SPECIAL FEATURE: Affordability, Amenity, Community and Flexibility – driving the Build-to-Rent revolution – Puma Property Finance

SPECIAL FEATURE: Eliot Kaye, Puma Property Finance, has written an article entitled Affordability, Amenity, Community and Flexibility – driving the Build-to-Rent revolution.

Much has been said about the build-to-rent (BTR) market over the past few years and, more recently, its “younger cousin” the co-living market.  The growth in popularity, the proliferation of new schemes and developers and seemingly ever-strengthening valuations, have driven significant investor appetite in these sectors.  It is less than five years since the Puma Property Finance team lent on our first build-to-rent development and the speed at which the market has evolved and improved is hugely impressive.

So, what is the magic?  In our view, the fundamental ingredients driving the success of BTR and Co-Living schemes are affordability, amenity, community and flexibility.

For some time now, economic headwinds have been in the direction of property rental over ownership, and we consider that current interest rate volatility will only continue to expedite that move.   When I bought my first flat in the late 1990s, I scoured the mortgage market and ended up with what was, at the time, a cracking deal – fixed for 3 years at 5.95%.  When I mention this to many of my younger colleagues, their reaction is disbelief – how could I possibly have afforded such a stratospherically high interest rate?!   The truth is, while the historically low interest rate environment of the last decade was never going to last forever, the speed at which rates have been rising have certainly discombobulated the mortgage market and left many in doubt as to the affordability of their proposed purchase.  Frustrated buyers will, reluctantly or otherwise, be looking at rental options until they can better get onto the property ladder.

Without wanting to sound too much like a prehistoric relic from a bygone era, I also look back with not-undiluted pleasure at the state and cost of my accommodation whilst at university.  Paying £29 per week for a house-share where it was questionable whether use of the bathroom would positively or negatively impact one’s cleanliness and overall state of health(!) was very much par for the course.  And, when I graduated, moving into only slightly more salubrious accommodation as I started my working career in London didn’t seem like a particularly difficult transition.  Today’s student will expect a very different standard of living.  We fund a great deal of purpose-built student accommodation (“PBSA”) developments across the length and breadth of the UK which aim to provide the very best living accommodation (ensuite bathrooms, large and airy bedrooms), together with top amenity provisions often including cinema rooms, gyms, co-working spaces, bars and lounges.  Having experienced this standard of living for their time as a student, graduates coming to the UK’s major cities in search of employment are far less likely to be prepared to slum it in a subterranean flat with an unscrupulous private landlord.  Instead, it would be a natural next step to move directly from PBSA into BTR, another major driver of the latter’s success.

The third ingredient is community.  The hopefully-never-to-be-repeated lockdown experience during the pandemic heightened people’s awareness of solitude.  Many BTR operators work hard at creating a sense of community within their developments.  The amenity spaces I mentioned above will drive this behaviour in any event but the classes in the gym, screenings in the cinema room, cocktail nights in the bar etc. are all designed to be a cohesive catalyst for the residents.  Being part of a community of several hundred tenants in a well-managed BTR scheme – meeting people in the public spaces whilst being able to retreat into the privacy of your own apartment – is an immeasurably more positive experience in terms of wellbeing and mental health than living alone or even in a small flat-share.

Finally, notwithstanding the importance of building communities, the lifestyle of many of the target market for BTR residents is significantly more transient than previous generations.  Many people in their twenties and thirties want the flexibility to enjoy living in a particular place for a certain amount of time and then, on relatively short notice, up sticks and move on.  And even disregarding the issue of affordability, owning a property may be perceived as a millstone tying one down as much as it is seen as an asset.  Many BTR schemes offer tenancies as short as six months which is very appealing to their target audience.

Of course, it is still important to get the operational ingredients right to give a new BTR development the greatest chance of success.  The right micro-location, the right levels of amenity provision, setting the rents and managing expenses optimally and, of course, managing the asset well.  When appraising a BTR development finance opportunity, we look at all these things and more.  But with the issues of affordability, amenity, community and flexibility at the front and centre of the minds of many, we are confident that the BTR market will continue to evolve and grow, providing a first-class accommodation option and an attractive investment proposition.  Ingredients for a successful future indeed.

Written by Eliot Kaye, Managing Director, Puma Property Finance

Eliot Kaye, MD, Puma Property Finance

Disclaimer:

Puma Property Finance Limited is a private limited company registered in England and Wales under company number 11685426 and is not authorised or regulated by the Financial Conduct Authority, (“FCA”). Puma Property Finance is the trading name of Heritage Square Limited, Oasis Lending LLP and Puma Lender S.a.r.l.

The activities of Pre-Development Bridge Financing, Development Loan Financing, including Development Exit Lending and Refurbishment Finance, do not constitute regulated investment business under the Financial Services and Markets Act 2000. As such, clients of Puma Property Finance will not be afforded the protections available under the rules of the Financial Conduct Authority (“FCA”) and will not be eligible for compensation under the rules of the Financial Services Compensation Scheme (“FSCS”).

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