Innovative investment agency Harris Associates has recently launched its ‘Reinventing Real Estate’ podcast, hosted by Head of Co-Living Jenna Harris and Head of Student Accommodation Jamie Harris, to discuss the current trends and the future of the property sector by interviewing the titans of the UK marketplace.
For the first interview episode, they were joined by Watkin Jones Interim CEO Alex Pease and Group Investment Director George Dyer. The two delved into their remarkable journey, navigating the transformation from a family-owned business to a publicly traded entity. The Watkin Jones power-duo unpick the current market, myth-bust on common misconceptions, and discuss the key trends that are shaping the market.
Alex and George dived headfirst into sizzling dialogues on pressing market matters. From the audacious viability of forward funding in today market to the enthralling journey of Watkin Jones; metamorphosis from a modest family-owned venture to a publicly traded empire.
They also teased to Harris Associates the intriguing glimpses into the next stages for Watkin Jones as a business, and discussed how they go about selecting new cities for developments based on a mixture of gut instinct and data.
Jamie: Has the forward funding market come back? And is the structure still appealing?
Alex: Yeah, I still think forward funds are absolutely viable. Transaction structure, and I think it’ll be the predominant structure, going forward it is a relatively simple concept and structure, but it’s actually quite hard to do well and it’s very hard to do at scale and again it comes back to a lot to do with trust and track record and that counterparty position because you are asking, some risk averse capital, to give you their money to deliver them something – they can’t see it, they can’t touch it, it’s not there at this point in time. You must be able to demonstrate that you’re going to look after their capital, and you are going to deliver and put all sorts of various checks in place to give them that confidence.
George: What’s good about the forward fund structure is a very clear delineation of risk between the development side and then the market risk, and I think it is the simplest way of approaching that. Slightly dislocated markets now, but I think the reality is that the trend will come back. I can’t really see many funds stepping into that development piece. When you have a very clear run of forward fund after forward fund, and it’s been very, very clean, lots of bids; introducing that complexity creates a bit more entrepreneurial spirit and a bit more analysis to really understand this is what you’re going to receive.
Jamie: How do you select new investment locations? Is it a combination of data, gut feel, and everything in between? You’ve got the data, but ultimately, you’ve got to make a decision based on what everyone feels is the right outcome.
Alex: In real estate, there is always a qualitative element. There is always a human factor. And I think more so in residential because everyone can identify with residential. Everyone’s got an opinion on what a residential building should be or should provide. So, we would be foolish to just rely on quantitative data. We do a quantitative analysis and then we put a qualitative overlay on it to say, look, what’s happening on the planning environment, what’s happening in the political environment, what’s the investment appetite like, you know, if you match both the quantitative and the qualitative and both are positive, that’s when you invest.
Jenna: With your Build to Rent in Belfast, you are clearly not afraid of being the first movers in a new location. Talk to us about that more.
Alex: We got into Build to Rent off the back of [purpose-built student accommodation] PBSA; we looked at the synergies, we looked at, you know, what are we effectively doing with PBSA. We’re creating communities for people to live within a building. And that’s the exact same thesis for Built to Rent. So, we were one of the first developers, well, the first private developers to go across to Belfast. We looked at the demographics for students. There were two great universities. There was almost no accommodation other than university provided accommodation. And the question was, well, why should this city behave any differently to all the other UK cities? You know, there’s going to be the same demand for drivers.
Jenna: How have you found, Alex, that the processes have changed since Watkin Jones have gone from a private, family-owned business to a public company?
Alex: As a family business, I think it absolutely translates into a PLC. I think clearly you need to have more due diligence. You need to have more paperwork. I’d say that the general core analysis remains the same. You know, it’s real estate. You’ve got to work out who’s going to live there, who’s going to buy it, what it’s worth, what it’s going to cost. All of that remains the same. But yeah, I think that it comes with the territory. If you’re going to be a PLC, your shareholders want to understand that there is good governance, really good due diligence. And I don’t think it needs to slow things down too much. But if you can get some good processes and good people, I think the key thing is you can have the best processes in the world.
Jamie: Obvious question in the market currently from an investor’s perspective, but what’s going to happen with the OPEX? What are you guys seeing from your experience of working alongside Fresh?
Alex: Yeah, look, I think OPEX clearly did increase and that was largely driven by fuel and energy costs. That was one of the primary drivers for it. I think, as a group, we try and be on the front foot, you know; you can’t outrun it completely, but we did hedge from a Fresh perspective, which meant that their clients were insulated to a much greater extent than perhaps others were. We bought in energy costs much earlier, so that was a real advantage. I do think particularly on Built to Rent there’s still a way to go. I think operational costs will come down because I think increasingly people are learning the lessons from PBSA about how to manage, you know, mass occupied buildings. I think technology will play a part in that.
Upcoming episodes in the podcast will feature pioneers in the real estate industry such as Adam Brockley, Founder of Scape & Morro; Russell Petrie, Head of Student at EQT Exeter; Michael Old, Corporate Finance & Structuring; Moda Living and Paul Borrmann, Managing Director at Dandara Living.