June 3, 2019 by Mike Phillips

How The Big Beasts Of BTR Are Using Data To Succeed

“There is a lot of money coming in to build to rent right now, and a lot of pressure to invest. There is a danger that people aren’t doing the level of research required to invest successfully.”

With a record £1B invested in BTR in the first quarter of this year, Rightmove Director Miles Shipside sounded a warning to the sector about the pitfalls of letting weight of money trump detailed research when building new rented residential schemes in the UK.

But what is the crucial data to look at when selecting where to build, what to build and how to run a BTR scheme? In countries like the U.S. or Germany, where rented residential is an established sector, such data abounds. But in the UK it is an emerging process that involves patching together data from different sources, and then working out how to best utilise it.

Photo: Courtesy of Get Living

Bisnow spoke to three of the biggest investors and operators in the sector to find out what data they are mining, and how it is influencing their decision-making.

The first question of course is where to invest in land and build, and this is to a large degree determined by publicly available demographic data. But it is how you use this data that counts.

“We are in first instance keen on making sure our decision making is improved by incorporating the right data, consistently and continuously, as that is where we as an investor add most value," APG Senior Portfolio Manager Paul van Stiphout said. APG is one of the world’s largest property owners, and invests in rented residential across Europe as well as in the UK, where it is one of the investors behind the Get Living BTR platform. "Like many investors we take a top down and bottom up approach, and there are a number of data points that are crucial in terms of where and when to invest.” 

He cites demographic information such as population growth, current and expected, and supply-side factors such as the current stock of rental accommodation and the future pipeline. That is the top down element, and it has an impact in which countries APG chooses to invest in, as well as which cities.

"At APG, we are very much aware of the possibilities (big) data has to offer. Being very mindful of our role as allocator versus and operator, we first asked ourselves the question where we add most value in our investment decisions before diving into the endless pool of alternative data.
 
"We have made it an absolute priority to ensure that our investment decisions are made in a consistent manner, using the same sort of metrics, on a apples-to-apples basis and compared to the relevant opportunity set. This way we can continuously and confidently say that each opportunity is actually assessed on its merits against a background of complementariness. By repeating this process over and over, our decision making process becomes quicker and more robust.
 
"In light of the above, we are still very much relying on what people would qualify as traditional data, certainly in the investment decisions that are taken in the allocation and selection arena. We look at the typical metrics in respect of the macro, the supply/demand situation, pricing, and growth, and beyond the obvious data, rest assured we’re trying to figure out whether we can uncover better, leading indicators to help us in enhancing our decisions."

"APG also looks at more qualitative factors like the planning regime, barriers to entry, how favourable the legal framework is and how likely a developer is to get approval for a scheme.

“You have to look at the attitude of authorities to renting — in the Netherlands and Dublin for instance there is a difference in terms of rents and rental growth, for instance because of the existence of different rental growth caps,” van Stiphout said. 


“And of course people have the choice of whether to rent or to buy, so you look at attitudes to homeownership, whether governments try to promote this over non-ownership. You have to look at the mortgage market, levels of mortgage financing and household indebtedness, how this impacts cost of living and how much people have to spend on housing, and how that hits overall wealth.”

Van Stiphout said it also tries to find areas that will benefit from gentrification, and finds data which can serve as a proxy for what is something of an intangible process.

Photo: Courtesy of Platform

“When it comes to which site is better, A or B, that is where you can find peripheral data that can help support your case,” he said. “We look at overall flows of capital and where public spending has been directed, as these are strong indicators that this area will gentrify.

“If you look at somewhere like Straford [where Get Living manages the East Village scheme] you had Westfield building a shopping centre there, which was supported by public money in the conversion of the Olympic Park and provision of substantial public transport.”

He also points to a site APG is building in the D8 district of Dublin, where public building projects include a new Children’s Hospital, one of Ireland’s largest-ever building public schemes.

Platform Acquisitions Director Stewart Knight shared details on the rigorous demographic analysis his firm undertakes when choosing locations for new schemes. Platform does not just stick to the UK’s big cities, and so looks for very granular data. It took the top 100 towns in the UK ranked by population, and looked at the age breakdown of the people living there, average salaries, average rental levels and the churn rate of home sales and rentals. That created a list of 10 to 15 cities where it might invest.

“We’ve been operating five buildings for about three years now, and the average age of our residents is about 31-32,” he said. “You manage buildings that can appeal to people of all ages, but you want a high proportion of the population to be 25-40, as the evidence bears out that is the demographic that BTR appeals to most.

“We look at median salaries, which correlate strongly with the rental level you can achieve. You then break that down across studio apartments, one beds and two beds, and think about whether people will be sharing with friends, or as a couple, and look at whether the numbers stack up.”

Like APG, Platform then looks at other more qualitative factors, such as proximity to public transport, and how easy it would be for residents to walk to their likely place of work.

“We spend a lot of time talking to local agents and businesses, to find out what an area really needs,” he said.

Big data is an increasingly common term in business and real estate, and van Stiphout said APG is starting to look at ways of using unconventional data sources.

"It is fair to say that the instances where we have used unconventional metrics are more focused on the level of the actual asset/investment, and are therefore more for our operating partners to look at. As such, there has not been a major change in the reporting we seek. If anything reporting is not the right area to look at; it is more the provision of management information, for which reporting is only one source.

"One such example where our investment decisions are supported by unconventional data is e.g. where we look at automated valuations, which allow us to use real time valuation information to incorporate in our wider buy/hold/sell investment decisions as we look at more individual investments which may contain portfolios of various properties/markets. As indicated, for the moment this data is really supplementary, meant to substantiate our decision making. We are not yet at the point where we simply rely on what the data tell us."

Also of interest to APG is the ability to build up profiles of individual customers, via focus groups, surveys and technology that measures how people use buildings or districts, and create very specific products that appeal to them.

Photo: Courtesy of Get Living

"At an even more granular level, at the level of the operations, we find there are more opportunities to incorporate technology into the property / operations to produce and gather data that may then be used to make more informed and quicker decisions," he said. "And whilst we always work with an operating partner who is doing the on-the-ground leg work, we do very much keep a close eye on the opportunities at the operational level for incorporating these kind of applications.

"As an example, for our investment in CitizenM hotels we have access to daily information on an asset-level basis in terms of occupancy, daily revenues, etc. and my expectation is that that evolution will move into BTR, certainly in cases where we are taking a community style approach, where scale, amenities and operations are more meaningful to enhance revenues and achieve efficiency than in smaller ‘one-off’ cases. This helps our partners and thereby us to maximize the return on our investments, by offering the sort of product, design and services that are mostly desired, by dynamically optimising our pricing, and drive down inefficient cost structures, to name but a couple of examples."

How to give people what they want is the other part of the equation when it comes to how BTR owners and operators are using data.

Get Living’s East Village on the former Olympic Park is one of the longest-established BTR schemes in the UK. The company has always undertaken detailed tenant surveys to get feedback from residents, on a monthly basis, sometimes on matters as detailed as kitchen utensils.

But more recently it has supplemented this with information about how people are using the public realm of the scheme, gathered from anonymised mobile phone signals.

“We are using device location data to find out the hot spots in the scheme,” Get Living Chief Experience Officer Christian Armstrong said. “A lot of the time it confirmed our assumptions that things were in the right place. But it also showed us the parts of the park where people would spend the most time on a nice day, so we put BBQs there for people to enjoy. And we also noticed that some of the traditional retailers, especially fashion retailers, we had at the scheme in the early days were far less popular than experience-based retailers and food and beverage retailers. So we brought in a prison-van escape-room experience, and we knew exactly where to put it.”

In terms of where things go for Get Living in the future, Armstrong said the company is looking at the possibility of introducing voice-activated smart assistants to its apartments which would be integrated with its wider online platform. Residents could use them to find out travel information, information on events at the scheme or book communal facilities like meeting or dining rooms.

“When we asked people what they wanted, what are the three things that would improve your life the most, it wasn’t something flashy, it was something that gives people basic information and is really useful for their day-to-day lives,” he said.

As more and more data becomes available, finding what is genuinely useful and how to use it will be crucial to success in BTR.