FEC’s bosses on scaling up through regeneration

Hong Kong-listed developer Far East Consortium has steadily made a name for itself in Manchester since it began working in the city. Eight years on, the developer is progressing with plans for more than 15,000 homes in Manchester through its £4bn, 390-acre Victoria North project with Manchester City Council. It is also drawing up proposals for more than 700 homes at the former Greater Manchester Police HQ, after it was picked by Trafford Council and the Greater Manchester Combined Authority as development partner last year. Other Manchester projects outside of Victoria North include the 756-home Meadowside scheme. Now, its growth story in Manchester is fuelling an appetite for expansion in London, where its schemes include the £470m GDV Consort Place project in Canary Wharf, E14. The developer is hunting for investment opportunities with the aim of replicating the relationship structures it has established in Manchester. Those include closer ties with the government on public sector procurement and delivery, partnerships with councils and potential joint venture partners on large schemes. Conversations are ongoing with the likes of Homes England, the Greater London Authority, TfL’s Places for London property arm and various boroughs. When EG sits down with the team on a weeknight at the Dorsett Shepherd’s Bush – a hotel that marked FEC’s UK debut acquisition in 2012 – joint managing director Wendy Chiu and London regional general manager Matt Taylor have just returned from meetings with councillors, among several scheduled before Chiu’s flight back to Hong Kong in a week’s time. [caption id="attachment_1235928" align="aligncenter" width="847"] Wendy Chiu and Matt Taylor[/caption] It also marks Chiu’s first visit to the UK since her promotion in December alongside sister Winnie Chiu. The business is overseen by their father, chairman and chief executive David Chiu; their grandfather – late entrepreneur Deacon Chiu – founded FEC in 1950 and led it until 2011. “The timing of the visit is perfect,” says Taylor, who joined FEC from Countryside Partnerships last November. “It’s quite refreshing to spend time with the family from Hong Kong, where they can see through the challenges that are immediately ahead and take a slightly longer-term view.” Long-term partnerships, working at scale on regeneration projects, are at the top of FEC’s priority list. “It gives us the opportunity to really placemake, add value over time and build that relationship of trust with public sector partners,” says Taylor. “It’s not a ‘get in, get out’ strategy.” Seeing a local authority logo next to FEC’s on a scheme “breeds comfort” among its shareholders and “adds confidence”, adds Manchester regional general manager Gavin Taylor. Getting ahead of the game For Chiu, “now is the right time” to “extensively” look at opportunities, “not just in London but in Australia and different parts of the world”. As well as the UK and Hong Kong, the business specialises in developments, hospitality and car parking ventures across mainland China, Malaysia, Singapore, Australia and New Zealand. Expansion in mainland China is the exception, where FEC does “not have as much” exposure and land sales are under way. On a broader level, however, Chiu is upbeat that activity is “picking up fairly quickly” for major cities in the mainland market, adding that the cost of financing in the market has become cheaper. “Perhaps for the more outer parts of cities, it might take a little more time,” she says. “Honestly, mainland China has struggled. It’s appreciated very long growth and for a country of its size, you can’t expect exponential growth like that [to be sustained]. But I think [it] will reach a healthy level.” In the UK, Matt says it “feels as though the market is bottoming out”, highlighting improved stability and the ability to predict the direction the market is shifting towards. “Inevitably, there are still challenges of inflation in the system, an uncertain sales market, but equally a desperate need for housing delivery across the UK,” he says. On the back of this, FEC is considering how to grow its footprint instead of “looking in the rearview mirror” and dealing with legacy issues, as many of its competitors are. The developer is moving to get ahead of wider market recovery, with Matt estimating a six to 18-month opportunity before the typical residential players make their return. “Timing is everything,” he says. Chiu cites “amazing” rental yields in London and Manchester, and the brightening economic picture on the back of falling inflation and predicted interest rate reduction. She goes on to underline FEC’s track record of completing projects in tough interest rate environments as well as during the pandemic. “We can deliver on time and on schedule,” she says, adding that under Gavin’s leadership, more than 1,700 flats have been completed in Manchester earlier than expected. She herself has bought a flat at one of the Manchester projects. “I truly believe in the product,” Chiu says. “We’ve been operating here for 12 years already and we’re going to be here for the long term,” says Matt. “That provides a lot of public sector partners with the comfort that we’re not here today, gone tomorrow, and often we’re investing in and owning assets for the long term, like hotels. A very different proposition to most.” Capitalising on cities There is demonstrable willingness from FEC to put its money where its mouth is, says Gavin. Some £149m has been invested into the Manchester project so far, he adds, and FEC does not expect to break even until 2028. “We are fully committed from a patient capital perspective,” he says. While FEC did not disclose how much it intends to deploy into the UK, Chiu says the business will be cashing in “a few billion” Hong Kong dollars in the short term. Although it has “just signed” MOUs “for a few sites”, it has secured a sustainability-linked loan in Hong Kong with CLP Power, and is imminently completing projects in Canary Wharf and Manchester. In its latest financial update covering the six months ending September 2023, FEC doubled its overall revenue year-on-year to around HKD$6.3bn (£650m). The pre-sale value of its properties under development stood at around HKD$14.1bn. “It’s been a good year for us,” says Chiu. “We [are generating about] HKD$10bn revenue and recycling some non-core assets.” Although the team was coy on specific UK cities, Matt said FEC is looking “far and wide” for expansion. Those locations are characterised by affordability issues and a supply-demand imbalance, he says. He predicts housing numbers will “fall off a cliff in a couple of years”. “There are lots of other locations in addition to London with population growth and a desperate need for housing and similar ambitions to do things at scale, but it’s not easy,” he says. “We have to review a number of different types of opportunities.” Breaking into build-to-rent The developer, which has traditionally taken a build-for-sale approach to residential, intends to focus on multi-tenure, residential-led schemes. To enable this, it is preparing to make its debut in the build-to-rent market in Manchester. The pivot towards BTR has been something of an “unknown” for the business, says Gavin, and a “learning curve” for senior management, but it is one that will pay off for larger schemes. “We’ve got to think of different disposal routes and tenure mixes to create sustainable communities,” he says. “BTR is one of them.” Emulating its hotel business in the UK, FEC aims to adopt its own BTR model and create its own platform. Gavin is staunch in taking “a long-term view” in that, adding it is not in FEC’s interests to “give away” its margin. “We’ll lease, manage and maintain what’s precious to us, because ultimately the customer experience is what matters,” he says. To support its offer, the Manchester team is making hires to create its brand. Matt also points to the scope to develop BTR projects. “We’ve got the wherewithal to potentially undertake delivery, letting, operating those kinds of assets, for the short [to] medium term,” he says. “It’s a time when institutional capital is not being ringfenced for forward funding, BTR opportunities. If anything, it’s quite opportunistic at the moment.” “We’ve got the depth of capital to enable that,” adds Gavin. Favourable market dynamics also outweigh the prospect of “policy inflation” from measures such the removal of stamp duty relief for multiple dwellings, and the new building safety regime. “If you look at the fundamentals in Manchester, rental demand is still absolutely massive,” he says. “There’s massive undersupply in the market. We’ve got to break into it. “Don’t get me wrong, there’ll be policy fluctuations within that and implications thereafter… but the fundamentals are still strong and, ultimately, we’re in it.” Diversification drive FEC’s foray into owning and operating BTR is emblematic of its wider ambition to diversify its portfolio and prove its willingness to get stuck into projects with different densities and complexities. As well as its projects in Manchester, FEC has topped out on its 65-storey tower at Consort Place in Canary Wharf. The team says its numbers in the district have been “quite encouraging”. Residents are set to move in at the end of May. Works are also under way on the c£90m redevelopment of the Grade II listed art deco Hornsey Town Hall in Crouch End, NW8, which will offer 146 flats, a hotel and an arts centre. It aims to provide a hub for local businesses, creatives and TV and theatre productions. “I have a picture of Judge Judy being filmed there in future years,” says Matt. On the hotel side, FEC intends to file plans for a multimillion-pound revamp at the Dorsett Shepherd’s Bush, targeting Q1 2025. Additionally, the wider UK division is exploring different ideas for commercial funding structures. “The cross-section of capability and willingness for types of projects that we can undertake is very different from a traditional developer,” says Matt. “We’ve got the wherewithal, the capability and the competency to look at a broad spectrum of development opportunities at a time when it’s not easy.”