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London’s Forced Renters Fuel Apartment Investing Boom
By Neil Callanan, Patrick Gower and Chris Spillane June 11, 2013 (Corrects spelling of Grainger director’s name in third and ninth paragraphs of story published yesterday.) Londoners are increasingly becoming renters whether they like it or not after the U.K. capital’s average home price passed 500,000 pounds ($778,000) last month. With first-time buyers having to borrow more than ever and save longer to afford a down payment, leasing demand is set to soar, and developers and investors are building like never before. The Greater London Authority estimates households renting privately owned apartments or single-family homes will increase to 37 percent by 2025 from 25 percent last year. “It’s one of the most exciting, if not the most exciting asset class in the market today,” said Nick Jopling, executive director of Grainger Plc (GRI), the U.K.’s largest publicly traded residential landlord. “Institutions are recognizing that too.” Investors including Grainger, Dutch pension-fund asset manager APG and developer Quintain Estates & Developments Plc are already seeking to profit while others, such as New York-based private-equity firm KKR & Co., have said they’re considering entering the London market. Savills Plc (SVS) estimates at least 210,000 more U.K. households will seek to rent in the next three years, most in the capital. Multifamily home buyers got total returns of 8.9 percent in the U.K. last year, compared with 2.7 percent for commercial real estate, according to Investment Property Databank Ltd. They’re also set to benefit from measures introduced by Prime Minister David Cameron’s government aimed at stoking construction and reviving the economy. The government’s March budget announcement included 1 billion pounds of incentives aimed at spurring multifamily residential development and easing a housing shortage. ‘Innovative Models’ “These projects represent a wide range of innovative models and will provide a good spread across England, with around one quarter in London,” Housing and Local Government Minister Mark Prisk said in April A month after the incentives were introduced, about 700 million pounds had been allocated to 45 projects around the U.K. The developments could produce as many as 10,000 homes, the government estimates. “Those are the seed assets that we will see in future years acquired by institutional money once they’re built, leased up and tenants are paying their rent,” Grainger’s Jopling said in a telephone interview. Cultural Shift The shift toward companies and investors owning swaths of rental housing is as much cultural as it is economic. Like the rest of Britain, home ownership in London is engrained in the culture. Moving up the so-called housing ladder and renting out an apartment once a new home is acquired, or investing in a few buy-to-let properties, has become a cottage industry. That’s different than places like the U.S. and Germany where homeownership rates are lower and companies own thousands of rental apartments. About 70 percent of Britons own their own home compared with 53 percent in Germany, data compiled by LBS Research shows. In the U.S., the figure is 65 percent. To rent a home to Londoners unable or unwilling to buy one, multifamily investors are focusing on neighborhoods with access to transportation links like the London Underground, such as Paddington as well as Balham and Putney, which are in the south and southwest of the city, according to Adam Challis, head of residential research at broker Jones Lang LaSalle Inc. (JLL) “It’s all about orientating the asset around the demand profile of future occupiers,” Challis said. “Renters typically are going to be young professionals, car free, and as a result transport access is going to be a hallmark of the successful locations.” Underground Zones The Underground’s zones 2 and 3, which ring the city center, were the country’s best-performing areas for renting houses and apartments last year with returns of 10.7 percent, researcher IPD said in February. The average rent in greater London climbed to 1,236 pounds in April, up 4.8 percent from a year earlier, according to an index compiled by HomeLet, the U.K.’s largest referencing and rentals insurance company Quintain, a London-based developer, decided it will rent out about 100 apartments in building projects in the Greenwich area and another 100 in the city’s Wembley neighborhood, rather than sell as they had typically done, because of increased demand. “It’s the new phenomenon of this year,” Quintain Chief Executive Officer Max James said by telephone. “There is a growing institutional demand for this kind of product, so you begin to see this triangle where developers, tenants and institutions are all coming together in the same space.” APG’s Acquisition APG, Europe’s largest pension-fund asset manager with 325 billion euros ($430 billion) under management, teamed with Newcastle, England-based Grainger to buy about 1,200 U.K. homes for about 350 million pounds in January. The trust set up to buy the assets will focus on renting out properties in greater London and may also invest in developing homes for leasing. Prudential Plc (PRU)’s M&G Investments last month bought 534 homes through a unit for 105.4 million pounds from Berkeley Group Holdings Plc (BKG). Berkeley, the U.K.’s third-largest homebuilder by market value, is keeping an undisclosed minority stake after the project is done. It also may develop homes to rent, according to a statement at the time. A unit of Qatar’s sovereign-wealth fund has also been buying and selling in the London multifamily market. Qatari Diar Real Estate Investment Co. and Delancey Estates Plc paid about 557 million pounds for the 2012 London Olympics athlete’s village in a deal that included about 1,400 homes, most of which will be leased rather than sold, according to an August 2011 statement. LondonMetric Property Plc (LMP) was part of a venture that bought a luxury multifamily complex in the affluent Chelsea neighborhood from Qatari Diar last June for 147 million pounds. ‘Ludicrous’ Yields Not every company is enthusiastic about U.K. multifamily residential assets. Axa Real Estate Investment Managers, Europe’s largest property manager, prefers to put its money into housing for students and seniors, Chief Executive Officer Pierre Vaquier said in a March interview. Pension funds, asset managers and insurers are less likely to buy multifamily property in London’s best residential areas because rents aren’t high enough compared with purchase prices, according to Jones Lang’s Challis. “The yield can seem fairly ludicrous in comparison to traditional property investment,” he said. London home asking prices increased 3.3 percent to a record 509,870 pounds in May, property-website operator Rightmove said in a report last month. The price of London homes is now more than nine times the average earnings of residents and buyers typically need a deposit of 59,000 pounds, according to a report by Savills. Rising Rents The typical first-time London buyer borrowed 3.6 times their household income last year for the purchase, the most ever, according to data compiled by the Council of Mortgage Lenders going back to 1974. Rents in the city were about 7.6 percent higher in April than a year earlier, the biggest gain in the U.K., LSL Property Services Ltd. said last month. The London Assembly, a group of elected officials tasked with scrutinizing the Mayor, published a report today urging Boris Johnson to seek a change in U.K. law that would stabilize rents in London. Proposals include the introduction of a public sector letting agency, designed to incentivize “landlords to provide stable rents and longer tenancies.” The U.K. multifamily housing market had about 1.6 billion pounds worth of transactions last year, little changed from a year earlier, according to Savills. The London-based broker estimates purchasers may spend 2.5 billion pounds this year, about 50 percent more than 2012. That’s still small by international standards. Manhattan Sales The dollar volume of apartment-building sales in Manhattan alone more than doubled in 2012 to $9.1 billion, according to data compiled by New York-based Real Capital Analytics Inc. In Germany the value of multifamily-building sales rose 46 percent last year to 10.4 billion euros, according to Savills. U.K. buyers have about 2.85 billion pounds to spend on apartment buildings and other multifamily assets, 185 percent more than last year, according to data compiled by Chicago-based Jones Lang. “This is likely to be just the tip of the iceberg,” Jones Lang said in a statement. It “doesn’t take into account potential investment from U.K. institutions such as pension funds, insurers and third party fund managers — the majority of which are currently either deploying or looking to deploy capital into the residential sector.” To contact the reporters on this story: Neil Callanan in London at ncallanan@bloomberg.net; To contact the reporter on this story: Patrick Gower in London at pgower@bloomberg.net; Christopher Spillane in Johannesburg at cspillane3@bloomberg.net Continue reading
Gas From Woody Biomass Promising Way To Reduce Emissions
Two processes that turn woody biomass into transportation fuels have the potential to exceed current Environmental Protection Agency requirements for renewable fuels, according to research published in the Forest Products Journal and currently featured on its publications page. The Environmental Protection Agency’s standard for emissions from wood-based transportation fuels requires a 60 percent reduction in greenhouse gas emissions compared to using fossil fuels. The standards don’t just concern greenhouse gases generated when biofuel is burned to run vehicles or provide energy: What’s required is life-cycle analysis, a tally of emissions all along the growing, collecting, producing and shipping chain. The special Forest Products Journal issue does just that for energy produced in various ways from woody biomass. For instance, two processes for making ethanol reviewed in the issue – one a gasification process using trees thinned from forests and the other a fermentation process using plantation-grown willows – reduces greenhouse gas emissions by 70 percent or better compared with gasoline. In contrast, producing and using corn ethanol reduces greenhouse gas emissions 24 percent compared to gasoline, according Argonne National Laboratory research published in 2011. For the publication, researchers from the 17 research institutions that make up the Consortium for Research on Renewable Industrial Materials determined the life-cycle emissions of 15 processes where woody biomass was turned into liquid fuel, burned directly to create heat, steam or electricity, or processed into pellets for burning. The common advantage of these processes over fossil fuels is that trees growing in replanted forests reabsorb the carbon dioxide emitted when woody biomass burns as fuel in cars or other uses, said Elaine Oneil, a University of Washington research scientist in ecological and forest sciences and director of the consortium. While fossil fuels cause a one-way flow of carbon dioxide to the atmosphere when they burn, forests that are harvested for wood products or fuels and regrown represent a two-way flow, into and back out of the atmosphere. The processes reviewed have the added advantage of using woody debris not only as a component of fuels but to produce energy needed for manufacturing the biofuel. The fermentation process to produce ethanol, for example, ends up with leftover organic matter that can be burned to produce electricity. Only one-third of the electricity generated by the leftovers is needed to make the ethanol, so two-thirds can go to the power grid for other uses, offsetting the need to burn fossil fuels to produce electricity. This is among the reasons that ethanol from plantation-grown feedstock using the fermentation process approaches being carbon neutral, that is, during its life cycle as much carbon is removed as is added to the atmosphere, according to Rick Gustafson, UW professor of environmental and forest sciences and a co-author in the special issue. The researchers looking at the fermentation process also took into account such things as water consumption. They found that the process – which among other things needs water to support the enzymes – uses about 70 percent more water per unit of energy produced than gasoline. A biofuel industry using woody material will be a lot less water intense than today’s pulp and paper industry – still, water use should be taken into account when moving from pilot biofuel production to full-scale commercialization, Gustafson said. “The value of life-cycle analysis is that it gives you information such as the amount of energy you get in relation to how much you put in, how emissions are affected and the impacts to resources such as land and water,” Oneil said. In the U.S. last year, some 15 facilities produced about 20,000 gallons of fuels using cellulosic biomass such as wood waste and sugarcane bagasse, according to a U.S. Energy Information Administration website. The administration estimates this output could grow to more than 5 million gallons in 2013, as operations ramp up at several plants. In the special issue, the biofuels analyzed came only from forest residues, forest thinnings, wood bits left after manufacturing such things as hardwood flooring or fast-growing plantation trees like willow. That’s because, from a greenhouse emissions perspective, it makes no sense to produce biofuels using trees that can be made into long-lived building materials and furniture, said Bruce Lippke, UW professor emeritus of environmental and forest sciences, who oversaw the contents of the special issue. “Substituting wood for non-wood building materials such as steel and concrete, can displace far more carbon emissions than using such wood for biofuels,” Lippke said. “It’s another example of how life-cycle analysis helps us judge how to use resources wisely.” The modeling and simulations used for life-cycle analysis in the special Forest Products Journal issue can be used to evaluate other woody materials and biofuel processes in use now or in the future, with the models being refined as more data is collected. The data also will be submitted to the U.S. Life Cycle Inventory Database of the U.S. Department of Energy’s National Renewable Energy Laboratory, which has data available for everyone to use on hundreds of products. Read more at http://scienceblog.com/63592/gas-from-woody-biomass-promising-way-to-reduce-emissions/#RumeUVbtlPtxkUoF.99 Continue reading
