Many gallons of ink have been used in reporting and commentating on the build to rent sector. A lot of it wondering what the sector and product should be called. Currently we have PRS, build to rent and UK multifamily. Then there is the never ending debate on whether we need a specific use class for this product.
Of course what actually matters is the service delivery and ensuring that the renters get the best possible experience and the reality of creating a product where people sleep in their flats and live in the building comes to fruition. In the rental community to ensure you stabilise your building and maximise the income service is all. It is the subject of service that needs focussing on.
As with any new product type there is much thought leadership and dilemma of what is required to deliver the optimal performance. In reality there will be trial and error; there will be challenges not known and of course there will be formulaic delivery endeavoured to be achieved.
One topic that is usually fairly near the surface is how we embrace the American model and what translates across the Atlantic and whether become the 51st State. Having brought the National Apartment Association over from the USA and founded the UK Apartment Association (UKAA) then I feel better informed than most on what the impact and approach is best to adopt in this brave new world.
I have heard some express serious comment that they do not want the Americans to come over and tell them how to have line dancing and cheerleading in their buildings! Equally there is expression of “we know best because we are not America!” Well in reality all of this singularly misses the point and does a huge to learning and developing out the errors.
The USA have had a burgeoning multifamily market rapidly expanded over the last 20 years. The growth has bought challenges and misstates that can provide invaluable lessons to the UK. Why would we not learn from them? This is the critical point in reality. Why would anyone want to make mistakes when from research of others lessons can avoid the pitfalls?
In reality we should take lessons from a whole host of sources. We can learn from the hotel industry, retailing, leisure and airline industries. Every avenue offers a skill, service or lesson to be adapted and utilised. There is nothing new it is always an adaptation and reinvention that brings innovation and change. This can be seen from the disruptors in a market place as well as what appears to be revolution.
Of course the UK had a thriving build to rent asset class up to the rent act of 1977 and from the halcyon days of the 20’s and 30/s the London mansion blocks offered community, lifestyle and service. The concierge was a quintessentially British quasi butler delivery. Of course we now have to reimagine services and delivery. As an aside it is interesting to note that when the first mansion block was constructed in the 19th century the middle classes aspired to live in mansions. Whilst they would not by a flat when the first building saw a marketing opportunity of calling it a mansion block then the flats proved extremely popular!
But while we have had over a generation away from build to rent then we should be sensible enough to learn from others lessons. For example, last Christmas one of the US operators were fed up with the amount of parcels their concierge staff were having to deal with and decided that it was costing them too much so banned residents from using the concierge for parcel delivery. The result was immediate and significant. The residents voted with their feet and left in droves; their competitors immediately saw a competitive advantage of highlighting they cared about the residents and welcomed parcels. Now the simple lesson is to make sure you give provide a parcel service. However there is a wider and bigger piece that arises.
Having spent time with the NAA and worked closely in creating the UKAA I have realised that service delivery is not always about saying yes. It is about confidence and communication. If you can’t do something tell people but make sure you explain so there is transparency. With the parcels my takeaway is not losing site of service delivery. It is not a sterile discussion or decision but rather the holistic picture of what you are trying to achieve. So don’t take a decision based on trying to save money when the end result will affect your income. We have to know the levers and switches and how they interact.
Another lesson from the US is the use of maximised rental models and utilising pricing algorithms. This delivers daily flat rental pricing that can mean you achieve best rents at any point in time to maximise your income across your portfolio along with removing conflict from the get go with your renter. How do you remove conflict? Well starting off any relationship with haggling and negotiating on rents starts off a relationship on the wrong side of the table. If you walk into a store all products are priced and you may try for discount but you pay the price. Then all the experience is built on the service and not haggling and negotiating.
Contrast this to UK traditional letting market where conflict is built in to the letting process with the major part of the transaction being haggling on the rent and terms, with service coming after. Therefore this is one key driver where the UK can directly learn from the USA and utilise their learnings. It will take a while for sophisticated pricing to evolve with products such as Yieldstar but they will take a hold with the smart operators.
So as we journey into our brave new world of build to rent and we create an expectation of higher service levels for our renters then the smart money for making the best returns will be with those operators who can adapt and revolutionise utilising lessons and actions of others. Surely that is just common sense!
Founder United Kingdom Apartment Association
14th September 2016