The Private Rented Sector (PRS) or Build to Rent sector in the UK has grown substantially in recent years. PRS has overtaken social housing as the UK’s second largest tenure and build-to-rent and has being hailed as the answer to the housing shortage.
As lifestyles change and purchasing property in the UK is viewed as a less viable option, the demand for PRS houses and flats will continue. The quality and longevity of these developments are seen as key for investors, developers and ultimately the tenants.
Planning permissions for PRS projects grew almost four times in the last year, and there are now planning permissions for more than 31,600 PRS homes in the UK. The 2016 Autumn Statement saw £1.4 billion being set aside to deliver 40,000 affordable homes and £3.15 billion for new homes in London.
This was followed by the positive news that a policy change will give the rental market its own affordable housing classification in London. The move is expected to unlock thousands of rental homes across the capital and see billions in investment enter the sector. It will provide official direction that rental schemes do not need the same affordable requirements as build to sell schemes.
On 16 November 2016 JLT Specialty’s Construction and Real Estate teams hosted a breakfast seminar ’Intelligently building to rent – the whole life cycle of PRS’. The event focused on three key areas:
- Finance and funding models
- Project insurance considerations.
Andrew Screen of CBRE and Iain Murray of Liv Consult focused on the finance and lifecycle areas of PRS projects. Andrew shared his thoughts on what developers should take into account when embarking on a PRS project, while Iain looked at managers.
“The funding market looks at development, management and actual finance programme” said Andrew while discussing the financing and funding for those involved in the PRS within the Private and Public Sector.
For JLT Specialty (JLT) the focus is the insurance considerations for the length of the development. The four areas of consideration are:
1. Pre-construction : Prior to construction attention should be given to the structure and location of the building whether it’s a conversion or a new build, and how it will impact on the surrounding area amongst other considerations. At this stage Legal indemnity insurances such as Rights of Light and Defective Title should be discussed with your broker and the developer should give thought to the lifecycle of the build.
Iain Murray on the importance of lifecycle modeling and design “It’s a long term deal…the more thinking in advance, more consideration to design, more consideration to specification and lifecycle costs the better and more secure your return will be”.
2. Construction: As the works begin the developer needs to consider their relationship with the contractors and professional advisors. They also need to be aware of how utilities and transportation will impact the structure. This is where the project managers will review the insurance programme design and whether to choose an owner controlled insurance programme (OCIP) or a contractor controlled insurance programme. Other insurable risk will be based on the location of the development and if it will impact on rail or utilities structures.
3. Operational: At practical completion the developer or owner should be aware of potential defects that could impact the future lifecycle and sustainability of the property. Staffing and maintenance of the property should also be considered at this stage. Again the fact that these developments are looking at 20-30 year life span and aren’t being built-to-sell, post construction defects insurances should be considered.
4. Residential Real Estate: The tenants have now moved in the property and the landlord’s contents need to be protected. This is about protecting the asset in the long term, so no just the building itself, but the enhancements the landlord may have include such as gym, cinema, communal facilities.
If you also provide the tenants with facilities such as bicycle storage or third party services such as dry cleaning or dog walkers then the third party’s insurances should also be reviewed.
JLT are able to provide an all-encompassing end to end insurance offering for those looking at the build-to-rent, please contact Shaun Grainger, Associate, JLT Specialty on +44(0) 7917 240 509 or firstname.lastname@example.org.