Tag Archives: M&G

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.

M&G makes £43.5m private rented forward funding commitment

Investor M&G Real Estate has confirmed it has forward funded a £43.5 million development of flats for the private rented market, at a site in west London. It has backed developer HUB which will create 152 private rental homes in Acton.

The project will be held within a strategic fund being developed by M&G which kicked off in 2013 with the purchase of a portfolio of properties from Berkeley Homes. The challenge of finding suitable large scale private rental projects to invest in has led M&G to put funds into what might, in other property sectors, be considered a speculative development. However, such is the demand for private rented homes, there is minimal risk on the project, which is likely to let fully at market rents the moment it is completed.

“With this deal now complete, we are looking for more opportunities to fund mid-market developments via our fully scalable UK residential strategy,” said M&G’s Alex Greaves. “Hopefully deals like this will encourage more institutional investment into the sector and bring forward much needed housing stock.”  It is understood the Acton project took around nine months to complete, so it is more than likely M&G has other investments in its project pipeline.

“For far too long, renting has been seen as a stepping stone to home ownership and, at times, a backward step,” said Greaves. “These 152 built-for-purpose rental homes are a clear statement that renting can be the tenure of choice for an upwardly mobile workforce who require the flexibility of renting, but who also want high quality service and support, to feel abut to lay down roots and settle for longer should they wish.”

The Victoria Square scheme will include a mix of one, two and three bed apartments in a scheme designed by Newground Architects, which is part of a wider regeneration scheme being supported by Ealing council.


Pension funds begin move into PRS after a slow start

Dithering insurance companies have already missed out on some of the cream in the London residential rented sector. That’s the accusation from Peter Bill, property columnist in the London Standard, after he pored over the week’s 2013 results from housing developer Berkeley Homes.

Bill notes that Berkeley started the year with 729 rental homes on its books, and has subsequently sold 675 of them, for a profit of £40 million. [For some residential developers, newly completed units were held back for rental where they proved difficult to sell, at a price that would book a profit; the legacy of overpaying for development land in the boom times]

Of the total sold, 534 were apparently sold to M&G Investments, which paid Berkeley £105 million for the portfolio in June 2013. The deal would have booked Berkeley close to £30 million in profit.

“That profit could have been gifted to policyholders, if M&G had acted a few years ago,” says Bill.

However, insurance companies remain inherently risk averse, and with good reason – they’re looking after your pension pot. Anne Kavanagh, global head of asset management at AXA Real Estate, told an audience at last week’s London Real Estate Forum that her company was happy to invest in all sorts of real estate, and will lend to others in order that they can do so. But they absolutely will not lend on development projects – it’s still considered too risky.

However, M&G is now clearly playing catch-up, and has decided the private rented sector is something worth investing in. A report from Property Week suggests the company is about to agree the £45 million forward funding of a 152 rental apartment scheme in North Action. The Victoria Square development is being put together by Hub Residential and features 16 and 10 storey towers. Both this project, and the Berkeley properties, are being held within a UK Residential Fund, into which M&G intends to add further mid-market properties.

M&G invests in Holland housing as Dutch investors look to UK PRS market

Investor M&G has committed EUR110 million of mortgage finance to back the acquisition of a Dutch portfolio of 1,250 homes, including rental flats in Amsterdam. Yet the deal comes after the investment manager recently suggested investment activity was likely to be in the other direction, as Dutch residential investors eye up opportunities in the UK market.

The Dutch deal sees M&G providing 10 year funding for the portfolio of homes in Dutch cities, as well as a few commercial properties. The homes are located in housing apartment complexes in Amsterdam, Groningen, Heerenveen and Rotterdam. Unusually, the deal gives the borrower a combination of fixed rate and floating rate finance, a more flexible arrangement than that generally offered by Dutch banks.

“The Dutch market, both in the commercial as in the residential area, has had a difficult period and fundamental problems but, for investors such as M&G with good resources and client capital to deploy, there will always be relative value opportunities,” said M&G’s head of senior mortgages Paul Dittmann.

“We have been and still are a large lender to residential portfolios in the UK and Germany, and the asset class is well suited to our investor base. The Dutch market has its own particularities, including a high level of regulation in both the rental market and owner occupier market, but on the whole this was an appealing investment for us.”

The deal is a contrast to market comments from colleagues at M&G who last month suggested it is likely Dutch investors will shortly plough into the UK private rented sector market, where a “perfect storm” is inviting them to take an interest. “Shifting demographics, relatively low levels of construction and landlord-friendly UK regulations are trends that will continue to boost the UK rented sector for the foreseeable future,” said Stefan Cornelissen, head of institutional business development for Benelux and the Nordics at M&G Investments. “Such factors are luring Dutch and other international investors to the UK.”

For the Dutch, the UK market also contrasts with their own home situation, where renting is in decline, with the PRS sector representing 10% of all households, against 17% in the UK. “This suggests that in terms of the number of dwellings in the PRS, England alone is more than three times the size of the Netherlands,” said Alex Greaves, residential property fund manager at M&G.

The Dutch market has also seen good supply of new homes, with almost 10% added to the national stock of homes in a decade, moving ahead of household growth. In contrast, the UK continues to see a shortage of housing, largely due to the inability of politicians to ease the country’s planning system to meet demand.

Rental returns attract M&G, but others missing out

Investors standing on the side and looking at residential rental property will find “their concerns are well-founded, but they are also often overdone”. That’s the view of Alex Greaves, a fund manager at M&G Real Estate, who is keen to spread the word about the sector, which he is currently investing in.

M&G is acquiring build to rent housing across the UK, and in an opinion piece published recently by Property Week, Greaves says many institutional investors are missing out, prejudiced by outdated thinking. They “fret about residential’s higher operating and management costs, as well as the shorter leases,” he says.

But ignoring the private rented sector means missing out on a positive story. Recent figures from the Investment Property Databank show residential rental property returned a total 14.7% return in 2013, with a six year performance of 10.7% beating such alternative investments as commercial property and government bonds.

Greaves notes the following positives:
the average renter stays in their home for three years
the private rented sector has doubled in a decade, to 4 million households
operating costs in the PRS have fallen by 20% in the past three years
voids, reletting and repairs are easier if you own the whole block.

And there are considerable economies of scale that kick in, such as hiring a direct maintenance team, buying fittings and hardware in bulk, and customising the design to suit renters. Energy efficiency measures start to pay back for both landlord and resident, and M&G has already seen the benefit of such measures across its retail investments; experience it is keen to migrate to the residential sector.

You can also then add in items that make your offering considerably more attractive to tenants, such as communal facilities, cycle storage, help with moving in and so on. Greaves reckons these start to work, once you have at least £1.75m of rental income a year.

The consequences of these actions can then lead to a virtuous circle. Rather than moaning about costs or slow attention to problems, residents are happy – they stay longer (reducing voids) and recommend the landlord to their friends and colleagues. Word of mouth recommendation is a valuable asset, and in short supply currently in the private rented market.