Residential strong, if you know where to look
REurope, June 2010Residential developers were amongst some of the most high-profile casualties of the economic downturn at the start of the property crash, yet plenty of well-structured entities have not only survived the recession, but are also making the most of the current climate.
Thornsett Group is a bespoke property development company operating in England, Wales, Ireland and Belgium focussing on residential-driven developments. Although planning regulations have frequently inspired the Group to build projects with mixed-used components, it is primarily a residential specialist and continues to identify key opportunities even in these leaner times. Established more than 20 years ago, Thornsett has built thousands of homes, ranging from those in affordable housing schemes to properties in the most sought-after locations. In the commercial and community sectors, it has developed retail outlets, technology parks, offices, schools, medical facilities and community centres. Its current projects include the only available opportunity to buy fully-finished apartments in the Olympic environs of Stratford in the shape of Lett Road scheme, including units from £199,950 which are being snapped up by Chinese investors who see the potential value in Olympic legacy assets in the wake of Beijing. Thornsett is also developing a scheme which includes some 108 apartments (with retail space and a hotel attached) in the heart of Brussels’ European district. Director Bernadette Cunningham tells Reurope about the challenges and chances for a residential developer at this stage of the market cycle, and identifies opportunities for investors perhaps diversifying into residential for the first time…
RE: WHY DOES THORNSETT FOCUS ON RESIDENTIAL DEVELOMENT?
BC: Our roots as a business were in residential construction where we started on smaller housing projects. As we moved into development, we built on our experience in the housing market so naturally the focus remained on residential development. Staying with and progressing our core centre of expertise has served us well over the years. Often our developments are now mixed use due to planning requirements (residential and commercial) but our focus remains residential-driven developments.
RE: HOW HAVE YOU BEEN AFFECTED BY THE ECONOMIC DOWNTURN?
BC: The economic downturn has meant a repositioning of many of the banks we used to deal with (especially specialist property banks who suffered more than high street banks). A number of banks we historically dealt with are no longer trading as usual (Anglo Irish, Heritable, Kaupthing Singer and Friedlander, Bank of Scotland etc). Other banks have removed themselves completely from property funding, only continuing to deal with existing clients. We have been fortunate in that we had existing relationships with banks that remained in business and lending – but for any business trying to start in the property sector now, they simply would not get bank funding.
The other affect of the economic downturn has been a slower pace of sales compared with the peak of the market. Again, we have been fortunate that most of our developments are in good, central locations where demand remains high, but buyer decision making took much longer.
It has also been difficult for purchasers to obtain mortgage funding, which again slows the process.
The final issue is the number of builders and sub-contractors who have gone out of business over the last two years. I am not sure a stable position has yet been reached where business feel confident going forward.
RE: HOW DO MARKETS OF LONDON AND BRUSSELS COMPARE – WHAT SORT OF DEVELOPMENTS ARE YOU PURSUING IN EACH CITY?
BC: In terms of similarities, London and Brussels have stable populations of professionally employed people which means demand remains steady during a downturn. They also have discerning purchasers who demand quality and do their research before committing to buy. We have similar developments in both cities in terms of number of units, variety of size of schemes, choice of finishes. The main difference is how purchasers buy property. In the UK you typically exchange with a 10% deposit and pay the balance on completion. In Brussels, if you purchase off plan you basically pay for the construction as you go along – so by the time the property is complete you have paid 100% of the price. This is still done with mortgage finance, but the mortgage is released as construction progresses. The other difference is that when we started developing in Brussels, apartments were typically finished to what we in the UK would call a shell finish – no kitchens, minimal finishes etc – then the purchaser would finish them to their own specification. We have changed the paradigm in Brussels by providing what we would do in the UK – apartments that are ready to move into. As part of our marketing, we have also prepared show apartments which were a novelty in the Belgian market.
RE: ARE YOU STILL PURSUING OPPORTUNITIES IN IRELAND SINCE THE PRICE CRASH?
BC: No
RE: HOW FAR ARE COMMERCIAL INVESTORS INCREASINGLY INTERESTED IN RESIDENTIAL PROPERTIES IN CURRENT TIMES?
BC: If by commercial investors you mean investors who are primarily interested in commercial property – I would say their appetite has not changed. They are circling for bargains in the market that they know best – commercial. If you mean, investors who invest in residential property but on a commercial scale (bilk investors/owners) would say this market has pretty much died due to the issues with bank funding. Many banks are not offering buy-to-let mortgages and are nervous of those with large buy-to-let portfolios. The crash that many pundits predicted has not materialised so the “vulture funds” have not picked up distressed stock that they though would come to the market.