Radical Capital: Landmark Report

Bringing together 60 major players across the private and public sector.

Danton’s Death - or why you shouldn’t bet your life’s savings (just yet) on the Pfizer vaccine

Many moons ago when I was with my then very arty girlfriend, I got dragged along to a small theatre to watch a production of Danton’s Death, a play set during the Terror of the French Revolution.

Were we too harsh on Boris? No. Here’s why.

We respond to some of the debate yesterday's blog stirred up.

Businesses must get more vocal over lockdown

Winston Churchill once said: “Those who fail to learn from history are condemned to repeat it.”

It’s time to take out Tourism VAT for good

A permanent VAT cut for the tourism sector would boost one of the UK's most vital exports.

What will build-to-rent look like after COVID-19?

The pandemic has impacted all real estate sectors in some way or another - but which are going to come out stronger?

Commercial landlords should brace for more pain

The second rent quarter day of 2020 was dire but the third will likely be worse.

Budget 2020: what’s the outlook for real estate?

Blackstock Consulting's clients' share their analysis of what the new budget means for the property industry.

VAT on Homes Built to Rent

Yes tax is boring, but it’s important too, and despite what you may think it’s extremely important for the Build to Rent sector.

While we may be banging the drum on separate use classes or affordable housing methodology, perhaps we should turn more attention to how VAT is applied on homes for rent.

Homes sold on the open market are ‘zero rated’ and so pay no VAT. But If I rent you the flat, because it is an investment, I have to charge you VAT at 20% on the rent.

But you are not going to pay that, so I would have to make it VAT exempt, meaning I am unable to claim back my own VAT charges.

Given the majority of BTR developers are building new homes – rather than digesting those built for sale as buy-to-let investors do – Build to Rent investors should be treated differently, as far as VAT is concerned.

You can offset it through capital gains, but you cannot avoid it and it is a needless drag and a disincentive that may reduce likely investment into the sector.

As I said – it may not set the front pages alight or be the top recommendation of any white paper, but it’s important none the less.

man at desk reading about property pr

Banks’ real estate lending losses revealed

New research has revealed for the first time that UK banks collectively made no profit from real estate lending during the market cycle from 1992 to the 2008 crash.

Bad commercial real estate (CRE) loans were a large part of the reason HBOS and RBS needed bailouts a decade ago. According to the research, produced for the Property Industry Alliance, an umbrella group of listed property firms and fund managers, these problems were not unique to 2008: banks also failed to profit from lending to real estate during the previous two cycles – a period spanning over 50 years.

Authored by Rupert Clarke, a 35-year veteran of the real estate and financial services sector who was previously chief executive of Hermes, the report says commercial property lending generated profits of c.£7.0bn during the last cycle. This was dwarfed by £19.3 bn of write-offs, mainly from loans made towards the end of the cycle.

According to the report, at the lowest point in June 2009, more than £50 billion of capital was at risk of total loss. The research says that loan-to-value (LTV) ratios (a measure of how much value risk is being taken) were not adjusted to reflect increasing risks as property market values rose significantly towards the end of the cycle. It is vital that as the cycle progresses, LTVs should be proactively managed to reduce risk.

Clarke is calling on banks and their shareholders to take a more proactive approach to ensuring institutions have strategies for lending towards the end of cycles and processes in place to fully understand the risks they are taking on.

Lord Adair Turner, chairman of the Institute for New Economic Thinking and chair of the Financial Standards Authority between 2008-13, said:

“Commercial real estate lending has been central to almost all financial crisis of the last half-century. This report explains why, revealing the huge financial impact of irrationally exuberant late cycle lending which destroys value in the industry and in the wider economy. Any banker, real estate investor or regulator who wants to learn the lessons of the past should read the report, and design strategies to avoid similar mistakes in future.”

Rupert Clarke, chair of the Property Industry Alliance Long-term Value Group, said:

“Organisations, and those that run them and invest in them, need to be confident that CRE lending activities are sustainable and that appropriate governance is in place. It’s vital lending activities are not only well managed and successful in the short term but robust and sustainable throughout all stages of the lending cycle.

“Investors, banks and regulators need strategies in place to address specific challenges around lending during the latter part of property cycles. Without such measures, future cycles will continue to see shareholder capital eroded and economic stability undermined.”

Saker Nusseibeh, chief executive of Hermes Investment Management, said:

“Sustainable investing demands that Boards, investors and shareholders have strategies that deliver value over the long term. The findings of this ground breaking report on CRE lending make it clear that all the stakeholders in CRE lending, both in the UK and internationally, need to commit to putting in place strategies and governance that fully recognise the lessons from the past.”

The research concludes that the “profitability Black Hole” from CRE lending was almost certainly experienced in previous UK property cycles. Given the similarities between the UK CRE lending market and others internationally, it also concludes that other CRE lending markets internationally have experienced similar through-the-cycle profitability challenges.

Read the CRE Lending Report here.

Alternative lenders to fill the development void amid housing crisis

Latest Blackstock PropCast episode digs into property finance & appetite for alternative lending


Ten years on from the collapse of Lehman Brothers, banks and regulators have reined in their behaviour but as part of their drive to reduce their risk are now funding less property projects by smaller developers, potentially exacerbating the housing crisis.

Banks are still prepared to lend to the big, listed builders and developers but, with their new reduced risk appetite, are more reluctant to lend to small and medium-sized firms due to the perceived risk.

“Banks have learnt their lesson but have probably over-corrected, especially in terms of investing in riskier activities such as property development, which has led to a void in developments,” says Parul Scampion, co-founder of new online property investment platform propio.com. “We want to unblock some of those lending streams that have closed, which have meant that small developers haven’t been able to build as much as they could have.”

“There were a lot of lessons for everyone to learn after ,” said Peter Cosmetatos, the CEO of Commercial Real Estate Finance Council Europe (CREFCE). He added that “property is highly cyclical, which mean you need to be careful how you manage leverage as a borrower and as a lender you need to be careful as to when you are lending during the cycle. During the last cycle everybody got this wrong. Lenders lent a great deal into the peak and were left licking wounds and dealing with legacy books for many years after the peak. It wasn’t just lenders who went off the rails, regulators fell asleep at the wheel.”

This overcompensation has led to a funding blockage which could have implications for the ongoing UK housing crisis and the government’s ambitious housing targets of building 300,000 new homes a year.

“Finance is a utility and we need to build houses in this country. There might be risk associated with development, but as long as the reward is appropriate it’s a good thing. Otherwise, we will not be able to address the acute shortage of housing,” said Parul Scampion, co-founder of Propio.

In the past smaller developers would have picked one of the many high street banks as their lender for a project but today – in response to tighter lending by most banks – a number of challenger banks, bridging finance firms and crowdfunding platforms have emerged to fill the gap and disrupt the lending industry.

“It’s a difficult world to navigate because now there are hundreds of lenders that you might go to. But now there is a real role technology can play in terms of connecting people looking for debt and those who could provide it,” Peter Cosmetatos, the CEO of Commercial Real Estate Finance Council Europe (CREFCE). “There is an opportunity for online platforms that can aggregate and show what offers are available, while such platforms can also be used by capital providers to find out what is available and where they can put their money.”

Scampion and Cosmetatos both agree on the need for further development within the UK market and that alternative lenders are vital for filling the development void created by the conservative lending regimes currently in place. Peter Cosmetatos noted that “the most useful thing the property industry does is building new stock for which there is an economic need. That is more important and more valuable than simple transactional activity when existing buildings get traded. That doesn’t generate value for the wider economy but new construction absolutely does.”

Alternative lenders are vital for filling the development void created by the conservative lending regimes currently in place.

Listen to the full episode of PropCast, and all out other episodes HERE.

Business Rates: Blackstock analyses the small print behind the Budget

Everything below is a great example of how Blackstock mixes top-tier media relations, inhouse research and policy expertise under one roof in one fast-growing team. We understand the detail that no other comms agencies do.

Unless you’ve been living under a rock, you will have seen some of the noise being kicked up over business rates these past weeks. Research pulled together by Blackstock’s inhouse researchers, alongside our client, Daniel Watney, highlighted many issues.

Background – reasonable professional judgement

One of the biggest concerns was a “reasonable professional judgement” (RPJ) clause in new regulations that would enable appeals against incorrect rates bills to be thrown out if their margin of error was within this so-called “reasonable” margin. Hilariously, this margin of “professional judgement” was undefined.

So we looked at what the potential hit would be to firms from RPJ and estimated conservatively it would be over £700m just for SMEs. For large firms, REITs and the like, it would be several billions. Blackstock’s research was featured in the Sunday Telegraph.

Hate Mail

Skip forward a bit, and in the last month, we’ve secured two front page Daily Mail stories, including this one, on this as part of our collaborative efforts with various trade bodies. Debbie Warwick, the Iron Lady at the helm of Daniel Watney’s ratings team, was interviewed on Sky News (watch here) when this all peaked two weeks back.


Now, in today’s budget, the government has unveiled a bundle of things but not fully addressed the concerns around RPJ. It’s laughably done nothing to ensure more frequent revaluations – other than promising something may be announced before the next one (in 2022!).

See our full analysis further down the page. The FT’s afternoon coverage included a response from Debbie Warwick here.

On RPJ, the government issued a tonne of small print that arrived too late for many of tomorrow’s newspapers. It was a u-turn of sorts on the idea of a set margin of error, which is in some respects welcome. However, all the government has done is shift the issue to tribunals who do not want it shifted to them.

The key statement was published here and reads:

In light of the concerns raised, the Government has decided to amend the proposed approach…..on appeal the VTE will be required to decide whether they consider the extant valuation to be a reasonable valuation. This will now replace the original proposal of “outside the bounds of reasonable professional judgement…

In short, the RPJ rule has been devolved: the valuations tribunal (VTE) will now apparently decide whether a proposed valuation is “reasonable”. This replaces an intolerable solid margin of error with an intolerable ambiguity. Ratepayers still do not know what a “reasonable” valuation is or what tribunals may consider to be an appropriate margin of error for that. It could yet still be the difference between a small business being able to claim small business rates relief or a small business paying nothing in rates at all.

Daniel Watney ratings expert John Elcox says: “As usual, the consultation has been widely ignored, but RPJ had been toned down although not cast out entirely.”

Further analysis by Blackstock’s head of research Tyron Wilson


Most of the main problems haven’t been resolved

The government is trying to pull the wool over people’s eyes on business rates with attractive headline measures in the Budget, such as rates discounts for pubs. But the main problems with rates that have been raised over the last month haven’t been addressed: most importantly the reasonable professional judgement clause in the government’s planned reforms.

The clause means if a ratepayer has been given an incorrect valuation within a margin of error, it could be thrown out and they could be forced to pay the higher level for 5 years. It’s the equivalent of being forced to pay an incorrect income tax bill if it was deemed “close enough”. Thirteen trade bodies have united to say the government should withdraw this part of their proposals. The government has come up with a fudge and said it will leave it to local tribunals to decide the margin of error. It needs to be withdrawn full stop.

There still isn’t help for those who are due the biggest reductions but won’t see them for years

While there is some welcome support, such as the help for companies losing small business rates relief, the transitional system means those seeing the biggest reductions in their rates bills won’t see them for years. Any larger property seeing a rates decrease of more than 25 percent won’t see that complete cut at all by the time of the next revaluation in 2022. Many of these firms have been waiting seven years for a cut, having been paying rates based on a valuation at the peak of the market in 2008. These companies ought to see their rates cuts straight away, or at the very least see them in full sooner.

The government has pledged another consultation and more regular revaluations again

The government has been pledging more regular revaluations for years, and we have yet to see any action or proper funding to make it happen. We’ll believe it when we see it. The government cannot expect to be able to fob ratepayers off by repeating a promise it has repeatedly failed to deliver.