Greystar, the US property company, has launched a £750m fund to target the UK’s rapidly growing build-to-rent sector, which is attracting institutional investors keen to lock in stable returns in an uncertain political environment.
The company plans to raise the equity from pension funds and insurers. Including debt it could have close to £2bn to invest in build-to-rent schemes — typically large-scale developments of private rented residential property, managed by corporate landlords.
“There’s a huge amount of interest in [build-to-rent] because of its performance as an institutional investment: it generates strong cash flow, and people always need somewhere to live”, said Mark Allnutt a managing director at Greystar.
In the past month, both Goldman Sachs and Legal & General have made substantial commitments into build-to-rent schemes.
Build-to-rent was a sector that barely existed in the UK five years ago, but which is expanding fast, with 125,000 units completed, in construction or planned, according to estate agent JLL.
L&G announced its largest investment into the sector to date: backing a 1,000-home, £500m scheme in Wandsworth, south London. The scheme brought L&G’s build-to-rent portfolio to 5,000 homes, a number it aims to double by next year.
Dan Batterton, L&G’s build-to-rent fund manager, said the appeal for long-term investors was marginally better yields than an inflation-linked bond and, provided they had a large enough portfolio, a consistent cash flow.
Knight Frank expected the average net yield for professionally managed rented UK properties to be 3.9 per cent by 2022.
The sector is also underpinned by a supply deficit of quality rental housing and is resilient to disruption, added Mr Batterton. “You can’t digitise your bed”, he said.
The announcements from L&G and Greystar followed a strong quarter for the sector. Between January and March, £1.04bn was poured into build-to-rent schemes, according to CBRE. That was quadruple the amount invested in the same period a year earlier.
The sector has also attracted a number of big housebuilders, seeking to hedge against turbulence in the private sales market.
Telford Homes announced a long-term investment partnership with M&G and Invesco in March, with a view to increasing its build-to-rent pipeline. An early entrant into the sector, Telford now builds close to half its homes for the rental market. Build-to-rent could be as much as 70-75 per cent of its business in the next few years, according to Jon Di-Stefano, the company’s chief executive.
“Six years ago, when we first started, we were trying to find partners to build products for us,” said Alex Greaves, head of residential investment at M&G Real Estate. Now, the appetite among builders and investors is “a great deal stronger.”