanding investor database for the benefit of the developers we represent.

Feel free to contact us on +44 207 923 5680 to discover how our off-market targeted sales strategy marks us out from the competition.

Live with Passion,

Brett Alegre-Wood

How to implement effective off-plan sales strategies

Early phase off-plan property sales strategy

Developing an effective off-plan sales strategy is key to achieving expected return on investment for property developers. It will help reduce the need for equity, help with funding and provide cash flow for the development, increasing buyer confidence and creating a virtuous sales circle going forward.

When developing a off plan sales strategy, you’ll need to gain the trust of end buyers and also be able to trust the partners you select in the process of off-market, off-plan sales.

Build key relationships first

You’ll have some key stakeholders, all of whom dovetail and work with you to take your project off the drawing board through to completion. Your lenders and buyers should be involved early, but you probably won’t want to publicise off-plan sales too soon. Off-market new build apartment sales can enhance your project balance sheet and help structure your pricing strategy going forward. Ensure you select off plan sales partners with a track record that matches your scheme.

Build trust with buyers and investors

Investors are keen to do business with developers who can be trusted. If you can demonstrate a track record of timely completions and working to pre-agreed specifications, that trust will grow more quickly and more freely.

Update your stakeholders regularly

People don’t like to be kept in the dark, so offer regular updates on how you are progressing towards milestones. Even if there’s a little bad news or a slight delay, it’s better letting your investors and funding partners know about them. not every little detail, but often in the absence of any news, investors can assume the worst. The important thing is how variations are handled, and to give plenty of warning if something goes awry. This allows your partners to manage relationships better in their world − in off-plan forward sales this is crucial.

Ensure buyers and investors understand the risks

Working with an experienced partner in off-market, off-plan sales gives you someone who will work with investors and you. Those who are aware that new build apartment sales are not without risk will be able to help you overcome issues as they arise. Usually, their clients are probably be long-term investors, which helps offer stability for your ongoing off-plan sales. Avoid speculative buyers who may be looking to flip their purchase at the most inconvenient time, putting pressure on prices and perceptions. Always choose your off-plan sales partner wisely.

Staging your off-plan sales strategy

Those first off-plan new build apartment sales will probably command a greater discount than later units. This is the nature of risk versus reward, and the earliest purchases are the riskiest from an investor’s point of view. You’ll need to consider how much equity needs to be raised and how many units need to be sold to reduce your financing needs. having a strong set of figures is critical and releasing properties at a regulated rate as part of your off-plan sales strategy will help you to finance your project and stabilise / secure prices.

Off-plan sales strategy reduces your risk and maximises income

By buying off-plan and new build apartments, Castlereach offer valuable and useful ways to reduce your risk. They’ll help your pricing going forward and give lenders greater confidence in your development. Your capacity to fund at competitive rates will probably increase as well as increase your overall profit and reduce the time and effort it’ll take hit your unit sales targets.

Off plan sales partnerships

Our investors understand the nature of risk and trust us to carry out the due diligence necessary to reduce their risk to a minimum per development. The feedback we give provides invaluable evidence of actual demand. This helps execute your sales strategy, and facilitate the build process as your development progresses.

To discuss your off-plan sales strategy and how many units you would like us to buy from you to help your development achieve your unit sales targets, call us on +44 207 923 5680 and chat to the team.

Live with Passion,

Brett Alegre-Wood