It is a beautiful morning and we are looking over a sun dappled bucolic scene next to a canal on the outskirts of central Milton Keynes, surveying the vista from the scaffolding of a partly completed apartment block.
Dealmakerz is with Crest Nicholson Regeneration including its Managing Director Scott Black and Peter Cusdin, its Technical Director.
The view is over part of Campbell Wharf, a site that the company is working on hand-in-hand with Milton Keynes Development Partnership (MKDP).
It will eventually include 332 apartments and 51 houses as well as community facilities including a creche, a pub and an already-completed 111-berth marina and associated buildings.
So far, nothing looks that unusual about the site other than the upmarket exterior brick cladding of the apartment blocks and the canal-side aspect of the development.
Nevertheless Campbell Wharf is unusual. Black says it is an example of the kind of regeneration partnership between landowners and developers that is – he believes – the answer to the UK’s housing crisis.
Standing on the wobbly planking and holding on for dear life while watching the 100 or so builders clumping around the site, it’s hard to believe, but he and Cusdin have a point.
“This doesn’t come cheap – the bridge, the public spaces and canal development, and they have all been completed before we’ve sold a single property,” says Cusdin.
“So the land deal reflects that. We agreed a land value with MKDP with a minimum payment up front which is us delivering the scheme, but they then share in the upside of the later property sales and in return we don’t have to pay for the land upfront.
“So if we sell the homes at the prices we hope they will sell for, they participate in any profits whether they are projected or additional.”
MKDP is the landowner, which purchased the site off Homes England with a loan that it will use its receipts from the site to pay off.
“I sit on a lot of committees and we talk with government bodies about how we can accelerate delivery and this is a fantastic model of how you can do it,” says Black.
“We can deploy our capital a bit more aggressively in the creation of place and homes because we don’t have the overhead of interest charges for the money we’d otherwise have to borrow to fund the land purchase.”
Cusdin also says that this model, which he claims was pioneered by Crest Nicholson with the Defence Infrastructure Organisation, means sites that otherwise would be seen as unviable because they are too complicated and expensive to tackle, can now be developed profitably.
“Using the traditional approach this site wouldn’t have been touched with a bargepole by developers of any size,” he says.
Black says other developers have been adopting this approach including Taylor Wimpey and Grainger and it is becoming ‘more and more popular’.
“In the future, if as a nation we genuinely want to increase housing output and do it in a sustainable and measured way with high quality developments and scene setting, then this is the way to go,” he says.
“The capital that is employed in the traditional approach only gets you so far.
“The regeneration and partnership model is the future of development in this country for all sorts of reasons but particularly so if we’re serious about turning on the home building taps in the UK and sort out the housing crisis.”Scott Black, Crest Nicholson Regeneration
Campbell Wharf is also an example of how this approach can create communities; MKDP did not want an exclusive gated estate full of executive homes or half a dozen apartment blocks.
Instead the site is a mixture of shared ownership, and affordable rental apartments (which account for half the homes) as well as open-market houses and flats including Help to Buy.
Black says this has two benefits. The site will include a cross-section of tenures and therefore a wider social mix than most large new-build sites, but also makes Campbell Wharf more appealing to a wider audience, and therefore makes the sales process quicker and easier.
Affordable is also ‘pepper-potted’ in with open-market at the site, Black claims, and although the two types of resident will use different stairs and cores, they will share greenspace and parking facilities.
Crest Nicholson says that sites like this, which it has been involved in for some time, are more expensive and complicated to fund and build than greenfield cookie-cutter style estates
That’s why the regeneration model is the best way to develop them because both land owner and developer participate in the risk and the profits.
But there is one forgotten factor. House prices. In order to fund the model and create returns for both the parties, properties on sites such as Campbell Wharf are usually higher than the surrounding area.
This is something Black freely admits; but points out that it is the only way the model can work.
He also says people are prepared to pay a premium for homes on sites like this because they are in a desirable location and the properties are high quality.
Black says people don’t understand the relatively thin margins most developers must work with despite the ‘unhelpful’ headlines created when Persimmon boss Jeff Fairburn recently said he deserved his £110 million bonus.
“Developments usually generate a 25% gross margin but you’ve got to take off 4% for sales and marketing, 3% for loan interest and 7% for overheads leaving an 11% margin overall, which many businesses would reject in any other market,” he says. “On top of that you’ve got 106 agreements which we have to pay for.
“Both land owners like MKDP and developers like Crest Nicholson just don’t have much room to manoeuvre at sites like this, which is why regeneration partnerships are the only realistic way forward in the current environment.”