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LNT Construction – Southern expansion

With an impressive 50 care homes clocked up since 2009, LNT Construction has tended to focus on the north of England, which is understandable given that it’s based in Yorkshire. It is now, however, broadening its horizons southwards to capitalise on its extensive experience, particularly as it recently refinanced with Legal & General for £51m – an injection of funding that will allow it to invest further in the growing care home construction sector.

“Many operators and a number of funders in our sector have been encouraging us to develop further south, partially because there was declining interest in assets in the north of the country,” explains Andrew Long, Group Development Director. “There was also a perception that there were better returns on capital to be had by developing in the south-east within London, the Home Counties and into the likes of Oxfordshire and Warwickshire.

“Confidence is definitely returning to the sector and it’s resulting in a fascinating situation. The demographic drivers to care home development have not altered much in the last ten or 15 years but what has changed has been the flow of capital available for people to be able to develop. There was obviously a trough from 2008-2013 but that’s changed significantly in the last 18 months to two years, as confidence levels continue to rise.

“There have been a number of foreign investors that have come into the sector including a number of American real estate investment companies that have extensive experience of healthcare investment in the US and which are now very keen on expansion in the UK. At the same time there’s been a growing awareness in the public arena for the need for good quality elderly care services as a result of changes in the regulatory environment with the Care Quality Commission and the coverage that has been seen in the media.”

With market conditions being so encouraging, LNT Construction’s decision to venture away from its northern heartland is well timed. It is now building in the likes of Aylesbury and Peterborough, whilst it also has sites secured in Northampton, Bedford and Andover. In addition it is looking at opportunities in Croydon, Reading and the Cambridgeshire area.

“As the economy has picked up there has been an in-flow of new investment into the care home market, which has also helped to pave the way for our expansion south,” adds Mr Long. “Our prior experience within the sector, both in terms of developing sites for third parties and for our sister care home operating company, Ideal Care Homes, has been vital as it means that we have a clearly defined track record. The consistent delivery of our construction model has therefore helped to generate significant traction with new operators coming into the marketplace because they can see that our formula works so well. This has further endorsed their interest in ourselves moving into more southern areas.”

Never one to do things by halves, as well as moving south LNT Construction is also busy rolling out its Turn of Key Plus model for operators looking for an ‘off the peg’ care home to be developed for them, an offer that is growing in popularity as others look to tap into the company’s knowledge base. “The concept has been developed over two years and we’ve internally called it ‘Turn of Key Plus’ because we’re providing a bit more on top of what we normally have within our turn of key offering. We’re now in the process of formulating our marketing material directly around the ‘Turn of Key Plus’ service and package in order to maximise its potential in what is a growing marketplace.”

Other operators that have benefitted from LNT Construction’s expertise include Highpoint Care, which purchased its development at Colliers Croft in Haydock; Acacia Care, which bought Acorn House at Carrington; and more recently Britto Health Care, which purchased Ward Green Lodge in Barnsley. Despite the growing number of assets it is developing for other operators LNT Construction’s development of Larkhill Hall in Liverpool has remained within the wider LNT Group under the auspices of Ideal Care Homes.

“As a consequence of our model being successfully proven in the north of the country, our decision to move south has attracted the attention of a growing number of third party operators in that area of the country. For example, we already have a working relationship with Anchor and we’re building on two schemes for them with a third soon to be added and potentially a fourth. We’ve also got a number of new emerging operators that we’ve been able to assist directly in becoming fully operational and are moving forward with their businesses.

“We have the resources and the infrastructure to fully set up the marketing programme for the lead-in towards the opening of a care home and beyond. This includes everything from recruiting staff, appointing the manager and building the team around them, through to developing the necessary training processes. We can also assist in the commissioning of the care home looking after the application for Care Quality Commission registration and everything it entails, such as establishing all the required policies and procedures, as well as developing any operational and training manuals that are needed.

“Our offering is unique as we have the full range of expertise in-house, which enables us to be truly efficient and customer focused. Our professional team consists of land buyers, CAD technicians, structural engineers, town planners, M&E design engineers, interior and landscape designers, quantity surveyors, site managers, professional buyers and even in-house M&E installation specialists.”

It’s not just operational expertise LNT Construction can provide to operators in order to get their business going as it can also offer assistance in securing funding. “Lenders have been particularly attracted to the model because it enables them to make a very clear and secure decision around that new operator having the combined support of LNT Construction and Ideal Care Homes. It’s a very attractive model because they’re not just given the keys to a ‘dry’ building that happens to have some furniture and equipment in it and told to get on with it. They are actually buying into something that is completely fitted out and geared up with a level of business assistance to enable them to start trading it properly from Day One. This is a big differential between us as a developer of turn of key care homes and others that also build care homes for clients.”

Further underlining the demand for LNT Construction’s services, it has just handed over two schemes to new operators and has added two more recently with another scheduled to commence in early 2015. “Following that we’re on the cusp of entering into a funding agreement that will give us in excess of £25m in the first year to be able to roll-out our care home development expansion,” highlights Mr Long. “Our Chairman, Lawrence Tomlinson, wants to steer the business back to the levels we were at in 2009-2010 in terms of around 18 sites per annum on a construction basis. There’s certainly the appetite to be able to do that and there’s strong indication from third party customers that they like the product and the ease in which they can take it ‘off the shelf’ and integrate it into their own expansion programmes, whether they’re building sites themselves or acquiring them. The ability to add one, two or three assets quite quickly into their portfolio is of huge assistance to them.

“Our track record and the fact that we’ve successfully operated care homes for a number of years instils a significant amount of confidence in those companies that approach us to develop sites for them. We can demonstrate that the assets operate successfully, that we’ve thought them through and fully planned them. Our operational business has been able to inform the construction business as to what it requires in design terms, layout and spatial requirements. The construction team have then been able to carry out additional work around new colour schemes working with advice from Stirling University. They have applied new technology in terms of lux levels to get the lighting levels appropriate.

“There are a number of features that are gradually being developed into the buildings to improve them all the time. We learn a little bit from other providers when we’re engaging with them on a particular transaction so we can better understand what their requirements are. For Anchor, for example, one of their requirements was for the installation of sprinkler systems into their care homes, which we’re now doing for them. It may well now become a standard feature for a number of our developments in the south of England.”

Even though it has continually shown that its care homes work well, LNT Construction has also built in an element of flexibility into its model. “We’ll always look to apply the principles of our design and our set piece schemes but where we can modify them without substantially changing the structure and ‘breaking’ the scheme fundamentally then we’ll work with the client to do so,” says Mr Long. “In response to demand in the southern part of the country, where a number of operators are wanting to appeal to higher fee-paying clients and more private fee-paying clients, it’s not uncommon to be looking at larger bedrooms. As a consequence we’ve developed two of our models with 16 sq m rooms plus the en suite facility, as opposed to the standard 13.4 sq m room that we currently build. Interestingly, as we’ve unveiled this option to prospective buyers, some of them have opted for the larger roomed option, whereas others have expressed their willingness to stick with the original smaller-roomed model because they’ve seen how well designed, how well furbished and how well thought out it is. Size isn’t everything.”

Whilst the core of its model remains unchanged in the main, one area that LNT Construction is always keen to move forward with is sustainability. “This is an area that we continue to look at. All of our developments have ground source heat pump facilities and photovoltaic cells, which augment the hot water system. We’ll also shortly be installing solar panels that will be tariff-driven into the electricity system so we’ve become more sustainable. As we’ve had experience of operating the homes with those systems ourselves, the work we have done so far in assessing the billing would suggest that on average a home with the full energy package is costing around 35 per cent of a home that operates on a traditional energy package. This represents a massive saving.”

Even with the growing potential surrounding the increasing demand for the type of offering that LNT Construction can offer, there remain challenges that it has to contend with, particularly in terms of finding land in an increasingly competitive marketplace. “We’re obviously competing with residential housing developers, particularly in the south of England, that have probably had something of a head start as a result of some of the incentives that have been put in by the government from a funding point of view. In addition, their strategic way of running their businesses has meant that traditionally they land bank so a number of house builders have been land-banking during a period of time and are now developing out that resource. Where they do have parcels of land that are being released for care home development they’re doing so into a rising market that is becoming much more competitive. This is one challenge, albeit not insurmountable, and we’re working with a number of residential developers having built some really good relationships with them.

“A care home coming into a residential development can sometimes help offset the affordable housing element that the developer may need to be signing up to. It also has the additional benefits of bringing a community use into a new neighbourhood that might be being developed and creating jobs as well.

“Planning is another challenge we face and even with the overtures at government level around streamlining the planning process we don’t actually see that happening yet. Despite the experience we have in developing care homes, and the tried and tested design that we have come up with, we often still have to work hard to convince planners that a care home is a place for people to live in and it’s not necessarily about what it looks like aesthetically on the outside. That’s not to say that our buildings are unattractive, but you can’t always arrange a care home in such a way that it suits the externals of a particular scheme because if you fundamentally alter its shape by definition you are changing the interior environment and how that works and flows for the delivery of the care service. With the restrictions that are in place we just have to roll with it and we put the effort into explaining why our set piece designs work in the way they do the to the extent that we can engage with planning departments. We’ll even bring our operational team in to help them understand that and sometimes draw in a local authority’s social service team to help their planning team to understand where we’re coming from.”

Even with the planning and competition-shaped hurdles it is facing, with the momentum it has been building up as it marches further south, LNT Construction looks well placed to take them in its stride as it gears up for a promising year ahead. “Within the next 12 months I’d like to think we’ll be developing between 12 and 15 sites, and that we’ll have consolidated our position as the leading developer of purpose-built care homes in the UK,” concludes Mr Long.

With its experience, efficiency of operation and its track record for its consistency and quality of delivery, coupled with the optimum market conditions that are currently being seen, LNT Construction is certainly well set to continue building its name in the care home sector on a more nationwide-scale.