AXA's £1B Dolphin Square Bet Starts To Pay Off

With little fanfare, AXA IM Alts is undertaking one of the biggest, most complex and most important real estate projects of recent London history.

The retrofitting of the 1,234-unit, 7.5-acre Dolphin Square estate is one of the largest such projects anywhere in Europe as AXA wrangles into the modern world a famous set of nearly century-old buildings that have housed wartime governments in exile, royalty and spies.

And as the first phase wraps up, its investment is starting to bear fruit. 

The retrofit will dramatically reduce carbon emissions, improve the physical structure and overhaul operations, a process that included AXA creating its own standalone build-to-rent management platform. 

AXA paid around £800M for the 800K SF property in 2021 and began the three-phase overhaul in 2022 at a cost of more than £250M.

The first of those phases has just completed. The 360 refurbished apartments are leasing up quickly, with occupancy rising from 50% to 98%, and the second phase is about to begin. The whole process is on track to be finished by the end of 2028, leaving AXA with an asset significantly more sustainable and valuable than the one it bought. 

“We're hoping that this showcases what can be done,” Roshan Ramlugun, AXA IM Alts sector lead for residential in the UK and Ireland, told Bisnow.

“There's no denying that it definitely is easier to build new-build. But I would say it's far less interesting. And having the heritage aspects, that’s something that from a consumer perspective is far more liquid.”

Dolphin Square was built between 1935 and 1937, and its 1,234 flats are spread across 13 blocks referred to as houses, each of which is named after a famous navigator or admiral. It is the largest unbroken block of flats in the UK and is unique in that it has remained as rented residential accommodation through its history, while most large mansion blocks from this era have been broken up and sold on as individual flats. 

The restoration of the first three houses is now completed. The first two are 98% leased, and the third is 70% occupied. Rents are £400 a week for the cheapest studio apartments, and an average one-bed is £650 a week, well below the Pimlico average of £1,116 for a one-bedroom unit.

Ramlugun said that Phases 2 and 3 will need to improve upon and be at a premium to previous blocks.

“Otherwise, everyone will just move out of the first block into the new one and you’re chasing your tail,” Ramlugun said.

He added that the leasing has been going quicker than predicted and that the financial success of the project so far can be seen by the fact that AXA has committed to start with the retrofitting of Phase 2. 

Its central location in Pimlico, about a mile from the Houses of Parliament in south-west London, has attracted myriad famous residents over its lifetime. Princess Anne and Prime Minister Harold Wilson had flats there, and Sir Winston Churchill’s daughter Sarah was evicted for throwing gin bottles out of her window. 

Charles de Gaulle set up his French government in exile in the building during the Second World War, and Ian Fleming, the writer of the James Bond novels, was recruited by MI5 there. 

When AXA bought the estate in 2021 from private equity firm Westbrook Partners, occupancy was only about 50%, Dolphin Square Managing Director Erdal Kacar said at Bisnow’s BTR Annual Conference in June, and the estate had a mix of tenures and offerings, including serviced apartments, standard assured shorthold tenancies and about 160 protected tenancies.

The serviced apartment offering has been scrapped, and the process of retrofitting all 1,234 apartments, the common areas and amenities, including a health club, spa and swimming pool, is moving on apace. 

It is a mammoth undertaking. A total of 6,800 windows will be replaced, each a handmade, timber-framed sash window following original designs, because while the buildings aren’t listed — the 3.5-acre central gardens are — the property is in a conservation area, so major exterior modernisation isn’t possible. 

The building contains 4 miles of corridors, double the amount in the Houses of Parliament, all of which are being redone to modernise common areas but try and maintain an original aesthetic. 

All told, that will involve ripping out the interiors of every flat, some of which date back to the 1950s. Residents are being moved out of individual blocks, rehoused in other parts of the estate if they wish to be, and then moved back in. Tenants on protected leases were allowed to undertake their own interior works. 

AXA can’t utilise a cookie-cutter approach. Because of the different types of tenancies and usages, almost every apartment is unique and requires a slightly different fit-out. The smallest unit is 200 SF, while the largest is more than 20K SF.

Because the majority of apartments are studios or one-beds and are smaller than average for rented residential, AXA has created a café and coworking space in the lobby to give residents extra room.

The pool, gym and spa facilities are being refurbished on a rolling basis and are set for completion next year. These amenities and the gardens are open to the public to make the scheme part of the community.

And amid all that, the scheme is being made greener.

“The refreshment had two angles,” Ramlugun said. “At one end, you've got the aesthetics, the stuff that the consumer cares about — the bathrooms, the flooring, the furniture pack. But at the heart of what we did, we took it on its journey to net-zero.”

Air flow units, new heating systems and air quality sensors are being installed in every apartment to improve comfort and sustainability. 

AXA is removing fossil fuels from the operation of the building entirely, installing 40 air-source heat pumps in the first phase alone and placing 400 solar panels on the roofs. That will result in an 80% reduction in operational energy and a 95% reduction in carbon emissions. 

Previously, the entire estate had one heating system that was turned on 1 October and switched off 31 May. Apartments didn’t have a thermostat — the heating was either on or off. It took two weeks after being switched on for the heat to reach all parts of the block. On warm spring days, residents would open the windows to let the heat out, and huge amounts of energy were lost due to inefficiency. 

AXA has also overhauled how Dolphin Square is being managed, creating a wholly owned, standalone management company with a full-time staff. The management business has been set up so it can manage other BTR assets that AXA might buy, or indeed for third parties. 

Some of the changes in management are practical and logistical. When it bought the scheme, every time a new tenant moved in and set up a direct debit mandate to pay their rent, they filled out a paper form that was posted to a bank — quite the lift for more than 1,200 flats. 

Individual residents put their bins outside their door for collection, whereas now there are centralised rubbish chutes, and parcels and post are now amalgamated in centralised facilities. 

But as important in making the project a success was a change of mindset in how the relationship between owner and residents was managed.

“This was a philosophical change and a cultural change as much as anything else that we've undertaken,” Dolphin Square’s Kacar said.

Existing residents were unsure, even suspicious, as to what a new owner might mean for the estate. That was especially true for those on protected tenancies, some of whom had lived in Dolphin Square for more than half a century. If they had dug their heels in, it would have been very difficult for AXA to get vacant possession of entire blocks.

To win trust, the senior management of Dolphin Square held — and continues to hold — weekly meetings to talk through individual issues residents might have with their current accommodation or to answer questions about the plans for the refurbishment. 

Staff of the management company have been empowered to make individual decisions wherever possible so that meeting resident needs is not held up by bureaucracy. 

“In the beginning, it was relatively hostile, but we put that effort in to win these people over,” Kacar said. “And winning them over rested on being human.”