The 2012 Summer Olympics will ensure that a formerly run-down part of east London will be in the global spotlight come the start of the Games in July. But the site in Stratford has already made real estate history.
British renters are poised for a big win following the 2012 Summer Olympic Games.
A joint venture of U.K. property investment company Delancey and Qatari Diar, a subsidiary of the Qatar Investment Authority, was chosen in August as purchaser of the Olympic Village with a £557 million (US$890 million) bid. It was one of the biggest financial deals ever in the U.K. residential sector and easily the biggest involving an empty housing estate, which Delancey and Qatari Diar will not gain control of until long after the athletes have departed.
Rather than sell the 1,439 apartments, the joint buyers have pledged to rent them out. This will create the U.K.’s first private sector residential fund of over 1,000 homes to be owned and managed as a long-term investment.
On paper, the deal fulfills the so-called legacy commitment to regenerate Stratford— a public promise made to Londoners and the International Olympic Committee by U.K. Olympic authorities in 2006 when they won the right to stage the Games.
As well as the apartments, the sale involves land that could yield a further 2,000 homes. Along with the 8,000 new homes planned by the Olympic Park Legacy Company for the adjacent Queen Elizabeth Olympic Park, it is easy to understand the big claims being made for Stratford—that it will constitute a "new city" in London’s east end. The Olympic Delivery Authority (ODA), which has developed the village, says it has drawn inspiration from London’s great landed estates, such as the Crown, Grosvenor, and Cadogan. A new international rail terminal, a newly opened Westfield shopping center called Stratford City, and 250 acres (100 ha) of parkland all add to the marketing pitch for the area.
An artist’s rendering shows the legacy
development of the Olympic Park parklands.
It will be years before judgment can be made on the legacy promise. The village, though, is the all-important first piece of the residential jigsaw puzzle, and it already has had a charmed life. The U.K. taxpayer in the form of the ODA was forced to take on the development risk at the start of construction during the financial crisis of 2008. A year later, the ODA at least had the comfort of £270 million (US$430 million) in proceeds from the off-plan sale of 1,379 government-subsidized
housing units to the Triathlon Homes
consortium of housing associations. That sale allowed some breathing space for construction of all 2,818 apartments to go forward and for the ODA to sell the private housing once capital markets had recovered.
As many as 17 investment consortia expressed interest in the village following the launch of a global marketing campaign in October 2010. The ODA later published its initial short list of nine bidders—an international roll call of investors and residential specialists—before cutting it to the final three of Delancey/Qatari Diar, Hong Kong conglomerate Hutchison Whampoa, and U.K. institution Wellcome Trust.
The village is nonetheless an unusual proposition for investors. Few would ordinarily contemplate taking on 1,439 empty units. Fewer still would willingly pay out now when it will be 2013 before the blocks are handed over in phases. As it turns out, Delancey and Qatari Diar must wait and watch as the village is occupied by 17,000 athletes before walls are stripped out, kitchens installed, and the apartments are refurbished for full-time residents. Financial returns will be a long time coming.
"It is complex on one level," says Dennis Hone, ODA chief executive. "But on the other hand, where in London could you go out and buy that volume of apartments in one go? It’s a fantastic opportunity."
An aerial view of Olympic Park in London,
looking south through the parklands area.
The former industrial area is being transformed
through the construction of housing.
Some believe the village could also act as a catalyst for a more professionally managed private rental sector at a time when many people cannot afford to buy property. "It’s not going to be a magic-wand moment, but it has gained the interest of institutions," says Nick Jopling, executive property director of Grainger
, the U.K.’s largest listed residential landlord and one of the early bidders. "One of the great barriers to institutional investment is that you can’t get the scale to make it interesting and worthwhile."
Ralph Luck, ODA property director, says, "I believe that we in this country are going to move towards more property being rented—much more like central Europe. We’ve not done it on this scale before, but if you go to other countries, both in Europe and farther afield, they are used to building this number of apartments—but with none of the communications and transport connections that we’ve got, nor the facilities."
Trevor Moross, managing director of residential landlord Dorrington, which was on the initial short list alongside U.S. group Pinnacle Capital, praises the ODA for the infrastructure. But, he suggests, the hard work starts now. "The challenge for the buyer is making it a place people want to live," he says. "And that will mean careful and creative place making. If the buyer gets that right, the mature investment will produce excellent long-term returns. To do that, the buyer will need total control in the first few years."
Delancey, which is best known as a commercial property investor, has promised to hold the village long term. To that end, the company has recruited Stuart Corbyn, a highly respected player in the U.K. residential sector and until recently chief executive of the Cadogan Estate, to spearhead the village operation.
Delancey director Stafford Lancaster points out that place making on this scale has been achieved historically with the landed estates, such as Cadogan, whose ownership and management of large tracts of central London extends to hundreds of years. No one has tried to start anything remotely similar from scratch in the modern era. But, Lancaster notes, "The rental focus adds a different dimension to the more conventional residential trading model, but one that we think aligns landowner and occupier long term in the pursuit of first-class accommodation, realm, place, and community. We estimate over 4,000 residents could be living in the first-phase private units."
A key influence will be Triathlon, which has been heavily involved in the master planning and design to date. The fact that its government-subsidized housing is spread throughout the village—rather than consigned to a remote corner on its own, as is common with residential developments in the U.K.—will ensure that the group works closely with Delancey and Qatari Diar.
"We’re beginning to think about how we’re going to phase occupation and about making the community function as an integrated whole," says Triathlon director Elliot Lipton. "One of the things that makes this Olympic Village unique is that it has been designed for the long term. The Games fit in around that long-term use rather than what happened in a lot of other [Olympic] cities, where they designed accommodation for the Games and then afterwards thought, ‘Now what are we going to do with it?’"
In some respects, Delancey and Qatari Diar are custodians of the village, taking up where the ODA has left off. As Delancey’s Lancaster suggests, "There is a lot to do over the next few years, but we have a unique and highly valuable set of raw ingredients at the Olympic Village to achieve our place-making and long-term legacy objectives."