After the collapse of Lehman Brothers, the UK and US residential markets fell off a cliff. Banks stopped lending, development stopped, but people still needed houses. I was looking for a solution that would bring a lot of new homes into the market which wouldn’t rely on banks to fund them. I’d worked in different countries and understood the need for rental properties that were good quality and flexible. It seemed the right time to get long-term, institutional funding back into the residential market. A housing association launched the business, with our first two buildings in South West and East London bought in 2010. Macquarie Capital later invested another £40 million, which got us the next two buildings. That gave us enough of a portfolio to pitch to institutions. Abu Dhabi Investment Authority came on board with an initial £200 million and we now have seven buildings across London housing 750 flats.
Creating a community
Rather than be something for everybody, we concentrate on young professionals. They like high density, sharing and community. Location is important, too, so all our buildings are within five minutes of a tube or train station. There are no agents or fees – tenants pay a flat rate each month. And every Fizzy Living building gets a property manager (who we nickname ‘Bob’) to take care of everyday issues such as repairs, maintenance, or just signing for deliveries. We’re pet friendly, have social platforms for residents and host three parties a year to help them get to know each other. We want to give people somewhere they want to stay. When we started out, the average time tenants stayed in a property across London was 6-9 months. Our typical tenancies are now approaching 2.5 years and getting longer.
Housebuilders see the private rental sector as an ideal partner. Recently, we purchased 111 flats in a speculative housebuilder development in North East London. The developer understood that our business model required us to buy at a discount to achieve our target return, but they were prepared to do that because our tenants act as ambassadors for the larger scheme and we don’t compete on the sales front. They can build subsequent phases while our stage payments ease their cash flow. We’ve also bought buildings from another developer in East and South East London. We believe that early PRS deals in multi-phase developments will become standard practice as risk management becomes more prominent as Brexit approaches.
Growing across the UK
Fizzy Living is a solution for young professionals. What we offer may not be right for families, or older people who are downsizing, but there’s room for rental in these sectors, too. In North America, Scandinavia, large parts of Europe, renting is a big thing. We need to educate people in the UK that renting isn’t a poor option. Until we start getting parity between supply and demand, prices will carry on going up. If companies like us can get back to delivering homes at scale, we’re doing our bit to help balance the market. We’ve always had a plan of going nationwide when we reached 1,000 flats in London. We’re up to around 750. UK cities such as Birmingham, Bristol and Manchester have thousands of young professionals working in the city centre so there is a market.