Enabling exit strategies for Build to Rent developers

What does a Build to Rent developer do if they have a change of strategy? J3 Advisory discuss exit strategies.

Build to Rent buildings. J3 Advisory discuss exit strategies for Build to Rent developers | BTR News

According to the British Property Federation, the number of Build to Rent homes either completed, under construction or in planning now stands at just over 237,000, up from 225,000 in Q1 2022.

By J3 Advisory

Developers operating in this industry should be aware of the opportunity to capitalise on the policy flexibility that is available to them as a result of the recent changes in the latent defects market.

Build to Rent and PRS developers would often opt for a commercial latent defect policy, as there wouldn’t be an obvious need for the UK Finance wording. In addition, the commercial wording would allow for a no defects period. However, what does a developer do if they have a change of strategy and wish to sell, or part sell some of the housing units to take advantage or even offset market fluctuations? 

Most commercial LDI policies do not allow for a part ‘sell-off’ of units without purchasing a separate residential policy. However, there are providers that have noted this ‘gap in the market’ and been proactive in delivering an attractive solution:

  • Commercial latent-defects policy.
  • No two-year defects period.
  • 24 months after practical completion, developers will have the flexibility to ‘switch’ the policy wording to a residential policy – enabling them to realise some of the appreciation of their assets and sell off some of the units should they wish to do so.

“This latest move from a couple of providers has resulted in other insurers aggressively reducing the cost of their commercial policy (although often increasing the excess levels notably in tandem), which does create a conflict for developers looking for value and flexibility. 

“As with most markets, there will always be someone who will do it cheaper. This is very much about understanding how you’re going to achieve your mid to long-term objectives and what’s going to enable you along the way. The key to that is working with up-to-date information.

“The warranty market continues to evolve and change at a rapid pace. It’s almost unrecognisable from a couple of years ago, so being selective about what advice you listen to and where it comes from is a vital part of a developer’s wider strategy.”

Jack Bristow, Latent Defect Specialist and Managing Director, J3 Advisory