A Guide to Investing in Prime London Residential Property in Association with Introduction Introduction

INSIGHT

A guide to investing in prime London residential property in assocIation with Introduction Introduction

Hampstead

Marylebone

St. John’s Wood

Mayfair Bayswater

Kensington he private rented sector is once again in the spotlight following Knightsbridge Belgravia the recent Montague Report. But it remains to be seen whether Chelsea the report’s central wish for greater institutional investment in Tresidential property will come to pass, which for the time being 04 08 leaves the field open to a relatively small band of large-scale investors. One of those is Bruce Ritchie. If the City’s institutional naysayers want convincing of the appeal of residential investment, they need only look at Ritchie’s track record. Since founding Residential Land in 1991, the company has grown into one of the biggest investors in London, successfully traversing several economic highs and lows along the way. The articles in this guide spell out the Residential Land approach to residential investment, which has proved good enough to attract such heavyweight global investors as Apollo Global Real Estate Management and Ivanhoe Cambridge into partnership with the company. A recurring theme in this guide is that there is no substitute for market intelligence – in Residential Land’s case, a forensic knowledge of every street in prime central London. Nor is there any reason to stint on Editor Doug Morrison property management – the investment returns are all the greater when 12 16 20 Sub editor Nick Jones you treat your tenants as customers. Art director Nick Watts Many individual investors have followed Ritchie’s lead into London, Designers Steve Savage, Heather Reeves attracted by the capital’s resurgent property market. But there is more Photographers Robin Gautier, to residential investment than speculating on a rising market. Some Tony Murray Photography, properties have been on Residential Land’s books for a decade or more. Cover illustration Neil Webb What the company demonstrates here is that when it comes to creating Illustrations Neil Webb, Steve Savage value, there are no short cuts. Project manager Emma Humphrys Contents Business development manager Doug Morrison Niki Kyriacou Editor ❚ 04 Interview with Bruce Ritchie This guide was produced by UBM Client Solutions in association with Residential ❚ 08 London’s golden postcodes Land. © October 2012. ❚ 12 Why it’s still ‘Destination London’ ❚ 16 Prime performers: Two case studies ❚ 18 Where are the UK investors? ❚ 20 Why management matters +44 (0) 20 7560 4291 | www.clientsolutions.co.uk

2 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 3 Profile

Right: Residential Land’s Grosvenor Street head office in the heart of Mayfair

‘It didn’t take long before I thought, maybe I should do some more of this’ Residential Land’s Bruce Ritchie has built a £1bn portfolio based on an innate understanding of the prime London market. But it all began with one £64,000 house…

esidential Land is one of prime Just weeks later, he bought a slightly ground that has made Residential Land’s London’s leading residential smaller house nearby for £74,000. Two name over the years – the 24 postcodes investment and development weeks after that, he sold it for £86,000. “All in the wealthiest parts of London. As CEO, Rgroups, with assets held on its own of a sudden I learnt about property trading, Ritchie has stuck resolutely with these or in joint ventures worth nearly £1bn. Yet its where arguably you could be in a property for “golden postcodes” since the very early days success owes something to a modest house a matter of days and make a profit,” he says. of the company, when he made a strategic deal in Bethnal Green in the East End. “This also gave me an understanding of how shift from east London to St John’s Wood and It was there in 1986, long before he residential in London – where you have got a Hampstead initially, and then to Mayfair. founded the company, that Bruce Ritchie market and there is demand – can work.” bought his first home – a three-bedroom By the end of the 1980s property became Golden postcodes property on Albert Close – for £64,000. He the day job for Ritchie, and he has been Property historians will note that Residential remembers it well: 10% deposit paid for making residential work in London ever Land incorporated during the depths of with savings and credit card and the rest on since. The fundamentals of renting and the early 1990s recession when values mortgage, which was about three times his trading remain the same for him, albeit the plummeted. It was, Ritchie says, “a tough earnings as a trainee manager at Harrods. locations have changed and the financial ride”. But as he points out too, “the rate of Ritchie let out two of the bedrooms, which numbers have increased significantly since decrease during a recession was less the covered the mortgage. A year later he sold incorporating Residential Land in 1991. closer you got towards the centre of town”. the house for £92,000 – a handsome profit The latest and most ambitious venture is a The company also benefited from the slow- even in the heady 1980s property boom. £320m partnership with Apollo Global Real burn impact of the 1988 Housing Act and the “I’d got to the concept that investing in real Estate Management and Ivanhoe Cambridge, onset of assured shorthold tenancies, which estate required both the prospect of capital the real estate subsidiary of Canadian fund put some much-needed legal structure into growth to attract you into it and the security manager Caisse de Dépôt et Placement du the market and made residential investment of income to protect you in the debt position Québec (see page 8). If it goes as planned, more attractive than before. you have to take,” he recalls. “It didn’t take this partnership alone will be worth £1bn. With first the move to Hampstead and long before I thought, maybe I should do To that end, Ritchie’s experience will count then St John’s Wood came Residential Land’s some more of this.” for a lot. The partnership is working the same involvement with estate agents Gordon

4 INSIGHT Investing in prime London property Profile Profile

All pictures: The Grosvenor Mathews and Hamilton Wood. As Ritchie Street head office. Having recalls, estate agency was an important begun life in east London, step in broadening the group’s experience: Residential Land moved to learning about sales and marketing, Hampstead, St John’s Wood and finally to Mayfair leasehold structure, development costs, landlord service charge issues, planning consents, local authority issues, building control. “The amount there is to learn is substantial and it’s all slightly different borough to borough. A great way of learning that is to be an agent, because what you face as an agent are hurdles over every aspect of property,” he says. “But it was never going to have the potential for future growth that being a landlord, developer and investor in prime central London was likely to attain.” Ritchie also launched and ran The London Repossession List, collating lists of repossessed properties, cherry-picking those of interest and publishing the balance in the monthly magazine. There followed a period of frenetic activity in which Residential Land traded through private treaty and auction, and carried out all conceivable development work, even converting blocks of flats back into houses. “Whichever way the market played,” recalls Ritchie, “for it to work for us, we would do it.” Residential Land’s build-up of experience at the time was invaluable, as Ritchie puts it, “learning about every postcode you operate in, every street in every postcode, every type of building in every street and every floor in these buildings”. Then, as now, the “golden When you become a of smaller flats. It is absolutely clear forerunner of the Apollo/Ivanhoe Cambridge were sold in May 2010 to Prime London market has gone in our favour and Brett was postcodes” rule proved lucrative, which he bankable business that when you understand residential investment deal but a victim of time and circumstance. Residential Ltd, a joint venture between able to take a profit and we were able to suggests goes back to the old adage that that you don’t want to be trying to rent a Residential Land and HBOS swiftly Palos and Residential Land, and now a invest those buildings in our new fund.” it is better to have the worst house on the lenders will support with 3,000 sq ft penthouse flat when there’s a acquired 21 buildings together, which with portfolio worth around £400m in its own All of which takes Residential Land to the best street than the best house on the worst debt, the sky becomes recession going on.” its other ventures took the company’s right. Residential Land continued to manage present day. It has been an eventful few street. “It’s always going to be dragged up the limit He explains: “The people who write holdings to more than £1bn by mid-2008. the buildings – 352,044 sq ft of residential years – partnerships with HBOS, Palos and by the higher values and yet you will never thousands of pounds a week on rent However any impetus was lost later that and 28,892 sq ft of commercial space. now Apollo and Ivanhoe Cambridge. But have a problem renting it because everybody cheques are bright enough to know not to year in the global financial meltdown and In a rapidly recovering London property there has been a constant thread running wants to live on that road,” he says. spend that money through a bad time. They subsequent bailout of the financially stricken market, Prime London Residential Ltd began through this story: Ritchie’s entrepreneurial By 2001, the company had bought its first are more likely to leave or try and negotiate HBOS by Lloyds Banking Group. As with so selling. From May 2010 to February 2011, eye for a deal, Residential Land’s knowledge £10m apartment block – Garden House in discounts than people who are paying £400 many of HBOS’s property projects, the assets the joint venture notched up £100m of sales of its market, and its management strength. Kensington Garden Square, W2 (see page 16) a week between them and when recession became snarled up within Lloyds. in 11 buildings as gross yields fell from 5.5% Given “the commitment that both Apollo – which is now part of the Ivanhoe Cambridge hits can always pay that out of their wages.” The HBOS joint venture was founded upon to 3.8%. Ritchie talks glowingly of Palos and and Cambridge have made to us”, the new and Apollo joint venture. “That was a huge “relationship banking” – the premise that the Green’s “pure retail blood … the minute they venture will understandably take priority. sum of money to us back then,” says Ritchie. Come the crunch two partners would stick together through owned, they wanted to sell it”. “We have co-invested with them heavily,” “When you become a bankable business that By 2006, Residential Land had carried out good times and bad. “That story collapsed,” But he also says: “I didn’t see that as says Ritchie. “Making the best return from lenders will support with debt, particularly about 750 separate property transactions says Ritchie. “Being polite, it was probably the right strategy on some of the assets, that co-investment and jointly making a with the leveraging that was available, the with an average geared IRR (internal rate of not the best example of post-merger because for me it’s about a future, building return for our co-investors – that’s going to sky becomes the limit. That’s why for us return) of 34%, ending up with some £500m integration that you might come across. a business and a brand, and having an be the primary focus.” a substantial amount of portfolio growth worth of assets. At the time, the portfolio Lloyds inherited an enormous balance sheet investment that works. So I agreed to take But then again, significant though the occurred between 2001 and 2006.” extended to more than 40 buildings with in property and needed to reduce it.” the four largest buildings and sell them into latest venture is – a landmark deal, even – it So much so that Residential Land hardly more than 800 flats. At MIPIM that year, Ritchie’s efforts to secure an “exit a new concept – what you might call the holy would be a mistake to regard it necessarily faltered during the 2003 recession. “I didn’t Ritchie started talks with HBOS’s Bank of strategy” took him to Brett Palos, the grail of residential – an institutional property as the defining moment for Residential Land. feel it,” he claims. “We were doing precisely Scotland Corporate subsidiary over a joint stepson of retail tycoon Sir Philip Green, both investment partnership.” As Ritchie himself says, “There’s still a multi- what we’d always done, which was to be in Above: Bruce Ritchie, CEO venture that would take nine months to of whom had strong links with Lloyds. After He adds: “Brett was sympathetic and hundred-million portfolio to look after and the prime areas but to operate in blocks of Residential Land put together. It was in some respects a a year of negotiations, those 21 buildings agreed, to be fair – two years after that the another one to buy.”

6 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 7 Prime London Ventures

Left: Residential Land’s self-imposed boundary of 24 prime postcodes

Hampstead London’s

Marylebone golden St. John’s Wood postcodes

Mayfair Residential Land scoured the world for equity partners to Bayswater build a long-term, £1bn property portfolio in the capital’s best boroughs. The result is Prime London Ventures

Kensington

ne of the most important deals returns over commercial property, especially Knightsbridge in London’s private rented sector in the resurgent prime central London Belgravia took place earlier this year when market. “Too much management hassle and OResidential Land secured the not enough income yield”, has been the backing of two of North America’s leading real familiar refrain from the City’s naysayers. Chelsea estate investors for a new £1bn partnership. But the North American opportunists have Ivanhoe Cambridge, the $30bn property shown no such reticence and, what is more, arm of Canadian fund manager Caisse in joining forces with Residential Land they de Dépôt et Placement du Québec, and have a partner with a 20-year track record in New York-based Apollo Global Real Estate the market. Management have gone where UK investors The three-way partnership is called Prime have feared to tread. London Ventures, and has already dipped For so long, UK institutions have baulked into its initial £320m war chest – split evenly at residential investment despite superior between debt and equity – for its first four

Investing in prime London property INSIGHT 9 Prime London Ventures Prime London Ventures

Clockwise from far left: Garden House in Bayswater, 56-60 Lancaster Gate near Hyde Park, Elliot House in Marylebone and Roland House in South Kensington

Starting blocks Prime London Ventures has been seeded with assets (see box, opposite). The plan is to lack of a real commitment to engage, was four assets acquired for more than £100m from Prime London Residential Ltd, the joint venture buy prime property, mainly from distressed astonishing,” he says. between Residential Land and entrepreneur sellers, and grow a portfolio to the scale that Undeterred, he consulted widely, including Brett Palos. Ivanhoe Cambridge and Apollo have achieved Simon Berrill, senior adviser to Macquarie The properties are 207 flats in Roland House in Manhattan with their Stonehenge Capital; Simon Hampton, Jefferies’s European in South Kensington (SW7); 56-60 Lancaster venture – 3,000 apartments worth a total head of real estate; and entrepreneur Nick Gate near Hyde Park and Garden House in of $2bn. The partnership will look to acquire Leslau, Ritchie’s partner on a residential Bayswater (both W2); and Elliott House in existing buildings, off-plan and new-build scheme in Barbados. He formally appointed Marylebone (W1). opportunities. It will also consider acquiring Macquarie Capital as adviser two years ago. These are assets that Residential Land debt attached to the kind of assets it would “The best advice I got from these people managing director Bruce Ritchie knows well. want to buy, where existing lenders are was that investors want to invest in a deal. Garden House in Kensington Garden Square looking to recapitalise their balance sheets. They don’t want to invest in a concept,” he was on Residential Land’s books as long ago as As revealed by Property Week in February, says. “Therefore you have to come with a 2001 (see page 16). the partnership ends an 18-month search deal. So having the time to be able to deliver Ritchie says: “When you believe your stock by Residential Land for the correct equity in specific buildings that could be analysed, is worth money and when you know that in an era of scarce bank debt. Or as CEO Bruce valued, surveyed, watched – all the things an the long term, even in the medium term, it will Ritchie puts it, this has been a particularly institution likes to do – was fundamental.” most respected property financiers. else was going out looking, which has In all, it took Ritchie 15 months to put improve, it’s not a difficult choice to re-invest careful exercise in how to raise equity With Berrill, Ritchie’s search for equity Apollo was the link to Ivanhoe Cambridge. normally been a reason for our success – together Prime London Ventures. Ivanhoe in it, particularly in an area where you have finance for a new platform in an unsure took him from wealthy families in the Far With Stonehenge, Ivanhoe Cambridge had a we tend to get the timing right.” Cambridge is in it for the long haul – up to other positions that keep you in touch with investment class through a difficult market. East to European institutions. Central to that successful joint venture in New York that had The fact that Ritchie speaks French 10 years – and though Residential Land may the market place. I have a strong belief that to invest in a market, you have to be a consistent “It became clear to me that this taboo over global marketing trawl was Ritchie’s “taster” grown to 3,000 apartments in a little over was, he says, an important ice-breaker choose to depart as co-investor earlier on buyer and seller, otherwise you don’t really getting an institution to invest in the private of the sort of assets that would reside in a decade, with notable success. “They have with Ivanhoe Cambridge before the latter some assets, the company will remain as understand its price.” rented sector revolves mainly around a lack the portfolio – the four buildings. Macquarie analysed through up-cycle and down-cycle embarked on extensive due diligence over property manager for the duration. of track record, a lack of institutional grade found potential buyers for them “in an the performance of that investment and it the initial quartet of assets. Residential Land One option for the partnership could information, a belief that the only place instant, but that was not good enough for has shown them a 15% IRR (internal rate of “passed with flying colours”, something be as a REIT. Orf describes flotation as a you could do it was London,” he says, “and me”, says Ritchie, whose aim from the outset return) on average every year for the last Ritchie attributes to the financial disciplines “strong possibility” if current restrictions on ultimately a lack of professional property was to use this mini portfolio as a platform 10 years – almost unaffected by what was and reporting put in place for the company’s property trading, which have scuppered any operators looking for this type of partner for a long-term investment. going on in 2008 and 2009,” says Ritchie. joint venture funds with HBOS in 2007. “A residential REITs, are relaxed. as a first choice.” He realised that he needed to go to “a “A decision had been made before we came lot of good came out of that,” he says. “It For the time being, the task is simply to Early on in the process, Ritchie talked traditional real estate expert”, who arrived in the door that they should be doing this in enabled us not to be frightened about the buy properties using up to 60% leverage and to UK institutions, such as Aviva and Legal in the form of Roger Orf, Apollo Global’s head other capital cities around the planet. So we quantity of information that these guys with the strong advantage of capital from G LOBAL R EAL E STATE & General. “The lack of enthusiasm, the of real estate in Europe and one of the City’s were knocking on the door when someone want. Most entrepreneurs would run a mile.” Ivanhoe Cambridge with no upper limit.

10 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 11 The London market

Destination London

Already the world’s third most expensive residential location, investor and tenant demand in the capital is continuing to grow

he enduring strength of London’s sq ft, London ranks alongside Hong Kong prime property market has become as the world’s joint third most expensive inextricably bound up in the residential location, behind Cap Ferrat capital’s global reputation as a safe (£3,100 per sq ft) and Monaco (£3,500 Tinvestment haven – and research points to per sq ft). more of the same over the coming years. “With English a popular second language Knight Frank and Citi Private Bank’s and a relatively weak pound, the global annual Wealth Report says that London, wealthy have confidently focused their New York and Hong Kong are seen as the interest on London and the wealth most important world cities for high net preservation it can afford,” says Luigi worth individuals. Pigorini, chief executive of Citi Private Bank, Following a survey of 5,000 such Europe, Middle East & Africa. individuals – people with at least $25m of This bullish view of London is shared by investable assets – Knight Frank and Citi Bruce Ritchie, CEO of Residential Land. He conclude that prime property remains a key believes the high-end residential investors part of their investment portfolios. They are “warehousing their cash” but that the point to a global rise in allocation to real big draw – capital growth – is common to all estate of 19% in 2011 although bonds and investors, domestic and foreign, the rich and cash showed greater increases. not so rich. The report claims that those markets “It’s a simple equation,” says Ritchie. considered safe-haven locations continue “The more demand you have for a specific to attract private investors looking for both product with limited new supply the prime residential and commercial property. more the price is going to rise. It’s basic Political and economic uncertainty across economics. London at the moment is in the world underpins the trend. demand and I can’t see that changing, given With average prime values of £2,900 per the quantity of investment that’s going into

12 INSIGHT Investing in prime London property The London market The London market

14.1% Returns delivered in the central London private rented sector

Regional residential investment performance: 2011

5 The more demand you have for a product with 0 limited new supply the -5 more the price is going to Central Inner Outer South-east South-west, Northern England All residential London London London Midlands & Wales & Scotland rise. It’s basic economics

Total return Income return Captial growth Rental value growth its infrastructure and regeneration and the importance of the private rented sector in because you’re buying and selling in it acquisition that an oligarch who buys in number of people bringing businesses and housing people in London is one reason why every day, then it’s not difficult to see that, his own name. Ritchie, in his position on UK residential market let, total return: 2001-11 their lifestyle here. We’re certainly dealing such a broad spread of investors are drawn when there’s a temporary drop in value, the the residential committee of the British

300 with, in our eyes, constant growth.” to the capital. fundamentals of the building – the yield, its Property Federation, is working to try to The latest figures from Investment “It’s a strong economy, mostly driven by capital value in comparison to what other bring a sense of balance back to these taxes Property Databank (IPD) reflect this growth. the financial sector being based primarily people are having to buy in London – are still for professional landlords. Its annual residential index shows that in London, so that draws in people from reasonably secure,” he says. Knight Frank believes the new 7% stamp central London property drove the private the rest of the country. There are more If there is a market threat today, it is duty, at least, can be absorbed by market 250 rented sector’s 11.3% total returns for 2011. professional sharers in London than other fiscal and regulatory uncertainty, following forces. It is an assertion that is no doubt In fact, central London delivered returns of cities. Their jobs are more secure than in the chancellor George Osborne’s introduction informed by the bullish investor sentiment 14.1% and inner London 12% compared regions, and they’re paying higher rents,” in the March Budget of a new stamp duty it uncovered for its Wealth Report. But Liam with 5.6% in the south-west, Midlands he says. “And for investors of scale you can land tax (SDLT) of 7% for residential Bailey, Knight Frank’s head of residential 200 and Wales. The relatively broad spread of buy bigger blocks in London, and for the properties over £2m, and 15% for such research, says: “It is important to bear in property covered by IPD’s index scotches professional investor you’ve got to buy properties bought through companies. As mind that, on average, prime London prices any notion that the sector’s impressive bigger blocks to get the economies of scale. property website Zoopla points out, 77% of have risen by 42% since 2009, with no performance can be attributed solely to the That’s why London works for the private properties sold over £2m are in London and pause in the increase in values since the

150 super-prime end of the London market. rented sector and that’s why you see this the south-east, so the 7% rate “is as much a introduction of the 5% £1m-plus SDLT rate Indeed, a separate study of the private higher percentage of rental stock in London tax on Londoners as it is on the wealthy”. in April 2011. It seems unlikely therefore rented sector by Savills and Rightmove than anywhere else in the country.” Meanwhile, the 15% rate – up from that the new 7% rate will result in dramatic reveals that, in London, private renting Even when capital values in London fell 5% – is clearly aimed at tax avoidance by price changes.” already accounts for 27% of all homes in the immediate aftermath of the Lehman the super-rich buyers from overseas. But Certainly the reform of the stamp 100 All graph data: IPD data: graph All 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 (900,000), having overtaken social renting Brothers collapse and financial crisis of it has had the unintended consequence duty regime has given 2012 an unwelcome in 2010, which now accounts for 24% of 2008, Ritchie says he was still confident of penalising professional investors, such fiscal legacy to take the shine off the All market lets Inner London South-east Northern England & Scotland tenure (783,000 homes). in both tenant and investor demand in as pension funds, which can only operate Olympic year. It remains to be seen whether Richard Cotton, Residential Land’s rental property. “When you understand a through corporate vehicles. They are it will have a lasting detrimental impact on Central London Outer London South-west, Midlands & Wales portfolio director, suggests the growing market place and you believe in that product disadvantaged by paying 8% more on London’s property market.

14 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 15 Case studies

Prime performers

Residential Land has further enhanced the value of two of its prize assets through a combination of high-quality refurbishment and expert long-term management

Garden House, Kensington Garden Square, Bayswater, W2 Residential Land bought its first building of over 30,000 sq ft as long ago as 2001 when it acquired the grade II-listed Garden House – an investment of enduring appeal. Garden House is in Kensington Garden Square, Bayswater, W2, and it was deployed this year as one of the seed assets for the new Prime London Ventures partnership with Ivanhoe Cambridge and Apollo Global Real Estate Management. Though not large, Garden House’s mix of 58 one-, two- and three-bedroom apartments have always let well, predominantly to sharers and students from overseas. But a pilot refurbishment of two ground-floor flats in 2006 paid immediate Forset Court, Edgware Road, W2 management of the block, and also means to sell the apartments under its direct dividends when they were re-let at 50% Residential Land’s interest in Forset Court that Residential Land can potentially acquire ownership while retaining the head more than the prevailing rents. began in 2004 when the company acquired more of the apartments if any of the short leasehold interest and lease extensions for The intention is to upgrade the remaining a portfolio of 50 apartments in the 115- leaseholders are looking to sell. the foreseeable future. apartments through a rolling programme over unit block on the Portman Estate before Management control has been vital. However, each flat required refurbishment the next 18 months, which will include new embarking on a long and involved process of The building had suffered from numerous if Residential Land was to maximise the air-conditioning, new lifts, draft-proofing value-enhancement. problems, including high levels of unpaid value, considering the property’s close of the windows and a high-specification The company followed up its initial capital works bills, unpaid service charges, proximity to Marble Arch. The company also refurbishment of the interiors. investment with acquisitions of the head short-term lettings, high insurance claims decided to refurbish the exterior of the The higher specification will help tap the leasehold interest and superior head lease, and generally poor management. building and its communal areas as well as demand in the area for smaller units, not just which gave management control over all the Residential Land has spent much time replace the lifts and install a new reception. from overseas students but professionals apartments and service charges, as well as introducing best practice management in the The apartment works have had to be and corporate tenants. The refurbishment income from telecom masts on the roof. building. The company retained the original carried out on a rolling basis as the company will also underpin Garden House’s position A further 14 flats were purchased while managing agents to handle the service has marketed the flats to prospective buyers as one of the few unbroken blocks in London an option on the head lease allowed the charges but has managed them in terms of in the Far East. Effectively, the upgraded flats with direct access to a garden square. acquisition of 90-year lease extensions on collecting unpaid bills. have been marketed off-plan. The partnership should benefit from the 64 apartments owned by, and on 35 It has also brought the building up to The strategy has worked well for all continuing growth in a property that will apartments not owned by, Residential Land. date with regulations and has worked concerned. The other leaseholders in Forset remain as a long-term investment. When it These latter units are owned by individuals with Westminster City Council to stop the Court have benefited from the overall was purchased, Garden House was worth or companies, and currently have around 20 short-term lettings. Unnecessary building refurbishment to the communal areas but £325 per sq ft. Today it is valued at over years remaining on their leases. If they want to insurance claims have been curtailed, which it has also helped Residential Land achieve £1,000 per sq ft, based on a total rent roll of extend their leases they now serve notice on has reduced the annual insurance premium sale prices of about £1,100 per sq ft on its £1.1m per year. The rental target is £1.8m a Residential Land rather than the freeholder, from over £70,000 to around £42,000. apartments. To date, all but four of the 64 year when refurbishment is complete. Portman. This has further streamlined the In early 2011 Residential Land decided apartments have been sold.

16 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 17 Investment Investment

Investment performance of residential market lets by region: 2009-11 15

10 Where are the 5 0

UK investors? -5

Residential property enjoyed capital growth of 8.2% last -10 Central Inner Outer South-east South-west, Northern England All residential year, so why is it only overseas institutions that are London London London Midlands & Wales & Scotland grasping the opportunities in the prime London market? Total return Income return Captial growth Rental value growth

Investment performance of residential market lets by region: 2002-11 10

esidential property has continued Yet most UK institutions continue to into something better. When we refurbish it, we can drive better yields and values.” to perform better than commercial resist the supply and demand argument, 5 property, delivering returns of invariably favouring commercial property. However, the key to successful residential R11.3% in 2011, according to the IPD Mark Weedon, IPD’s head of UK residential investment arguably lies in equity finance, residential annual index. services, suggests that the relatively low which means attracting institutional 0 The index shows that total returns were residential income yield “may be off-putting investors. When Residential Land brought in Central Inner Outer South-east South-west, Northern England All commercial All residential underpinned by capital growth of 8.2% while to investors, who are constantly looking for Canadian fund manager Ivanhoe Cambridge London London London Midlands & Wales & Scotland income return was steady, at 2.9%. As IPD secure, long-term income streams”. and New York-based Apollo Global Real Total return Income return Captial growth Rental value growth explains, the shortage of mortgage finance Richard Cotton, portfolio director at Estate Management this year for its new has caused demand in the private rented Residential Land, says: “UK institutions Prime London Ventures partnership, it was sector to remain strong – rents rose by 4.5% don’t like the very demanding management a clear acknowledgement that the days of Investment performance by asset class: 2002-2011 Investment performance by sector: 2002-2011 last year – and limited stock, particularly in that goes with residential property, and highly leveraged deals are long gone. 15 15 London, is putting a premium on values. they don’t like short-term leases. There is Akelius, one of Sweden’s biggest This is no flash in the pan. For years, IPD also a shortage of suitable stock. To make it investment groups, has also stepped has demonstrated the sector’s superior sensible for their asset management, they do up acquisitions in its bid to build a £1bn 10 10 performance over commercial property and need blocks of 50 flats or more.” residential portfolio, largely based on the other asset classes, and in many respects the But Jonathan Rust, Residential Land’s outskirts of London and the south-east. So 5 5 trends reflect wider changes in society. finance director, says that sentiment is will the UK blind spot continue where these Renting is increasingly seen as meeting changing: “Certainly prices in the prime overseas institutions see value? the accommodation needs of younger people central London market that we operate in are Cotton takes heart from the coalition’s 0 0 as the housing shortage worsens, while the at a level that addresses the scalability issue, current review of REITs, which it hopes will sector is taking over the role of social housing and the values are there.” lead to the UK’s first residential REIT. “I think -5 -5 amid a climate of local authority cuts. The Rust also believes that the banks are the government is on board although I guess flexibility offered by renting also chimes more favourable to residential investment they’re reluctant to give too many freebies to -10 with the need for mobility of labour during acquisitions than a couple of years ago. “We institutional investors when they see such a IPD data: graph All -10 2011 3 years 5 years 10 years Residential Retail O ce Industrial prolonged economic uncertainty. are seeing more private banks entering the lot of private money coming into the sector property companies As a result, private rented housing has sector – Credit Suisse and Deutsche Bank, for anyway. There will be concessions. Whether Total return Income return Captial growth Rental value growth soared in value by 42% in five years to example,” he says. “It is relationship banking they will be enough to encourage greater Residential market lets All commercial property Equities Gilts £840bn, according to research by Savills again and we are not far off where we investment remains to be seen,” he says. and Rightmove. They estimate that the were previously, with gearing of up to 75% Bruce Ritchie, Residential Land’s CEO, number of privately rented homes in Britain available on some of our type of stock.” recalls the early days of the company in the has almost doubled to 4.8 million since Rust adds: “In raising finance, it’s the same 1990s when it regularly sold properties the private sector,” he says. “I could see and getting the cycle right, as opposed to peer group. Ritchie adds: “There are a lot 2002. They also warn that the sector needs old story – you need a good track record. to stock market companies formed under at that stage there was a demand for the long-term institutional investment.” of wealthy people in residential in London. another 1.1 million homes by 2016. Research When you are funding an acquisition, the the old Business Expansion Scheme – a compound return of capital growth and rental Fast forward to the present day and the Those people have substantial reserves, and by Jones Lang Lasalle suggests that the banks do like to see rents, which is perhaps tax-efficient scheme designed to attract yield. But that was a very specific time period concern is that if UK institutions fail to grasp will continue to operate their businesses percentage of English households renting counter-intuitive to us because we make our institutional investors. “That initiative when the money was speculated more upon the opportunities, others will happily step through ups and downs without ever had risen to 17% by the end of last year. money from taking an asset and turning it worked and it got institutional money into the bottom of the market growing upwards into the breach, and not just their overseas wanting to go to institutional investors.”

18 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 19 Management Management

‘It is almost like a concierge service’

Unlike many landlords, Residential Land keeps its building management in-house. Here, its team explain the advantages, both for the company and its 2,000 tenants

ith rising tenant demand The spread of experience includes staff Q. What is the most important aspect property has a building manager who is and a limited supply of membership of the main professional of property management for you? the first point of contact for the tenant. accommodation, it is easy to bodies – RICS, the Association of Residential A. “It is important to stay proactive when They visit the building often and try to Wassume that occupancy levels Managing Agents and the Association managing properties and to maintain a maintain a friendly relationship with the will look after themselves for London’s of Residential Letting Agents – which high level of customer service. We have tenants. This level of communication with landlords. But Residential Land guards helps Residential Land keep on top of the to remember that the properties that tenants and contact with the building against complacency by setting a lot of store growing list of health and safety regulations we own are peoples’ homes, where they enables us to retain tenants, keep voids in the quality of its management. governing landlords. should be at their most relaxed. Taking a and arrears to a minimum and also ensure “It’s still a competitive market. You have In return, tenants can expect a 24-hour-a- long-term view and keeping up to date with maintenance is carried out where required still got to try hard and give a good service,” day, “tailor-made” service from the company, regular maintenance means less reactive and effectively. Outsourcing would not says Stuart Birke, Residential Land’s says Whiting. As she puts it: “The building maintenance, which provides tenants with provide the level of control that we currently corporate lettings manager. manager is almost like a concierge service to a better level of customer service and cost have over the portfolio.” Birke talks of the “professional friendship” the tenants.” efficiencies for us as landlord.” Khalid Sharifi, portfolio director the headquarters management and lettings The reward for Residential Land is Gaynor Whiting, portfolio manager team and the individual building managers 98% occupancy across a portfolio that Q. How often do you change the have with the company’s 2,000 tenants. ranges from £250-a-week studios to Q. Have you ever considered asking rents across the portfolio? Gaynor Whiting, Residential Land’s £3,000-a-week houses. More often than outsourcing property management? A. “Rents are constantly reviewed portfolio manager, stresses the importance not, tenants arrive at Residential Land’s door A. “Many residential landlords do outsource depending on availability and demand, of keeping management in-house rather by word of mouth. the management part of the operation but location and the time of year. An annual full than outsourcing it to an agent – the Here Residential Land’s experts outline this does not fit with our business model. review of each unit is also carried out by the customary practice for residential landlords. their approach to property management. We have a unique system where each lettings team along with the finance team. It

20 INSIGHT Investing in prime London property Investing in Prime London Property INSIGHT 21 Management Management

We have to remember that unit is located on, whether or not there seasonality; however, this is something that the properties that we is outside space, the view and any other can be managed by spotting it in advance unique aspects.” and using lots of channels of marketing to own are peoples’ homes, Stuart Birke, corporate lettings manager ensure that occupancy can be maintained. where they should be at We do around 50-60% of our rentals their most relaxed Q. How difficult is it to evict a in-house but also rely on the huge network Acquisitions Marketing Lettings non-paying tenant? of estate agents and letting agents in central A. “The key is to spot a potential ‘non-payer’ London to rent the properties.” early and to have a face-to-face Stuart Birke, corporate lettings manager conversation about it, not to hide behind formal letters or rent demands. Often, Q. How do you qualify tenants who terms can be negotiated or the tenant will want to move in to one of your Residential agree to leave of their own accord. If this properties? Asset & is not possible it is important to follow the A. “From the beginning we have been Land’s Exit Operational correct legal route to eviction. This can take comfortable that it doesn’t matter where Integrated!" #$%&'( Management up to six months depending on the level the tenants come from, whether they are Model of arrears, the willingness of the tenant foreign or English, if they are working or if )' ")(( to cooperate and also the amount of other they are students with a budget. If they cases in the queue to be reviewed at the are prepared to occupy our property, pay on time. It is not a perfect system and can time and behave in a fashion that doesn’t require patience and money – it is important disrupt the neighbours – they are in. The to have a good solicitor to hand to assist as ability as an owner to be able to judge, !" #$%&'( Financial Investment Refurbishment, the law can be complex.” face to face, the calibre and character of a )' ")(( Matthew Callaghan, credit controller tenant is a key reason for our occupational Management Management development

Above: The Tenants Guide details landlord responsibilities success levels.” & Control & Partnering & planning and contains useful contact information Q. What is your average occupancy Bruce Ritchie, CEO level and how do you maintain it? is important to review each unit individually A. “We aim to keep the portfolio fully Q. What separates you from other rather than using a broad-brush approach occupied and enjoy occupancy levels of large landlords? Above: Residential Land’s integrated business model has enabled them to operate successfully by ensuring full control over each aspect of the investment process across a portfolio, as rental value can vary around 98% year round. Dependant on A. “We try to be flexible and innovative, within a block dependant on the floor the the property there can be fluctuations for whether by offering each of the properties to rent furnished or unfurnished, offering flexible terms dependant on tenants’ landlord and the “call centre” mentality often not possible, the company will offer a needs and also where possible by using associated with property management. To timescale of works within a further 24- technology to ensure that all of our tenants that end, the company regards tenants as 48 hours. and suppliers can get in touch with us customers and offers flexibility in terms of • All properties, including the communal whenever they need to. We also take the length of tenure and provision of furniture. areas (internal and external), are well ever-changing regulatory requirements very Who’s Who at Its commitment to professional service maintained. seriously and make sure that we are always Winner Residential Land Landlord of the year is encapsulated in the Residential Land • Each property has a dedicated member ahead of the game. tenants’ charter, contained within the guide of staff who is available to assist tenants “We hope that tenants feel confident Bruce Ritchie Richard Berridge Treating tenants provided to each tenant when they move in: and answer any questions throughout that living in a Residential Land property CEO Head of Consultancy as customers • Residential Land is the landlord, not an the tenancy. means they are somewhere secure, safe [email protected] [email protected] agent, and has a vested interest in the • At the end of a tenancy, the company and reliable. This, in turn, gives us the Residential Land beat off strong maintenance and rental of the property. endeavours to return the deposit within security of high levels of occupancy and Jonathan Rust Anthony Quin competition to win the title of Landlord • Tenants can move in within 24 hours of 14 days. good-quality tenants. Furthermore, as Finance Director Head of Management & Surveying of the Year at Property Week’s inaugural agreeing the rent. • Residential Land is a member of the owners of the properties we operate a fully [email protected] [email protected] RESI Awards in May 2012. • All apartments are professionally cleaned British Property Federation and the integrated business model from acquisition The award reflects the importance before tenants move in. Housing Ombudsman Service, reflecting through to exit strategy. This provides our Louise Savage Stuart Birke that Residential Land attaches to • A helpline is manned by a member of staff its support for the industry and the investment partners an end-to-end service, Sales & Marketing Corporate Lettings Manager providing a high level of service when during out-of-office hours to deal with any future of the private rental sector. and our tenants benefit from our complete [email protected] [email protected] it comes to renting and managing emergency issues. • Residential Land’s lettings and management and intimate knowledge of the residential property. • Residential Land aims to respond to and management team are members of property. Emma Whitby-Smith Richard Cotton Residential Land wants to change the identify any maintenance issue within professional organisations such as “I see our tenants as our customers and Head of Investments Portfolio Director traditional stereotype of the rapacious 24 hours of it being reported. If this is MARLA, ARLA & RICS. our role is to serve them.” [email protected] [email protected] Bruce Ritchie, CEO

22 INSIGHT Investing in prime London property Investing in prime London property INSIGHT 23 IT’S A BUYERS MARKET, AND WE’RE IN THE MARKET FOR BUYING

We’re in the market to expand our residential portfolio and are looking to buy properties in the most exclusive postcodes in prime central London.

We’ll consider all opportunities – from existing blocks of flats and rows of houses, through to new build, off plan and half-finished developments.

Whether you’re an Agent with stock to sell, an Owner or Investor in need of the perfect development partner, or a Developer wanting to pre-sell existing developments, we want to speak to you.

To talk straight about property call our specialist acquisitions team on: 0207 408 5155 or email [email protected]

RESIDENTIALLAND.COM

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