The company acquires properties and refurbishes them gradually, in line with natural tenant turnover points. “When an apartment becomes vacant, we renovate it completely,” explains CEO Ulf Nilsson. “We alter the layout, rewire the electrics, change the heating system, and install a new bathroom and kitchen, complete with washing machine, dishwasher and stone worktops. We rip out and renew everything; only the original concrete is left. This enables us to increase the rent by up to 45%, and the value of the property increases by twice the investment cost.”
Carnegie does not only focus on the inside of its properties. The exterior aspects, including staircases, windows, balconies, roofs, and laundry facilities are also refurbished.
“When we are done with a building, it is like new, both inside and outside,” adds Mr. Nilsson. “When we acquire a property, both the net operating income (NOI) and rental revenues are low. We buy them cheaply and invest, and the value increases over time.”
Carnegie’s success is due, in part, to the way the company has effectively industrialized the renovation process. It owns and manages a huge number of very similar properties – up to 2,000 apartments in each area – and each renovation is more or less identical, using the same suppliers and materials.
This enables Carnegie to leverage significant economies of scale and undertake good quality yet cost efficient refurbishments. When the renovations are complete, the company sets the same of rent levels for equivalent properties across its portfolio.
The company’s properties are largely located in the suburbs of Stockholm. Following completion of the purchase of 1,700 new apartments in three different areas in May 2017, Carnegie now owns over 18,000 properties. In 2016, it renovated 1,253 dwellings.
“We focus on properties in the suburbs rather than the city,” stresses Mr. Nilsson. “Most were built between 1965 and 1975 and are in good locations. These are attractive areas where property prices continue to climb. This means that our portfolio constantly grows in value and profitability and is therefore sustainable.”
Having created a successful formula for the housing renovations, Carnegie is now looking to build on its success by taking a more holistic view of the living environment it provides to its tenants.
“We want to look at the surroundings – the parks, local sports clubs for youngsters and other social projects. Our aim is to create safe and attractive neighbourhoods,” reveals the CEO. “Our ultimate goal is to generate a sense of social responsibility within the community, something like a neighbourhood watch. We already support residents with facilities where they can meet and get to know each other. We have recently appointed a number of safety hosts; often these are immigrants who speak Arabic and can talk to young people and encourage respect for each other. In the summer, when the schools are closed, we hire students for simple jobs like cleaning and planting flowers. We try to engender a sense of pride and responsibility for the local environment, and create an area where people want to live.”
Stockholm currently has a waiting list of 500,000 for rental properties; in 2016 only 12,000 were able to secure accommodation. Carnegie is aiming to acquire up to 2,000 properties per year; when new tenants are required, it needs look no further than the public waiting list, helping to alleviate the housing crisis while maximizing profits by ensuring its properties are never empty.
The Carnegie name is an old, respected brand, which has existed in many guises since its foundation in 1803, and has operated as a property developer since 2013. It became a listed company in 2015 and is a member of various property indexes.
Mr. Nilsson attributes Carnegie’s success to a successful strategy, and a little luck. “We simply had the right idea at the right time,” he says. “We had a good business model from the start, and, fortunately, property values have continued to increase while interest rates have remained low. Our aim for the next five years is to continue to grow, and to complete the total refurbishment of some sites. We want to show that our approach really works. These are areas which must be turned into more attractive and safer places for everyone.”