It had been mooted as the biggest transaction yet in Britain’s nascent build-to-rent sector. Yet regrettably for a consortium of institutional investors from Canada, Holland and the Middle East a proposed £2.1bn acquisition of Quintain and its Wembley regeneration project was not to be, according to David Hatcher’s latest EGi exclusive on this saga.
The mammoth 85-acre Wembley scheme is notable for its heavy-focus on rented housing with more than 5,000 apartments in the pipeline. Build-to-rent, referring to the market for building clusters of rented apartments funded by single owners, is still in its early days. Professionally run schemes have the ability to get rid of many of the consumer gripes facing the vast majority of tenants in dodgy buy-to-let homes. Most buy-to-let landlords own only one house and keeping these rental homes dry and avoiding tenants being scammed or ripped-off has proven a headache for policymakers who have a terrible record in regulating anything.
Getting pension fund cash – new money, on top of housebuilders and housing associations – to build higher quality homes is a win-win for everyone. Institutions need somewhere to park funds and for a government which has staked its reputation on building homes, having people turn up at the gates waving such sizeable chequebooks about is a rarity. Better still, many of these purpose-built rental buildings come with a plethora of shared spaces. While they typically cost more, an increasing number of people see this as great value when you consider the annual loss of productivity from staying at home waiting for BT Openreach to connect your wi-fi or British Gas to install a smart-meter.
While the sector is gradually impressing consumers, has the falling through of this deal damaged the reputation of build-to-rent for investors? We would argue “no” for various reasons.
Firstly, as Blackstock Consulting outlined in ‘Funding Britain’s Rental Revolution’, a report that we wrote and promoted for Addleshaw Goddard and the British Property Federation a couple of years back, appetite from investors is huge (contact us for a free copy). The Wembley deal – successful or not – has totally proved that point. APG, Delancey, Oxford Properties and Qatari Diar are some of the biggest players in the market. As Alex Peace writes in his analysis, their presence is telling.
It will spur confidence at the array of North American investors planning on joining those already active in the market. Essential Living’s platform, including Vantage Point, is fully-let with its landmark Greenwich scheme approaching completion.
With Far East investors – including numerous Japanese institutions – also on the hunt for investments outside home turf, it will surely not be long before other investors – who are comfortable investing huge sums in UK student housing – widen their net accordingly.
One of the questions in the market that remains is whether build-to-rent as a sector is investible. Is it too bitty? Too small-fry for investors, such as those from Hong Kong or South Korea, who need to deploy hundreds – not tens – of millions in one go? The answer is yes and the principle reason is that, with political volatility and carnage occurring in retail, and with billions wiped off the share prices of firms in any adjoining sectors Amazon even glances at, investors need a greater array of defensive assets.
Housing is the ultimate defensive investment at a time where traditional asset classes show no signs of returning to pre-GFC form.
Questions were clearly raised around the Quintain deal about how sustainable rent levels would be with so many homes being built and brought to the market quickly. Wembley too is a very price-sensitive area – known mostly for the football stadium and conference centre. Efforts to infuse a sense of destination are moving swiftly forward, but many will have raised concerns about the level of rental uplift being underwritten here at a time when wages remain largely flat.
With huge swathes of new apartments coming to the market in more central locations, prices will be under pressure. That is why operators like Moda are pressing hard on developing key USPs, not just around amenity but in the culture and services they provide. One such USP is its wellbeing focus unveiled this week, as Moda announced its partnership with digital wellness entrepreneurs hero, set-up by former WeWork UK boss Joe Gaunt.
Due to its scale (or rather, the fact that its scale was all in a single location), you cannot compare the Quintain deal to a typical build-to-rent opportunity. At the bigger end, most would top out at around 500 units – with Moda alongside Apache Capital leading the charge with super-sized schemes in places like Manchester, Liverpool, Birmingham and most recently Brighton and Hove, as reported by Property Week. Typical schemes tend to number somewhere around 250 homes which is enough to sustain shared services but not too much that any site becomes unlettable.
EG reported on Tuesday that Lone Star was holding out for £2.25bn and carried a quote from an unnamed spokesman for the private equity giant, saying: “Following a review of options at Quintain, we have taken the decision to conclude recent discussions around a sale. Quintain is a unique, well-funded asset, and has Lone Star’s full support and commitment as it progresses its plans to fulfil its potential as one of London’s most exciting development projects.”
If we look west, these sorts of numbers are dwarfed by deals done over in the States.
A year ago Monogram Residential Trust was acquired by Greystar for approximately $4.4 billion (£3.38bn at today’s exchange rate), including the PGGM JV and debt assumed or refinanced, according to a company press release.
While this kind of scale remains in the distance for Britain, it’s an inevitability more than a vague possibility.
For more about the financing of build-to-rent, listen to our podcast with Apache Capital’s Richard Jackson, Alex Notay of Places for People, and Graham Chilvers from Barclays!