Macro-economic environment set to boost investment into BTR

Build-to-rent is in a good position to weather the Covid-19 storm, with macro-economic trends driving investor demand, an expert panel told Property Week in the latest RESICast. The RESIcast series gives you a taste of the topics and issues up for debate during the RESI Convention 2020.

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The search for stable, long-term income streams in a low-interest rate environment will continue to fuel demand for funding alternative asset classes such as BTR, they said.

Vicky Pryce, a board member of the Centre for Economics and Business Research (CEBR) think-tank, points out that currently, “we have low inflation, very low bond yields and interest rates are near zero, so housebuilding and BTR portfolios will be a very attractive proposition to lenders and institutional investors.”

Currently, a 30-year UK Government Gilt yield is just 0.74 percent. In comparison, CBRE - not to be confused with CEBR - reckons prime net yields in the BTR market range from 3.25 percent to 4.25 percent.

According to the global property consultancy, UK BTR - or multifamily in US property jargon - is set to be the most resilient asset class.

A report from CBRE found that although investment this year is likely to be lower than in 2019, as a reflection of challenges posed by Covid-19, levels will return to growth in 2021, and outperform other sectors over the next five years.

Apache Capital’s co-founder and managing director Richard Jackson said: “In the medium to long term, we’ll see fairly consistent reallocations among institutional portfolios towards residential for rent as an investment class. It is defensive and generates long-term income streams that are sorely needed by institutional investors, such as pension funds, to match their liabilities.”

Together with joint venture partner Moda Living, Apache Capital has secured a £2.5bn BTR development pipeline, which will deliver 7,500 apartments in key cities across the UK.

The JV’s flagship BTR scheme Angel Gardens, located in Manchester’s NOMA neighbourhood, has seen considerable interest from consumers despite the pandemic.

“Since Covid-19 began, we’ve actually accelerated our lettings”, Jackson said. “What we’re experiencing at Angel Gardens is that people love the ability to work in the privacy of their own homes but also like the ability to use onsite co-working space while having the ability to use other onsite amenities such as the building’s gym.”

However, this does not go to say that the multifamily sector has not had to deal with its own challenges during the current crisis.

Jason Constable, head of specialist real estate at Barclays, mentions that the structure of development financing is very bespoke to suit specific construction programmes. For example, different tranches of capital will be deployed at different, predetermined stages of the build cycle.

“During lockdown, sites were shut and workforces sent home. I’ve never had to face that kind of situation before. The first thing you think about here is your clients.”

Constable says that at Barclays, “there was a lot of open and constructive dialogue with our clients and I’m very pleased to say we’ve helped our clients navigate their way back through getting their workforces back on site.”

In practice, this meant extending facilities to accommodate a prolonged building programme and making various amendments to debt structures to make sure the availability of financing for Barclays’ clients was not hindered.

In 2018, Barclays announced it was joining forces with Homes England to provide £1bn of development finance, with loans between £5m and £100m, to support small and medium-sized businesses to develop homes for rent or sale.

Looking ahead, CEBR’s Pryce reckons there is a huge economic case for more BTR housing. “Having labour mobility is important, and assets such as BTR can provide this. There is a problem with home-ownership as it gets you stuck in places that may decline. The economy is changing and new industries are arriving. We must ensure people can get to where the jobs are.”