Get Living Eyes Conversion Of Defunct Retail Into BTR
One of the UK’s largest BTR developers is looking at opportunities to turn struggling urban retail assets like shopping centres and retail parks into rented residential schemes, the head of Europe at one of its main backers has said.
Speaking at Bisnow’s London State of the Market event last week, Oxford Properties Head of Europe Jo McNamara said that Get Living, the build-to-rent developer in which it owns a stake, is seeing opportunities arise from the conflicting fortunes of retail and residential in the wake of the coronavirus pandemic.
“I think for a long time people have been holding up retail valuations in city centres with potentially unrealistic cap rates and therefore the capital values of those buildings didn’t lend themselves to converting them to anything else,” McNamara said on a panel moderated by Fried Frank partner Patrick Williams. “It didn’t make sense, the conversion cost and the capital value you paid for the building were too much.
“Pre-COVID that was starting to come down, post-COVID the retail world has been hit so hard, and now things are starting to converge. So we are seeing a lot of opportunities to convert these assets to residential. I am a big fan of multigenerational communities, people living together and working together, flexible office space as part of that, so it will all come.”
Examples of converting retail to residential of different types are starting to abound. Last year, L&G bought retail warehouse assets in London and Bath to convert to BTR and senior living, respectively. This year, BlackRock has won approval to build 1,600 apartments for rent and for sale on the site of Colosseum Retail Park in Enfield, north London, and Ballymore bought a shopping centre in Edgware, north west London, where it will undertake a mixed-use residential and commercial scheme.
As the above examples highlight, McNamara said that while the numbers for such conversions are starting to make sense, they won’t work everywhere, and are likely to be concentrated in big cities.
“The question is, there will only be some places where this is viable, and connectivity is key,” she said. “It had to be those places that you can commute to, otherwise the numbers and the cost to build these things just won’t make sense.”
Get Living was set up in 2012 by Delancey and Qatari Diar to convert the London Olympic Village into a build-to-rent residential scheme, and since then it has attracted major investment from backers including Oxford, Allianz, Alecta and Local Pensions Partnership, having raised £1.2B from that quartet in the past two years.
It has a portfolio of 2,900 operational homes, plus 1,800 under construction and 3,500 in its development pipeline, and it will use that equity to build out existing schemes in London, Manchester, Glasgow and Leeds. The goal is to grow its business to 12,000 to 14,000 units.
At the digital summit, McNamara outlined why Oxford had made such a significant investment in the BTR sector.
“It’s the long-term fundamentals,” she said. “It’s been very resilient during this period, and historically that is what you see during a crisis. It feels strange now, but when we first started looking at it in 2016, people were questioning whether BTR would ever take off in the UK as a sector.
“What we truly believe is it’s about the operating business. We are stakeholders of the Get Living brand and it’s really important that you have an operating business which can not only provide the right services to your tenants, but also drive efficiencies. Because the way that you generate outsized returns is by reducing the gross-to-net leakage that you have. For us a real driver is building a business of scale, a category killer really, for institutionally owned and managed residential real estate in London and the rest of the UK with affordable levels of rent.”