Flexible LDI policies now a must for BTR developers and funders
By
Jack Bristow
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Developers must seek expert insurance advice to ensure they have ‘multiple’ options when it comes to exit, writes Jack Bristow
The latent defects market has acknowledged the significant investment made in the BTR sector and have responded with a selection of tailored policies to support and enable developers over the immediate and long term.
Historically, developers looking for first-party insurance would opt for a commercial latent-defects policy. However, this has proved to be an inflexible solution if the developer or owner wished to realise some capital appreciation a few years after completion. Developers and funders involved in BTR and PRS schemes now have increased options of providers that allow for a UK finance approved policy which ensures that if there is a desire for a fractional sales strategy, the policy can be amended to enable a unit by unit sell off.
Developers who have adjusted their exit strategy by embracing the shift from traditional build-to-sell models to build-to-rent (BTR) are now laser-focused on securing the appropriate insurance. This type of policy does not only protect the structural integrity of the asset but also provides flexibility in case there is a desire for a fractional sell-off in the future. Given the market shift, developers should keep their options open as there is a lot of noise around which policies offer the most benefits and how this impacts premiums and excess. In the same vein, funders are increasingly aware of the importance of having first-party insurance in place, rather than relying solely on collateral warranties.
When selecting a latent defects provider, it is important to review the financial limit of the policy. Not all policies are equal, as some providers may have an inner limit of, for example, £25m. This means that on a £100m project, the policy would only cover 25% of the total reinstatement cost. As always, the devil is in the details, so it’s vital that developers understand what they’re getting for their money.
Although many aim to adopt a long-term strategy for emerging projects, developers and funders who have received sound guidance and implemented the right policy will be better placed to adapt to the change, should the need arise.
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Flexible LDI policies now a must for BTR developers and funders
By
Jack Bristow
Share this:
Developers must seek expert insurance advice to ensure they have ‘multiple’ options when it comes to exit, writes Jack Bristow
The latent defects market has acknowledged the significant investment made in the BTR sector and have responded with a selection of tailored policies to support and enable developers over the immediate and long term.
Historically, developers looking for first-party insurance would opt for a commercial latent-defects policy. However, this has proved to be an inflexible solution if the developer or owner wished to realise some capital appreciation a few years after completion. Developers and funders involved in BTR and PRS schemes now have increased options of providers that allow for a UK finance approved policy which ensures that if there is a desire for a fractional sales strategy, the policy can be amended to enable a unit by unit sell off.
Developers who have adjusted their exit strategy by embracing the shift from traditional build-to-sell models to build-to-rent (BTR) are now laser-focused on securing the appropriate insurance. This type of policy does not only protect the structural integrity of the asset but also provides flexibility in case there is a desire for a fractional sell-off in the future. Given the market shift, developers should keep their options open as there is a lot of noise around which policies offer the most benefits and how this impacts premiums and excess. In the same vein, funders are increasingly aware of the importance of having first-party insurance in place, rather than relying solely on collateral warranties.
When selecting a latent defects provider, it is important to review the financial limit of the policy. Not all policies are equal, as some providers may have an inner limit of, for example, £25m. This means that on a £100m project, the policy would only cover 25% of the total reinstatement cost. As always, the devil is in the details, so it’s vital that developers understand what they’re getting for their money.
Although many aim to adopt a long-term strategy for emerging projects, developers and funders who have received sound guidance and implemented the right policy will be better placed to adapt to the change, should the need arise.
Jack Bristow is managing director of J3 Advisory
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