Real Estate

The big company landlords trying to impress tenants


At 27, Julia, a product manager at a US tech company, had already experienced the “mixed bag” of London’s chaotic market for rented homes, from neglectful landlords to nightmare neighbours.

So when she and her partner were looking to rent a place together last year, the native New Yorker started searching for a different type of home: a development owned and managed by a big company, rather than the individual landlords that dominate the UK market.

“It’s a concept I am already familiar with, so I explicitly sought out corporate rentals,” Julia said. She and her boyfriend now live in Wembley Park, north-west London, in a vast complex of rented homes under development by Quintain, a property company owned by the US private equity group Lone Star.

Perhaps surprisingly, she feels her new landlord has particular strengths in terms of offering a personal service. “The benefit of a company is that there is a whole group of people who can help when things go wrong. You can tell the operations manager lives and breathes this development. If you have noisy neighbours or whatever, the company cares about that because they care about the community as a whole.”

Julia, who asked that her full name not be used, is part of a global trend led by her home country, whereby individual investors with single properties or small portfolios are being supplanted as landlords by global companies, pension funds or big family offices.

The shift has been fuelled by populations moving into cities. In the US, the rate of urban population growth outpaced the suburbs in 2011 for the first time in nearly a century. This has pushed up house prices to the point where they are unaffordable for many, creating ballooning demand for rented homes.

At the same time, professional investors are hunting for assets that can generate steady incomes over many decades.

In the US, bulk ownership of apartments has been common since the 1970s, but the twin forces of urbanisation and the search for income have fuelled fast expansion in recent years; in the year to June some $34bn of units changed hands, according to CBRE, and 276,000 new homes were completed. The US “multi-family” market — made up of apartment buildings — is now worth an estimated $3.3tn, according to the National Multifamily Housing Council.

The rest of the world is catching up. Germany privatised much of its municipal housing in the 2000s, creating a rented sector largely owned by listed groups. In Ireland, the financial crisis pushed large portfolios of housing into corporate hands.

But in other countries, international investors in search of big housing developments have been forced to build them from scratch. Hence the development where Julia lives, which will eventually contain 5,000 homes for rent.

In London, demand for land and blocks of flats has risen so much that the net initial yields that investors will accept from apartment blocks in London’s zone 2, just outside the city centre, have reached a slim 3.5 per cent, says Richard Berridge, investment director at MLH Investments.

Another provider, Greystar, the largest apartment operator in the US, is rapidly expanding its international operations. Wes Fuller, who runs the company’s European business, says it targets major cities rather than particular countries.

In the past two years, Greystar has moved into Paris, Barcelona, Madrid, Berlin, Frankfurt and Vienna; in Asia Pacific, it has begun operating in Shanghai, Sydney, Melbourne and Tokyo, while it has also opened a new office in Santiago, Chile in South America. Its London operation includes a development of almost 2,000 homes in Greenford, on the city’s outskirts.

As the sector develops in each country, private equity groups, or other investors seeking private equity-type returns, often feature heavily among the early purchasers and developers. They aim for rapid capital uplift as they develop or renovate properties. Pension funds, insurance companies or listed funds then move in once the properties become income-generating investments.

In Germany, the early phase of privatised housing was characterised by tenant protests as companies underinvested in the properties. Even Vonovia, the country’s largest residential landlord, acknowledges on its website a period when big landlords had a “locust image” because of “serious housing defects, which resulted in persistent and reputation-damaging complaints by tenants”. In the US, a report by the Federal Reserve Bank of Atlanta in 2016 found that corporate landlords, especially those from the private equity sector, had high eviction rates.

However, Berridge argues that the UK’s new corporate landlords are keen to impress tenants, if only so that they can boast of low tenant turnover when they sell on their assets. “What they’re looking for is consumer satisfaction, to ensure people are happy and well looked-after so they stay longer. To achieve a really high occupancy and low rate of churn, management has to be exemplary.”

Fuller believes the growth in rented properties is down to changes in lifestyles, not just necessity, as digital services shift people from owning goods to hiring them: “Rental housing is part of the sharing economy like Uber or Airbnb, where people are choosing the rental option over ownership.”

That is not true for all tenants, however: a Knight Frank survey of UK tenants last year found more than 60 per cent were renting for reasons related to the high cost of buying a home. However, 21 per cent were renting because it enabled them to live in a more expensive area than those where they could afford to buy, while 8 per cent did not want the responsibility of owning a home and 5 per cent valued being able to move easily.

At the extreme end of this lifestyle shift are upmarket “co-living” developments such as London’s The Collective and WeWork’s WeLive service, which combine small individual rooms with extensive communal spaces and an emphasis on socialising. The Collective even boasts a “disco launderette”.

But such spaces can face their own challenges, says Berridge: their tenants tend to be younger and more transient, increasing the workload burden for management. Other rented housing operators, however, say their developments attract a mix of tenants. Julia, the Wembley tenant, says her building contains extended families with children who have rented more than one apartment.

As for Julia herself, she does aim someday to buy a home, “but I’m not ready for that — I don’t know where or what size”. For now, she is delighted with the one-bedroom flat she and her partner share. They pay a premium price for the local area — one-bedroom flats in the Quintain buildings are listed on Zoopla for about £1,830 a month — but this includes utilities such as broadband. Julia believes the higher cost is worth it for the facilities, which include a rooftop garden, gym and communal lounge; the administrative simplicity of a building where everything is handled centrally; and the social life.

“They have a quiz night, a board game night, trips to the [concert and events venue] SSE arena. You meet all sorts of folks.”



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.