The Biggest Investors In BTR Make Money By Changing Their Minds

Behavioural psychologists like Daniel Kahneman have shown people are persistently unwilling to change their minds about a subject, especially when they’ve already invested some money in a project. But in build-to-rent, if you can’t make space to be wrong, you won’t make money in the long term. 

“People’s wants or needs are always going to change,” Unibail-Rodamco-Westfield Lead Development Director Kieran Hobbs told an audience of more than 400 people at Bisnow’s Build-To-Rent Annual Conference last week. 

In a world where the cost of living is rising, residents will demand ever more for their money, and developers and operators will need to provide better amenities and better in-home facilities to justify the rents they are charging, the conference heard. But in a nascent market like UK BTR, getting it right the first time is tricky.

A group of senior investors, developers, designers and legal professionals gave insight into how they had innovated schemes, or even entire businesses, to avoid being caught out by the need to change.

The changes in question might seem mundane, but can actually be the difference between someone renting an apartment or not.

Long Harbour BTR Managing Director Rebecca Taylor said that in one of the company’s early schemes, a toilet was put next to the front door. If the toilet door was left open, the first thing a resident would see when they got home was the loo — not necessarily what most want to come home to. The company had to shell out to retrofit. 

The willingness to retrofit assets to put problems like that right is vital, the panel said, but if you can make spaces adaptable in the first place, the cost of changing their use is low.

”In our private dining area in the Gessner in Tottenham, you see four or five people working from home from there during the daytime,” Taylor said. “That's designed as a private dining room, but it doesn't necessarily have to define how people use the space.”

Westfield’s Hobbs agreed that the company had seen a growing demand for coworking in its operational BTR schemes in London, and was giving over more space to this use. 

A perennial debate in UK BTR is the level of amenity to put into a scheme — the more amenities you put in, the higher the build cost, and the more rent must be charged to make the money back. But the need for flexibility in schemes, to be able to adapt to how people really use a building, lends itself to more amenities, the audience heard. 

“You have to remember when you're designing a building, when you short yourself on the amenities now you're shorting your profits in the future, because that building does not have any flexibility in it,” said Lendlease Head of BTR Stephanie Barbabosa, a 30-year vet of the sector in the U.S. 

It is much cheaper and easier to convert something that was designed as an amenity space to another use than converting an apartment into an amenity space she said, something she has learned from painful experience in the U.S. 

“Building that flexibility at the start is way cheaper than trying to retrofit it miles down the line,” 3DReid Director Simon Brambles said. “Maybe everyone suddenly loves going back to work and the coworking that's gone in will be transformed into a place where people can meet and greet families and guests, but it's building in that flexibility of design [for people to use it as they like] rather than how it's been rigorously designed.”

Hobbs said Westfield had rethought its business structure when it comes to build-to-rent. While the company had first presumed it would asset manage and development manage the BTR developments of its schemes, it now may work with outside specialists to get the best results. 

And Urban & Civic has tweaked its business model to take advantage of the demand for BTR. The master-planning specialist, which owns sites with the capacity to house 35,000 units, started off preparing its developments purely for sale on the open market, but now is blending that with BTR. It is on-site with its first 150 BTR units at a 6,000-home development in Rugby, in partnership with Goldman Sachs.

While it began by planning amenities for its sites that would be used by the buyers of homes, it now feels bringing both renters and buyers together will be beneficial for both residents and the business. 

“The way we master develop our sites and the amenity that we put in and the way that we actually harmonise both tenures, it doesn't really matter for us,” Urban & Civic Group Development Director Richard Coppell said. “All our residents get the benefit of that amenity.”