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Private development - five key things RPs need to consider: Alan Duncan writes for 24housing

Fri 11 Nov 2016

This article first appeared in 24housing on 9 November 2016

Alan Duncan, Real Estate Partner, Winckworth Sherwood

As more RPs take on purely private development projects it is important to think more like a private developer to make the most of the opportunities that these schemes present.

1. Optimisation

Private developers will always ask is the planning permission the very best that it can be?  Is it possible to squeeze an extra floor in to the envelope of the building?  Can an internal layout change release greater net sales area?  Will it be possible to sell three-bed apartments or would one-bed dwellings be more profitable?  Push the planners to get the best possible outcome.  Minor amendments to planning are often a very cost effective way to increase value.

2. Energy

On a large scheme, especially if it is apartments, planning permission will almost certainly require a communal energy provision.  It is vital to ensure that all of the costs are properly passed on to the apartment owner to avoid irrecoverable bills.  Many private developers are using individual pre-pay meters, controlled by smartphones, to solve the issue.  These need to be included at procurement stage.

3. Ground rent reversions

The market for ground rent reversions is very strong at the moment, with various institutions paying many multiples of yearly rent.  Private developers are tapping in to this demand which, in turn, allows them to be more competitive when it comes to land buying.  RPs often retain the ground rent for income purposes.  It may be time for a shift in approach to make the best return.  If so, early legal structuring is required to avoid the residential occupiers having any statutory right of pre-emption.

4. Maximising commercial

Most new build developments will have a commercial element.  Everyone knows that getting the right user is important for the look and feel of the development.  Specialist advice is required as to the size and shape of the units for the target market.  However, much like the ground rents, most private developers will package up the commercial elements for sale to maximise scheme revenue.  Thought should also be given to what will achieve the best price – simply selling a shell and core space to a specialist, or finding tenants and only selling the investment once it is mature.  Again a bit of legal structuring is required to create the best saleable interest.

5. Facilities and future management

Getting the lifestyle offering right is crucial in a competitive environment.  It is easy to assume that every new scheme needs a gym, but is there already one down the street or would you like a gym operator to take the commercial space and pay for it?  Facilities lead to increased service charges and more intensive management.  They need to add value.


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