Is Lend Lease regretting not biting the bullet at Olympic Village?

While the dust has been settling on the 2012 London Olympics a few interesting property related stories are emerging, two of which are inter-related I think – Lend Lease’s commitment to building a London resi business to match Berkeley Homes’ and Delancey and Qatari Diar’s early stage talks on the potential for a 50-storey residential tower at the 2012 Olympics site as part of their plans to assemble a major private rented focused development that could be spun into the UK’s first residential REIT.

 

First Lend Lease. There has been some fanfare around the company’s public announcement a week or so ago that it was going to build a major London resi business completing around 1,000 homes a year under its own brand by 2017 and selling new homes in London directly to the general public for the first time.

Now, I know this has been welcomed in a market that needs competition among committed, well-respected housebuilders. But I also know I am not alone in feeling that it could have been all so different for Lend Lease, if like its Australian counterpart Westfield, it had decided to take the pain a few years ago and dig deep to invest its own equity in the Olympics site.

Back in 2009 it was of course in position to become the equity developer of the 2012 Athletes Village but the collapse of  bank lending following the global downturn meant the rates it could secure to push on with the deal had reached a point where Lend Lease and the government were unable to see eye to eye on a figure that both felt was fair for the developer and the tax paying public alike.

And so those talks collapsed and Lend Lease did the job on a project manager basis.

Which brings me to Delancey and Qatari Diar. It has been suggested to me that the £557m QDD paid for the Athlete Village and six surrounding plots last year is not a million miles away from the price Lend Lease would have paid. What is more QDD is talking of doing all of the things with the site that Lend Lease was thinking of doing under the helm of Nigel Hugill and Robin Butler. That is building a major London private rented residential business that could be spun into a REIT.

There will be all sorts of reasons why Lend Lease did not feel able to proceed back in 2009. But they would be sitting on what they are now saying they would like to build if they had of done.

And on to QDD, the joint venture partnership between Delancey and Qatari Diar Real Estate Development Company, which will take control of the first circa 700 homes of the 1,439 private homes it has bought at the 2012 Athletes Village in the summer of next year.

I had no idea of just the level of gold they have picked up until speaking to Stuart Corbyn of the partnership this week. The extra plots they have include consent for a 50-storey resi tower – apart from the “mutant trombone” Orbit, the tallest building on the entire site. Here is my story from yesterday.

Handover of the homes at the rebranded East Village will follow the Olympic Delivery Authority’s circa 12-month retrofit programme. QDD expects to take control of all of the homes it has bought to be ready for occupancy in 2014.

The homes are spread across 11 residential plots and are interspersed with the 1,379 affordable homes being brought to market by the Triathlon Homes consortium.

QDD will bring forward the homes in staggered phases with at least three quarters and potentially all of the houses sold for rent. Homes range from one bedroom apartments to four bedroom townhouses. Pricing is yet to be agreed.

Delancey and Qatari Diar completed a deal to invest around £557m for the purchase and long-term management of the Olympic Village in August of last year.

Stuart Corbyn, chairman of the Qatari Diar Delancey Athletes Village Operations (QDD), said the scale of the East Village site and the agreement with Triathlon Homes to provide a long-term landlord and management set up which will manage the properties on-site and maintain facilities, meant there was an opportunity to create a major private rented focused company that institutional investors would be comfortable with.

“So much has been said over the years about building institutional investor interest in the private rented sector in the UK but they have not got into it yet. Because of the scale here with at least 1,000 units to let privately we have an ideal opportunity.

“Alongside our partner Qatari Diar we have already invested £557m and our part of the joint venture has been backed by investors. This means it will be a large private rented company that could potentially become a REIT.”

Corbyn confirmed that the partners were already talking to advisers about the potential make-up of a further six sites it owns next to the village with outline consent for as many as 2,000 homes.

One site immediately to the north east of Stratford International station has outline consent to potentially house a 50-storey residential tower Corbyn said. The tower would lie immediately opposite Manhattan Loft Corporation and London & Regional’s plans for a luxury 42-storey hotel and flats development.

Sir Adrian Montague’s government-backed review into the private rented housing market in the UK will be published later this week and will make a series of recommendations aimed at removing the barriers that are felt to be holding back institutional investment in the sector.

So far in the UK investors have only used the tax efficient REIT structure to invest in commercial property.

Residential properties usually generate lower profits than commercial because of higher maintenance and turnover costs and tend to be more highly leveraged, thus paying more in interest, and both factors have hampered the creation of a UK residential REIT.

Corbyn says the long-term management team that will be in place at East Village and the scale of investment created by having at least 1,000 homes immediately included would help to overcome some of these issues.

pnorman@costar.co.uk

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About Paul Norman's Olympics blog

News Editor of CoStar News, a commercial property news service. Regular blogger on the London 2012 Olympics and what it means for property and the the regeneration of East London
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