Category Archives: private rented

Aberdeen invests £60m in Stratford PRS tower

Investor Aberdeen Asset Management has bought a 26 storey tower block of 166 let apartments in Stratford, east London. The deal indicates the appetite of long term investors in the private rented sector, and specifically in buying completed, well let developments.

The £60 million deal is part of a commitment from Aberdeen to invest around £500 million in the UK residential market over the next five years. The Stratford block will be held within the group’s Aberdeen Property Trust investment vehicle.

“This is the Fund’s largest investment into the private rented sector and it will provide a strong sustainable income stream to the fund,” said fund manager Gerry Ferguson. “It also helps with further risk reduction which has been one of the hallmarks of the Trust over the ten years which we’ve been managing it, and we anticipate adding more high quality private rented properties in the future.”

The block, originally part of a project named Athena, has an unusual history. It was due to be completed for the 2012 Olympics, before financial problems hit its backers. Only recently has it been completed.

Owned by Aberdeen: 180 Stratford

Owned by Aberdeen: 180 Stratford

Aberdeen already manages around £1.2 billion of residential assets, outside the UK, of which half are still being developed. Ed Crockett, property fund manager, said the investor has a large appetite: “This purchase is part of a wider commitment which Aberdeen has to the private rental sector. The property is in one of the most vibrant and affordable locations in London. The city’s population is growing at a rate most would associate more with an emerging market than a developed one, which is one reason that private residential units are an attractive investment for us.”

“Long term asset managers like Aberdeen are ideal landlords for private residential tenants. They bring the full weight of their experience managing real estates assets to bear on the growing private residential sector, and combine it with the professionalism which our own clients demand.”

Russell Chaplin, Aberdeen’s chief investment officer for property, added: “This is the latest in a line of private residential purchases which Aberdeen has made across Europe on behalf of its clients. The case for the sector to grow, particularly in Europe’s winning cities, is clear with the number of people predicted to rent property set to increase over the coming years. We believe there is plenty of opportunity to grow the amount of assets we own in the years to come.”

The block at 180 Stratford High Street is part of a larger scheme originally named Athena and started by the Irish McFeely group. The developer went bust before the Olympics in 2012, leaving the scheme incomplete. More recently, investor Long Harbour bought the building, completed the development and rebranded it, before letting all the flats over a four month period.

Long Harbour is an asset manager that has around £600 million of money invested across a range of property and infrastructure assets. The company called the deal “part of the natural turnover of Long Harbour’s PRS portfolio” and said it would be investing further in the private rented sector.

More PRS for Olympic village project

Balfour Beatty has signed a £35m investment deal with the London Legacy Development Corporation to develop more new homes around the former Olympic site in Stratford.

Two new neighbourhoods, named East Wick and Sweetwater, will be created over the next eight years, in a joint venture with Places for People. Together, the pair are destined to include 450 affordable homes, 530 units for market sale and 500 private rented sector homes.

There will be a mix of townhouses, mews homes and apartments, while the new settlements will also include a new nursery, library and health centre, with shops and office space. East Wick is to the north west of the former Olympic site, adjacent to the former press centre, which is itself being transformed into a new centre for digital business under the brand Here East. Sweetwater, also on the western side of the park, will be to the south of East Wick.

 

East Wick and Sweetwater will sit to the west of the Olympic Park

East Wick and Sweetwater will sit to the west of the Olympic Park

“This project marks our entry as an investor and developer into the UK’s regeneration and housing sector,” said Leo Quinn, chief executive of Balfour Beatty Group. “This market is growing and offers significant opportunities for the Group in the coming years. I look forward to continuing our strong partnership with the London Legacy Development Corporation to ensure that commitments made as part of the London 2012 Games are delivered. With our partner, Places for People, we are very excited to be able to create these new, vibrant, sustainable communities for East London.”

David Cowans, chief executive at Places for People, said: “With our partner, Balfour Beatty, we have the perfect opportunity to work with LLDC to create a truly unique and exciting place to live. This is exactly what Places for People is about, making great places and ensuring that the true Legacy of 2012 lives on by creating opportunities for the existing communities around the park to share in its success.”

Designs include these funky round towers

Designs include these funky round towers

Designs for the two new settlements have already been prepared. An architectural team includes Studio Egret West, Sheppard Robson, Alison Brooks Architects, ShedKM, Piercy & Co and Astudio.

Rent controls could help PRS develop

As the May general election approaches, attitudes towards the Labour Party’s suggestion that private sector rents should be controlled is starting to receive a wider level of support. And some of that support is coming from new institutional investors in the sector.

In comments reported in the Financial Times, John German of Invesco Real Estate, who is also on the residential committee of the British Property Federation, indicated that some level of control would not cause a problem for institutional investors, who stand poised to invest billions in the UK private rented market.

“There are rent controls and rent controls,” said German. On rent rises he said some upper cap on annual increases, perhaps indexed, “would create exactly the type of investment that a lot of institutions are looking for, which is a linkage to inflation”.

Labour has proposed among its election policies that it would look to introduce rent controls to limit increases; and give tenants greater security of tenure by offering longer tenancy agreements. “The feedback I get from the political parties is that they get the idea residential property is a huge asset class in the UK,” added German. “They see investment by institutions in the UK private rented sector as an ideal way of trying to tackle some of the housing problems in the UK.”

Invesco, already active in other mainland European residential investment markets, has indicated it thinks the UK PRS market is fundamentally attractive with the potential for attractive returns. And the company has already backed developer Be:Here with a £33m investment in its PRS scheme in Hayes with the promise it will support further Be:Here projects with investment.

And writing in the New Statesman, London Labour MP David Lammy argues for a middle line when considering rent controls. “Let me be clear about what I mean when I talk about rent control. I don’t mean the old-school “first generation” rent control that was introduced in the UK during the Great War, which prevents any increase in rents, diminishes investment returns in real-terms over time, and discourages people from becoming landlords. I don’t mean the type of rent control that keeps rents so low that they are not enough to pay for the proper maintenance of a home in a liveable condition. I mean rent controls that nod to the market but allow for the realities of what it is to have a home to live in; the type that are espoused by those who could hardly be called left-wing ideologues, including Angela Merkel and Michael Bloomberg.”

He favours the German system, noting that:
• renters have tenancies with no end date and can only be evicted under a restrictive number of circumstances, such as being behind with rent, or damaging the property
• landlords cover the charges of letting agents (i.e. they get included in rent)
• initial rents cannot be more than 20% above average local rents
• rent rises are capped at 20% over three years
• rents are linked to a commitment from the landlord to retain the property in good condition
He concludes: “Perhaps a system like Germany’s is exactly what London needs to address the uncertainty and unaffordability faced by tenants in our private rented sector.”

Lammy’s linkage with the German market is highly significant. Invesco has already invested more than £100m in housing in that market, effectively declaring itself satisfied with the German system. And German investor Patrizia, which has made a highly successful business out of investing in the German private rented sector, is now looking to create a similar, large scale, operation here.

Lammy further argues that the British supply problem “has more to do with cautious developers, the planning process, and a scarcity of developable land than it does with rent prices.” He argues for conditions to encourage more institutional development, such as concessions on rent controls for new developments. “Rent controls should not apply to any new property built after 1 January 2014. Or maybe they should not apply to the first tenant of any new development; that will have the added benefit of encouraging longer term leases by property developers.”

Concludes Lammy, MP for Tottenham: “Though not a silver bullet that will singlehandedly solve the crisis, we should think about how rent controls – done sensibly – can be part of a comprehensive plan to ensure that all Londoners can afford a home in our city.” The New Statesman article is here.

PRS landlords need to embrace new technology

Developers who want to win in the private rented sector need to embrace the tech revolution. That’s the claim of James Scott, chief operating officer of The Collective.

It’s high time landlords learned from what is around them, to appeal to the growing generation rent audience, says Scott. “Look at other industries, and you’ll see a shift in favour of receiving something as a service rather than owning it: the Boris bike, Netflix…. so why not have your living space as a service – or, as we in the industry call it, rent.”

He also points to developments in the hotel industry, where smartphone apps are now being introduced in place of room keys. At the new Hub by Premier Inn, the group’s compact city centre hotel format, check in is automatic via geotagging, with lights and room temperature controlled by an app. “Gimmicky, one might argue, but it shows an understanding of what their consumer has come to expect.”

PRS provides space, says Scott, and it must deliver more for less, with inclusive services that technology can efficiently manage and share. Property related information to do with deliveries and maintenance, and the settling of bills, should be instantly available, and easy to access. Perhaps, says Scott in the article published in Property Week, new technology will enable space to be used much more efficiently than it is right now.

The Collective is a property development and management company that offers a shared living product designed for young professionals – combining ensuite rooms with shared kitchen and other facilities in their buildings, on leases that are typically 9-12 months long. The company has a portfolio of properties across central London.

Investors queue up to enter Dutch PRS market

Investors are looking to spend a record EUR5.5 billion in the Dutch housing market. In a situation that has echoes of the UK’s newly growing institutional private rented sector, Holland is seeing strong investor interest, while new supply is constrained.

Research published by Dutch analyst Capital Value identifies EUR1.6 billion of capital from Dutch pension funds, more than EUR1 billion from private investors, and EUR3 billion from foreign investors, all looking for property to buy in Holland.

“For the Dutch housing market it is a good thing that, in addition to Dutch investors, there are so many foreign investors that are prepared to purchase rented housing,” said Capital Value managing director Marijn Snijders. “Consequently, more and more foreign banks are expressing an interest in financing housing in the Netherlands.”

“Previous research had already revealed a growing interest on the part of German banks. We are now seeing that banks from other countries are also keen to get a foothold on the Dutch market. This will lead to a more diverse financing market which is a healthy development for the Dutch housing market.”

As in the UK, the sales market is strong, meaning house builders are constructing for private sale and restricting the amount of new homes built for rent. And as in the UK, the shortage of supply against demand for rental housing looks like it will be unresolved for some time to come.

“Never before has so much capital been available for investments in rented housing,” said Capital Value’s Kees van Harten. “Local authorities, investors, the construction sector and corporations have a joint responsibility to ensure that this capital can actually be used. If there is insufficient supply on the market, there will be a risk that investors will start looking for alternative opportunities.”

In a similar way to that being suggested in the UK as a way forward, Capital Value says local authorities have a key role, encouraging developers to include market rent housing in project plans.

Last year’s largest investment transaction in the Dutch housing market saw German investor Patrizia – also lining up for action in the UK rented housing market – spend EUR578m buying a portfolio of homes from Vestia.

Also active was Round Hill Capital, which acquired a series of Dutch housing portfolios through the year. It spent EUR365m in the autumn on a portfolio of 3,786 homes across Holland.

Said Round Hill’s Michael Bickford: “We continue to believe that the housing market in the Netherlands represents an attractive investment opportunity due the positive fundamental backdrop in the Dutch market, together with the stable cash flow of this asset class and our established residential management capabilities.”

Could this level of activity start to take place in the UK? It could, within a couple of years. By the end of 2015, for example, property developer Criterion Capital aims to have up to 3,000 rental apartments under construction, all potentially for sale to a portfolio investor.

New strategy backs PRS growth in Manchester

Manchester City Council has published a strategy to ensure quality in the private rented sector across its metropolitan area. The Manchester Market Rental Strategy aims to promote good practice, and enhance the role of professional bodies in a bid to drive up standards across the sector, as the numbers of private rented properties grows.

The strategy is a positive step in acknowledging that the private rented sector will be of growing importance to the region in providing homes for more residents in coming years.

Importantly, the council’s document makes a positive suggestion around renaming the sector, and aiming to improve communications. It recommends rebadging the sector “market rental” rather than “private rented”, and says better availability of information via the internet will help improve standards.

“The Manchester rental market has boomed in the last few years – particularly in the city centre – and now offers some of the best accommodation in the city,” said councillor Jeff Smith, executive member for housing and regeneration. “For the vast majority of renters this option works well, and we will continue to support and encourage this market to create wider choice and competition which will drive up standards even higher.”

The strategy notes that a small number of properties at the lower end of the market are those that generate most problems and complaints. The strategy suggests the council will intervene to improve the worst properties and neighbourhoods, with a campaign of proactive enforcement against landlords and agents who fail to respond positively.

“We have a message for those unscrupulous and even criminal landlords that deliberately flout the rules and target vulnerable people who have little or no choice,” warned Smith. “We will use all our available combined powers to target your activities, as you are not welcome in Manchester.”

The strategy, developed with support from the Northern Housing Consortium, follows an assessment of the city’s housing needs, which was set out in a council document published last year, the Residential Growth Prospectus. That suggested the city will need 55,000 new homes by 2027. It signalled the development of a quality private rented sector as one of six key principles to help ease supply, stating: “Good-quality, well-managed accommodation to rent makes an important contribution to the city’s housing stock, accounting for over half of all economically active households in the city centre and fringe.”

The council also notes the same problem in Manchester as elsewhere in the UK, with few institutional and professional landlords, and many amateurs. Says the report: “An important characteristic of the national rental market is the very high number of small landlords owning only one or two properties with relatively few large portfolio holding investors. In Manchester, although we do not know the precise numbers, we are confident the position is similar albeit with an increasing number of larger portfolio holders coming to the market in recent months. With such a pattern of diverse ownership there is an obvious challenge in effectively raising awareness of standards, rights and responsibilities across the whole sector.”

London & Quadrant grabs Nine Elms PRS flats

Housing association London & Quadrant is in pole position to purchase the innovative private rented sector part of a larger housing scheme in Nine Elms, London.

The £65m deal will see L&Q take over 114 apartments which are part of house builder Bellway’s redevelopment of the Christies Fine Arts warehouse. The private rented flats were part of a combined project of 510 homes, which includes market homes for sale, and an affordable housing element.

The private rented sector element of the project was accepted by planners as a contribution towards the section 106 benefits of the scheme – see details previously reported here. The project was approved by Wandsworth borough in London, which has set out to take a proactive stance to promote private rented housing, and will review project details accordingly. As a result the tenancies will only be available to renters who have a local connection, while lease periods of up to five years will be offered, to provide security of tenure.

London & Quadrant is one of the few housing associations to have made clear its desire to get into the private rented sector. Last year, the company said it wanted to generate a £1 billion fund to invest in the sector. However, progress has been slower than planned – in 2012, L&Q was quoted in the publication Inside Housing as aiming to assemble a 1,000 strong private rented portfolio within three years.

Fizzy Living picks up £32.4m refinancing

Private rented sector landlord Fizzy Living has agreed a refinancing of its four current projects in its portfolio. Pricoa Mortgage Capital has agreed the £32.4m package that will fund its current live projects, freeing up capital to further grow the business.

The deal shows how strong the demand is from funders, for well let private rented homes. “This portfolio offers a compelling combination of excellent quality assets, good locations and stellar sponsorship,” said Aaron Knight, director of European debt obligations at Pricoa Mortgage Capital. “For the foreseeable future, our appetite for portfolios like this one will exceed the supply and we look forward to seeing more opportunities in this space and to the expansion of our relationship with Fizzy over the coming years.”

Julian Turner, deputy finance director and head of treasury at Fizzy’s parent company Thames Valley Housing, revealed that the deal provides low rate finance over the medium term: “With interest rates at historic lows, this debt funding has been put in place at under 3% over ten years. This is made possible as Fizzy has already established a solid track record and is generating performance that not only satisfies but attracts the senior debt market. Its portfolio is operating at optimum level in a market that is poised for further substantial growth.”

Geeta Nanda, chief executive of TVH, commented, “This is another great first for Fizzy and Thames Valley Housing. Having first shown that PRS is deliverable in the UK, this demonstrates that the strength of the Fizzy model is extremely attractive to equity and third party debt investors alike. We are delighted to have conducted this debt package with Pricoa Mortgage Capital who are a new player in the market, and hope that it will be the beginning of a long term partnership.

It was in March 2014 that Fizzy agreed a £200m funding package from Silver Arrow, part of the Abu Dhabi Investment Authority, to support its expansion. To date, the brand has flats to rent at sites in Poplar, Epsom, Canning Town and Stepney Green.

M&G reveals details of tenant services at Acton PRS project

Long term investor M&G, part of the Prudential group, has revealed more details about the PRS development in Acton where it is backing a build to rent development of 152 flats. M&G has forward funded a development by HUB, with a £43.5m development, previously reported here.

There will be a full-time concierge on hand, space to store bicycles, and long term contracts giving tenants the reassurance they can stay for as long as they want. And there will be a party or function room, that residents can hire if they are having a party, or the family gathering gets too big to be accommodated in their flat.

Victoria Square, Acton, where 152 private rented apartments are being developed

Victoria Square, Acton, where 152 private rented apartments are being developed

“These will be homes for normal working people, not oligarchs,” Alex Greaves of M&G told the Guardian recently. “In a typical buy-to-let the tenant knows the letting agent, but not the owner of the block, and doesn’t know who to call if things go wrong. Our properties will have a single manager, with on-site service. We will have economies of scale that individual buy-to-let investors don’t have. If we can keep the tenants happy we hope they will stay longer and we get lower voids.”

The Guardian also notes that the growth of purpose-designed, build-to-let blocks should also reduce the quantity of new homes grabbed for purchase by small scale, buy-to-let landlords. This should have a positive knock-on effect, reducing price inflation in the housing sales market, and giving first time buyers a greater chance.

With its upcoming Crossrail train connections, Acton is a development hotspot for private rented sector developers. PRS specialist Essential Living recently purchased the Perfume Factory nearby, which has potential for conversion into around 500 flats. Essential Living is expecting to start work on the project in 2016.

Internos aiming to create £2bn private rented housing fund

Internos Global Investors is teaming up with Catalyst For Homes to find ways to attract more institutional money into the private rented sector

The fund manager is already working with C4H on a major investment project, with the target of creating a fund with up to £2 billion in final value. It aims to buy into a mix of private rented and social housing across around 15 sites in the greater London area.

The pair are sizing up sites ahead of construction, aiming to select those most appropriate for institutional investment in long term private rented sector housing. They have set an initial 30 year timeline for the projects, with the aim of satisfying investors who not only look at property, but also hoping to draw in infrastructure and fixed income investors.

“According to Investment Property Forum seminal research in 2014, the UK private rented sector is worth around £837 billion, of which only £18 billion – 2% – is currently in the hands of institutional investors, the vast majority being held by private amateur landlords,” said Andrew Taylor, head of residential investment at Internos. “This compares to the UK commercial property market where more than 56% of the £647 billion estimated value is owned and professionally managed by institutions.”

“This disparity provides a significant opportunity to grow institutional investment with professional management in this previously overlooked market. Couple this with a worrying outlook for global equity and fixed income returns and the UK residential market provides an attractive proposition for risk-averse / return hungry investors.”

Catalyst For Homes was established in 2010 as a community interest vehicle, with a blue chip board that aims to change the way homes in the UK are held by investors. The board includes Clive Bird, formerly of Taylor Woodrow and Berkeley Group, and Adam Sampson, former CEO of housing charity Shelter.

Adam Sampson, executive chair of C4H, added: “The returns from residential investment over the past decade have significantly outperformed comparable markets.  The alliance with Internos provides an opportunity for increased access to this market for investors at the same time as addressing the desperate shortage of affordable housing which affects both individuals and the economic health of the nation.”