The Subplot

The Subplot | New money, freeports, senior living

Welcome to The Subplot, your regular slice of commentary on the North West business and property market from Place North West.

This week: emerging lenders and debut investors are in a race against time to grab North West real estate before a window of opportunity closes later this year. Who will get the benefit? And what is at the heart of the Government’s freeport plan as Liverpool is selected to be one of eight English cities with the designation? Meanwhile, Subplot explores a new niche residential sector.

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New Money Makes Its MoveNew money makes its move

New debt providers with billions to lend and first-time ‘private office’ investors with billions to spend are lining up North West deals. Who will get the cash?

Co-founders Randeesh and Daljit Sandhu and Karen Dunstan (pictured, left) launched London-based Précis Capital last week, hoping to build a £1bn loan book with the backing of international investment management firm TowerBrook Capital Partners. Précis already has more than £330m of Manchester deals in progress, and another of unknown value in Liverpool. Précis, and dozens more emerging lenders, are leaping into a gap left by the banks.

Nothing doing

The gap opened up last year as the clearing banks pulled back: lending to commercial property fell off a cliff edge, down 34% in the first six months, with a fifth of all bank lenders simply sitting on their hands, according to Cass. Established global investment managers are stepping in to replace them along with a host of new entrants funnelling money from UK and overseas ‘private office’ accounts. All are targeting the North West with Manchester seen as a must-buy location. How much money is heading this way, for how long, and what do the investors want?

A brief word about Précis

Randeesh and Daljit Sandhu are by no means strangers to the North West. As part of the Urban Exposure lending operation they backed Urban Splash. Today they are plunging into North West residential. It is early days, and deals have yet to be inked in the build-to-rent, student housing and retirement living sectors, which are their target. Their sweet-spot is £50m plus (£100m is even better) and like most of the literally dozens of new lenders emerging this year, they can stretch loan-to-cost (LTC) ratios in a way the banks will not: 55:65 LTC would be typical, but they will happily look up to 75, and could go to 85 if totally sold. The target is higher single digit yields, 8-10%. If you are planning to use off-plan sales to generate equity then forget it, they don’t want to talk to you, and that’s a very firm ‘no’.

It’s all in the detail

The new breed of non-bank lenders are extremely sensitive to local conditions: they want to dive deep into the demographics. The result is that some apparently wild plays feel, to them, like solid prospects. For instance, Toxteth is seriously undersupplied with the kind of places young professionals and their families want. Demand is there, and redeveloping existing properties is as appealing (or more appealing) than new build. Bingo – an opportunity if you can get the amenity right. Précis Capital’s Daljit Sandhu says: “We look hard at the micro level. When we look at loan proposals we want to know who is buying or renting in that specific area, their age, their profession. Will the project be supplying what the market really wants, or are we flooding it with places for young professionals when the greater need is for BTR for suburban professionals with kids, for example?”


Like most lenders in this category, Précis thinks Manchester city centre residential prices have got a bit toppy, that there is too much high-end product, and that there’s a limit (probably already reached) on the number of Renaker-scale towers the city can absorb. A market re-set is welcomed. While that re-set is in progress they see a great opportunity. Depending on who you count as a new alternative residential-focused lender, and who you don’t, there’s around £10bn looking for debt opportunities just now, and a lot of that is focused on the North West. For comparison, bank lending, much of it on a smaller scale, is around £30bn.

Also offices

It’s a similar story in the office sector, although the story here is about investment not debt. Much of the new money is channelled through newly-hatched investment management houses handling ‘private office’ clients. Argentinean money is making a splash but such investment houses also advise a selection of big spenders domiciled in places as diverse as Norway, Switzerland and the Middle East. Exchange rates play a part, but that’s not all. Just as new lenders see a window of opportunity as the resi market resets, so the investors see a 3-6-month window while the big funds ponder the future of the workplace. While those traditional players sit on their hands, fleet-of-foot overseas investors are buying. The £119m sale of Helical’s 324,000 sq ft Manchester Powerhouse portfolio to Swiss investors is a case in point. Real estate funds managed by Pictet Alternative Advisors and XLB Property bought at a net initial yield of 5.2%.

Impatient capital

These folk are in a hurry. Unlike most economic shocks, the pandemic hasn’t unleashed a lot of distress sales but has instead created opportunities for ‘dilemma sales’. In other words, opportunities that need to be grabbed before vendors recover their nerve, or hopes for a revived post-lockdown office market start to re-inflate pricing. Fortunately for investors there is still plenty of uncertainty about what the new normal will look like, hence plenty more ‘dilemma sales’ to come.

Long live uncertainty

Scott Gemmell is head of capital markets at agency OBI, presiding over £50m of deals in the last seven months. Gemmell says: “For as long as questions are raised about the future of office workspace, there is value to be had in a less competitive Manchester and UK regional office market. [Investors] have probably got three to six months left with limited competition before the usual players return, which is why we’re seeing activity now.” There are around a dozen debut international players now circling Manchester opportunities with perhaps a combined £1bn to spend in the city, if they could find something to spend it on.

Wings spreading

Adds Gemmell: “The new capital is starting with offices, but will probably spread its wings.” Out-of-town retail parks are tipped as an obvious opportunity. The maths here looks good: like lions confronting a herd of wildebeest, investors can pick off the weakest of the North West’s retail parks. If there are three or four years of unexpired lease left, they can then clean the carcass at their leisure to expose a few acres of well-connected, town centre-proximate land. If, to pull a totally random name out of the hat, they were looking at Bolton retail parks, this would translate into a lovely little opportunity, perhaps a stone’s throw from council-inspired redevelopment action, yielding site values of £600,000-£700,000 per acre. That kind of opportunity is sure to get investors thinking.

Conclusion: new money is choosy, canny, and attuned to the North West.


Freeports unwrapped

As the promoters of Liverpool’s freeport bid celebrate its designation in last week’s budget, the property industry is asking if freeports are a game-changer or a policy stunt? Subplot assembled a panel of experts to provide an answer.

A think tank professor, a logistics industry leader, a real estate researcher and a hard-bitten industrial agent were quizzed to find out whether or not freeports will add rocket-boosters to the regional economy. Their consensus was that the Government has so much political capital invested in the project, it cannot afford to let freeports fizzle out.

The professor

Professor Catherine Barnard is deputy director of UK at In A Changing Europe, a think tank specialising in trade policy. Barnard says drawing a line on a map, and conferring benefits on the area inside it, can help, even if only by disadvantaging nearby rivals. She thinks that if the Government is serious about using freeports as innovation testing zones, that could be genuinely significant. Details of this aspect of the freeport package are awaited. But Barnard says the essential problem is that if cutting red tape and offering tax incentives is good for freeports, why isn’t it good for everywhere else? Barnard says: “We’d be able to better understand if we knew why freeports were abandoned in 2012. We think it is because customs procedures had become more streamlined, so there were better ways to do this, so the benefits were reduced whilst the risks of crime or market distortion remained. What’s different now, I suspect, is just politics.” So long as the Government feels the need to trumpet freeports as a flagship policy, they cannot be discounted.

The industry leader

Peter Ward is chief executive of the UK Warehouses Association, and one of the leaders of the country’s supply chain. “From a pure customs point of view, freeports don’t add anything you can’t already do through customs warehouses and various inward/outward process reliefs,” he told Subplot. “As for manufacturing, I don’t see Jaguar Land Rover moving to a freeport.” Ward views freeports through the lens of international trading routes and deep sea shipping lanes. Liverpool’s designation does not thrill him. He says: “Liverpool has become a feeder port, rather than mainstream, in the main transatlantic Asia-Europe trade lanes. Freeport status will not change that. And if you wanted to build warehousing, where would it go? There’s not much land for development and what there is, is constrained, especially around the port.” Ward thinks the real story behind freeports is politics.

The real estate researcher

Claire Williams is research associate in Knight Frank’s industrial and logistics team. She says freeports should not be seen in isolation. Williams says the new super-deduction tax cut for investment in equipment, and a wider effort to boost manufacturing, are significant, combined with freeport reliefs. It will all add up, if the Government gets the detail right. Williams says: “The tax incentives have a lot of promise.” Like the professor, Williams is encouraged by the focus on innovation and the involvement of universities. She is also encouraged by the politics, in so far as (unlike many past regeneration efforts) freeport proposals enjoyed wide local buy-in and appear to be well thought out. Local councils will probably also be on side, thanks to their desire to retain business rates growth. But are freeports all about politics? “Up to a point, yes,” Williams says.

The agent

Chris Evans is senior consultant in industrial and logistics at Colliers, and a veteran of the 1984-2012 phase of Government enthusiasm for freeports and enterprise zones. Long experience makes Evans suspicious of local council involvement in freeports: he wants them to act as enablers, rather than the opposite. Like Williams and Barnard, Evans is intrigued by the possibilities for innovation in freeports. He thinks the tax reliefs, particularly on employers’ National Insurance contributions, will be appealing. Unlike 1980s enterprise zones, which were plagued by tax-driven occupier moves, he does not see much scope for speculative action by occupiers. But Evans agrees that the degree of Government attention freeports get is all-important. “The attitude of the Government today should mean enterprise zones are more successful than they might otherwise have been, so I think the freeports will be a success so long as they can carry on without interference,” he says.


Hot Air BalloonSenior living’s rainbow debut

Senior living is tipped as the Next Big Thing in the BTR world, and already has the backing of big names like Legal & General. Manchester is pioneering one niche sub-sector.

An announcement could come within the next two weeks on plans for Manchester’s first LGBT senior living scheme. Manchester City Council says it is close to being able to announce the preferred partner that will build (and probably manage) the housing in Whalley Range. Strategy for the scheme has been led by the Manchester-based LGBT Foundation.

Lift off moment

The Whalley Range proposal moves forward at an interesting time. Last week Tonic Housing, which has been in touch with the LGBT Foundation about Whalley Range, announced the UK’s first built-for-sale LGBT retirement community. A £5.7m grant from the Greater London Assembly enables 19 homes in a mainstream older persons housing scheme at Vauxhall. Manchester is likely to be next and Tonic will be hoping to grab a share of the action. Tonic chief executive Anna Kear told Subplot: “We have been working with a number of housing providers and developers about future opportunities in London and other cities, and this announcement is picking up more interest.”

Are you involved?

Today LGBT senior living is a niche within a niche. But senior living, whether rainbow-hued or not, could be the fastest growing BTR sub-sector in the coming 24-36 months. Subplot will return to it: if you are involved, please get in touch.

The Subplot is brought to you in association with Cratus, Bruntwood Works, Savills and Morgan Sindall.

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