Boodle Hatfield, Behind the best of London Property for 300 Years, DRAFT - Flipbook - Page 7
THE INSIDE TRACK
FOR FUTURE
SUCCESS…
Climate change, net zero, sustainability, circularity, energy efficiency,
a climate emergency…whatever language you use, the forces of ESG
are shaping a new era for real estate. How private capital fares will be
defined by its response to these new market forces.
With energy performance certification (EPC) policies getting stricter,
landlords need to ensure that they are able to offer green leases in order
to continue to let their buildings. This change introduces a completely
fresh dynamic into landlord and tenant relations. Perhaps for the first
time, both parties need to work together to ensure a building remains
green. Just as a landlord can set up a building for green operation,
how the tenants use the building is just as important when it comes to
ongoing operational efficiency.
While this new landscape calls for more collaboration than conflict,
it is essential that landlords remain in control of the EPC process.
Stories are emerging of tenants making alterations to buildings that
undermine its green credentials or even independently seeking an EPC
assessment in the hope that the building fails and they can use this
as leverage to exit a lease commitment. New leases need to address
these risks and ensure that despite a new age of collaboration,
landlords remain firmly in the driving seat.
" Whatever language you use, the forces of
ESG are shaping a new era for real estate..."
When it comes to property, up until relatively recently ESG concerns
have tended to focus on the environmental element, but this is
changing. Both social and governance concerns are firmly moving up
the agenda and these bring a fresh set of challenges.
To deliver social value, landlords need to be thinking about setting
up tenant associations, undertaking community outreach and seeing
how they can create new employment opportunities in the local area.
Activities not typically associated with property owners.
Within the realm of governance, landlords, property companies and
family offices need to examine their operations. For many who have
traditionally run their operations as lean and efficiently as possible,
this can be a real challenge. Diversity and inclusion policies need
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launching, anti-slavery provisions need to be made – and not just for
your own organisation but your wider supply chain.
These are no longer nice to haves, but are essential to doing business
whether it be issuing new leases or securing planning permission.
Those that get on the front foot quickly will reap the greatest rewards.
BEING ON THE RIGHT SIDE OF
TECHNOLOGY TRENDS
Real estate marches to its own rhythm, by its very nature being solid
and steadfast compared to the twists and turns of technology. Yet
permanence is no longer a certain route to profit. Private capital needs
to review its strategies, exit underperforming assets and use its speed
to exploit tech related opportunities.
While new build development projects offer an obvious moment to
future proofing a building, existing assets can be more complicated.
Care needs to be taken to ensure owners have a smooth route to
retrofitting, from considering future change of uses to reserving rights
to redevelop common parts or switch car parking to bike stores. Being
in a position to exploit the new opportunities technology creates,
from hosting telecoms infrastructure or drone deliveries to capturing
valuable usage data is essential and is exactly the sort of issue that a
switched on adviser should be flagging.
As technology advances, new asset types emerge, from last-mile
distribution hubs and green data centres to car charging sites and dark
kitchens. These new asset classes can be especially interesting for
private capital, which may be less risk averse than institutional money.
While fortune may favour the brave, care must be taken in any
significant shift away from more traditional assets. Tenants may
be less well established; operating in a fast-developing market can
result in quick changes of direction; or you could be more exposed
to changes in investor sentiment. Assessing the security of income
stream, exploring rent deposits and identifying potential future buyers
are all essential to de-risking investments and ensuring you stay on the
right side of technology trends.
As a landlord, does your current lease allow you to grant a serviced
office operator the ability to quickly reformat space? Would a tenant
be able to grow fruit and vegetables on a roof terrace to supply an
employee café? What about a corporate occupier wishing to create a
staff bar to help encourage people back to the office?
Giving tenants the ability to adapt and evolve the space they occupy
is key to making a building stand out in a saturated market. Landlords
need to work with their advisers to create a robust framework that
can accommodate calls for greater freedom whilst not exposing
them to unnecessary risk. Get it right and it is a win-win situation;
increased tenant retention, the chance to charge premium rents and
an associated increase in capital value.
Just as flexibility is prized, so, increasingly, is service. The WeWork
phenomenon has raised expectations amongst occupiers. If they
have previously enjoyed ancillary services and not had to worry about
operational and repair issues, why should they start now, even if they
are moving into larger, more traditional space? Occupiers have thrown
down the gauntlet and now demand more. The landlords that embrace
this ‘hotelification’ of offices will likely win out, especially as working
from home trends increasingly mean occupiers are taking less space
but of a higher quality.
"The WeWork phenomenon has raised
expectations ... occupiers have thrown down
the gauntlet & now demand more"
Post-pandemic, businesses increasingly recognise that for employees,
the office is now a place for connection, rather than a simply a desk
to sit at. Forward thinking occupiers are embracing this desire among
their workforce by seeking out spaces that are creatively designed to
facilitate and encourage interaction – whether that is to collaborate
easily around work tasks, or to meet and enjoy outdoor space or café
areas in down time.
If your asset manager isn’t challenging you to move up the value chain
and offer greater flexibility and service then now is the time to ask
them why not.
BEWARE THE ‘WHITE KNIGHTS’
Long gone are the days when an investor can sit back and let the rents
roll in. Active management is essential to protect assets and enhance
value. In a fast-changing world, for us the key to any successful and
sustainable asset management strategy is flexibility.
Designed for a different time, many standard leases can be incredibly
restrictive at a time when occupiers want greater freedom.
Back in 2021, the government announced its imminent plans to reform
the future of home ownership in England and Wales. While many of
the key details are still yet to be confirmed, the intention is to deliver
the biggest reform to property law in a generation. For anyone with
an interest in residential property, the issue must be monitored with a
keen eye and plans made to minimise the disruption that will inevitably
follow.
Developers of new residential property have already had their ability
to charge ground rent curtailed. The second phase of legislation will
seek to streamline the way in which the cost of extending a leasehold
or buying a freehold is valued. This will have a profound impact on
anyone invested in the prime central London market. Everyone, from
those making their first residential acquisitions to the most historic
London estates, will need to be on alert as tenants are granted greater
lease and freehold powers.
Beware too the white knights. We have witnessed the emergence of
a growing band of investors prepared to help tenants fund freehold
acquisitions in return for an agreed share of the spoils. Landlords,
investors and all their advisers must plan a few steps ahead to ensure
they aren’t caught in check mate.
PRIVATE CAPITAL: PERFECTLY PLACED
TO EXPLOIT THE MOST COMPLEX
DEVELOPMENT OPPORTUNITIES
London development is becoming ever more complex but now isn’t
the time for private capital to count itself out of the equation. Often
with a more streamlined decision making process and clearer
entrepreneurial vision, private capital can beat institutional investors
to the prize. While the scale of an opportunity can often feel daunting,
we can be a discrete matchmaker to bring parties together to jointly
tackle larger real estate deals.
Harcourt House, a major redevelopment along one side of Cavendish
Square is the latest imaginative, private capital backed scheme that
we have supported through the entire development lifecycle. With
twenty five luxury apartments and three floors of medical space, it is
a perfect example of how private capital can play a role in delivering
top-tier development projects. We advised at each and every step of
the way including creating a strategy for obtaining vacant possession,
structuring new leases, setting a new service charge regime,
overseeing intercreditor and security arrangements, agreeing building
contracts and managing the eventual sales.
As the UK government seeks to boost growth, a review of planning
reforms looks likely which in itself will create a host of fresh
opportunities. Each will need to be carefully assessed and, if attractive,
suitable plans developed. Any project from commercial or residential
to industrial or a new tech-asset, needs to be positioned to exploit the
flight to quality and have the winning principles of the day; service,
flexibility and ESG credentials, woven into their DNA.
As ever, the devil is in the detail and 300 years of history really means
we can say we have been there and done it. From spotting a bear trap
in relation to a residential lease, assessing future legal liabilities or
structuring a deal to mirror a client’s existing wealth structuring, our
blend of quick turnaround, personal approach and long term vision
make us just the right real estate partners for private capital.
BOODLE HATFIELD
