Active Asset Management:
Helping to Afford the Future
CIH Harrogate – June 2011
Robert Grundy, Head of Housing Investment Consultancy, Savills
Main messages
•Challenge the notion of
unchanging asset ownership
•Encourage better use of capital
invested in your assets
•Find ways to use that capital to
achieve more and better housing
What challenges
do we face?
How are we going
to afford it?
Finite resources to pay for:
•Green agenda & Retro fit
•Lifetime homes
•Obsolescence: improvement &
modernisation
•Maintenance and lifecycle costs
•Etc etc
What challenges
do we face?
How are we going
to afford it?
•150,000 new homes by 2015
•80,000 of these – HCA framework
•Funded by up to 80% market rents;
or sales
•£24bn debt to fund 80,000!
•£45bn funds 2.5m homes
•What happens after 2015??
How will the sector • Efficiencies and cost savings
respond?
• Simplify business/ Mergers etc
• Treasury management
• New investors – private?
• Affordable Rents & disposals
A new active
approach to “asset
management”
• Make best use of assets:
– Better investment decisions
– Active Asset Management
– Better use of capital to achieve aims
You need the
right tools:
understand the
strengths and
weaknesses of
your assets
• Do you know how individual assets perform?
• Multiple factors influence performance eg
– Rents & voids
– Stock Investment – highest cost = worst?
– Response Repairs
• Savills Asset Management Modelling brings them all
together
• Asset Groups
• Worth to the landlord = Net Present Value
• Reveals actual performance of assets
• Assesses tradeoffs & gives boards a decision making
framework
• Options appraisals
Active Asset Management: Results from modelling.
Worth £ per unit by Asset Group
Am I
increasing or
decreasing in
worth
over time?
Options
appraisal
• Local initiative: management, services,
community support
• Scope for Affordable Rents?
• Investment/ improvements?
• Switch tenure: SO or Market Rent?
• Decant & redevelop site?
• Trade to other RP?
• Market sell?
It’s not all about
money though.
What about
balancing your
objectives and
residents needs?
Neighbourhood Sustainability – how strong is the
community?
 Key criteria selected and scored
 Accessibility to employment
 Crime domain
 Health Deprivation and Disability
 Accessibility to Key Services
– Primary Schools
– GPs
– Hospitals
– Foodstores
 Quality of the Living Environment
Indicator
Weightings
Accessibility to Employment
Crime
Health Deprivation and Disability
Accessibility to Key Services
Quality of the Living Environment
25%
25%
20%
15%
15%
Where and what do we invest in: Worth vs
Neighbourhood Sustainability
Scope for Affordable Rents?
Target Rent vs
80% Market
Rent – North
West
National
variation.
Affordability?
Significant variation
in rent potential
Savills
Rental AVM
Partnership
• Portfolio market rents–individual market
rents for whole portfolios
• Development rents – market rents for
proposed schemes + sales valuations
Subject property
details entered
 Full address
 Property type
 Property style
 Number of bedrooms
(minimum information required)
• Web portal - Automated Valuation Model
(AVM) - enter address & property attributes
and AVM will give rent, confidence and
comparables – interactive tool for actual rent
setting
Market Rents: Interactive web portal
Comparables
for review (and
editing if
required)
Click and drill
into details
Are we in the right places?
Have you ever looked at a
map of your holdings?
How do you
look strategically?
Are you too thin on the
ground in some places?
Could someone else
- Do a better job?
- Operate more
efficiently?
Stock Rationalisation
Price by
Region:
Totals &
£ p.u.
Total Bids; Price p u
By Region
East England
East Midlands
London
North West
South East
South West
West Mids
York/Hmber
Sum of Bid Total
Source:Savills
Total Bids £m Price p u
£49,385
£17.7
£50,329
£71.2
£58,996
£84.0
£34,707
£79.4
£37,867
£43.4
£64,723
£50.0
£48,132
£10.8
£53,028
£12.1
£46,918
£368.6
Units
358
1415
1424
2289
1146
772
225
228
7857
Stock Rationalisation
Uplift above
EUVSH
By Type
Uplift above EUVSH
Type
General Needs
General Needs/SO
GN/Sheltered
GN/Shlt/SO
GN/Shlt/Sup
GN/Shlt/Sup/SO
GN/SO/Development Site
GN/SO/Leasehold
GN/Sup/SO
GN/Supported
Sheltered
Supported
Overall
Source:Savills
% Uplift
31%
31%
49%
16%
5%
24%
39%
-29%
25%
40%
23%
64%
30%
Stock Rationalisation
Range of
£ pu:
General
Needs
Bid per Unit - General Needs
£160,000
£140,000
£120,000
£100,000
£80,000
Bid per Unit
£60,000
£40,000
£20,000
£0
1
3
5
7
9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39
Source: Savills
Selecting a
Transferee
•Summary of the process
•Expressions of Interest
–Portal to identify interest
–Need to avoid collusion
•Informal Tendering
•Quality and price:
–Quality threshold or hurdle
–Competition by price
Marketing
Website
Marketing
Website:
Virtual
Dataroom
Is it sometimes better to sell vacant properties to
invest in the future?
Market Values left scale
£250,000
Having
Analysed
performance &
risk could we
use our capital
better?
£60,000
£40,000
£200,000
£20,000
£150,000
£0
NPV
MV VP
Which to sell?
Weed out poorest
performers.
Raise capital to re
invest.
-£20,000
£100,000
-£40,000
£50,000
-£60,000
Net Present Values -right scale
£0
-£80,000
Sale out of
sector?
Sale out of Student Housing
sector
• Sydney Webb House – on behalf of P4P
on the
• 446 ensuite bed spaces
open
• LSE lease 30 years fixed rental uplifts of 3% pa
market
• £23m + achieved
Sale out of •Shared Ownership – freeholds of
sector
portfolios
on the
• Making this market
• The residents must be consulted to high standard
open
• The terms of the lease must be honoured.
market
• Management must be delivered by a Registered Provider.
• Price based on
– certainty of rent (indexed)
– Staircasing receipts – play on house prices
• 60 – 70% of vacant value of unsold share
Sale out of •Care Homes
• The value reflects the whole business
sector
• Requires a specialist operator
on the
• Eg’s – mainly out of sector
open
– 5 homes for Anchor
market
– 2 homes for Stonham/Home Group
– 2 'special needs' homes for L&Q (former Ujima)
– 1 home for Hanover
– 1 closed LD home for Aldwyck
• Effect of Southern Cross????
Sale out
of sector
on the
open
market
Sheltered
•Reality: Limited interest from RPs….
•Obsolete/ obsolescent
•Decant
•Sell locally
•Building worth much more than site
•£1.5 - £2m typically