Urban Regeneration and the Strategic Role of the Built to Rent

  • 18 Jul 2023
  • by
  • Andrea Beltratti (Full Professor Department of Finance, Bocconi University) and Alessia Bezzecchi (Associate Professor of Practice Corporate Finance and Real Estate, SDA Bocconi School of Management)

Can Build- to-Rent (BtR) emerge as a new asset class for the Italian market? Our answer is positive: several characteristics make BtR a solution to relevant problems that are also a source of public concern, among which we highlight two.

First, the Italian demand for housing on the part of individuals, households, students, elderly people far exceeds supply with a stock of houses that is technologically old and energy-intensive.

Second, total demand requires more customer-specific solutions in terms of available services (e.g. students have different needs than elderly people), length of contracts (e.g. to satisfy workers flexibility), cost (in many urban centers the cost of buying is above financial possibilities of several categories e.g. young people).

Our study, presented on July 18th at Bocconi University, has been conducted for Lendlease with the goal of analyzing and quantifying the impacts of the new Build-to-Rent model in Italy. We show that BtR not only is an excellent option to satisfy the needs arising from several categories of users but also produces positive externalities from economic, environmental and social points of view. BtR produces important benefits for the direct users, for local communities and for the public budget. Differently from other international markets, BtR is not formally and uniquely recognized from administrative and fiscal points of view but represents an interesting options for public housing policies together with affordable housing, social housing, student housing.

Lendlease international experience, as recently testified by Elephant Park in London and Clippership Wharf in Boston, has suggested that BtR may generate sustainable value for the Italian economy, satisfying emerging needs in an inclusive and sustainable way. The new asset class will be experimented in Italy in the context of two urban regeneration projects developed by Lendlease: Milano Innovation District (MIND) and Milano Santa Giulia (MSG). The new projects may meet new demand with products characterized by excellence in terms of building and architectural quality, energy efficiency and varieties of services available to the users.

The study “Build to Rent 4 Sustainable Real Estate” (BTR4SRE) analyzes and quantifies the generation of economic, environmental and social values also accounting for direct, indirect and induced effects under the assumption of a thirty-year management period. The study performs a comparative analysis of MIND and MSG across two scenarios involving phases of development and rent: Built-to-Rent As Is, based on the current administrative and fiscal rules and a minimal set of services offered to users, and Build-to-Rent To be, with a new set of rules inspired by the best international practices.  In both scenarios the developer uses the best qualitative standards for the built environments, energy use and environmental impact. What distinguishes the BtR model from other models like Build-to-Sell, is the presence of a professional player with a particular skill in the management of residential real estate assets that, with the best certificates and standards and a long time horizon (at least thirty years), provides services to people, buildings and the community as a whole (for example maintenance and services for buildings, baby-sitting service, gym, schools and co-working spaces), in the context of a “real estate as a service” model. A model allowing for a good quality of living by paying attention to the needs of the final user and able to respond to the changing needs in terms of space and flexibility over the life-cycle.

The study shows that the BtR model, especially on a long term management period, generates significant advantages as measured by a cost-benefit analysis that extends standard economic effects and measures environmental and social effects in monetary terms. From an environmental point of view, benefits derive not only from energy efficiency and building quality but also from the overall design of the regeneration project that balance in the best way living and working needs: according to the research, 22% of positive externalities are due to energy efficiency, sustainable mobility and reduction in the amounts of pollutants.

From an economic point of view, public accounts  benefit (about €260 per person per year) from extra revenues, associated with improvements in the levels of production, employment, improved traceability of money flows.

The BtR model generates positive externalities for the benefit of all people living in the new districts and for the country as a whole.  A new model that could open important development possibilities, with a new asset class  producing relevant benefits on the Italian public budget.