It’s not without irony that, 20 years after buy-to-let landlords started making their rented fortunes, UK-based fund managers are finally coming into housing, just as private investors run a mile.
The likes of M&G Real Estate - which originally owned swathes of homes back in 1915 - were the first to come back to the table, in 2013. Other big guns such as Hermes and LaSalle have crept back too, while AXA and Standard Life are presumably thinking about it.
The government’s crackdown on buy-to-let - extra stamp duty and reduced mortgage tax credit - initially seemed to be aimed at corporate investors. But this year’s Budget saw an unexpected U-turn from the chancellor, when he revealed the 3% stamp duty surcharge will also apply to large-scale investors - despite warnings on how it would affect the fledgling build-to-rent sector.
However, the major fund managers don’t seem to be actually building for rent: indeed, many seem to have struggled to deploy capital. Some of the recently announced purchases appear to be residential developments many others have passed over, and cynics might suggest they’ve been bought just to use up the cash.
M&G’s scheme in Acton is one of very few acquired by the big guys actually designed for rent. Does this matter? Possibly not, although there will obviously be benefits, both in terms of gross-to-net yield differentials and tenant retention, if consideration is given to how the building is used.
Companies such as Essential Living have made lots of noise about adding amenity spaces, roof terraces and family play areas to replicate US multi-family living. They no doubt see a premium in the creation of their brand.
Meanwhile, much of the stock bought up recently by M&G and LaSalle is just regular flats for sale. Legal & General, however, seems to be putting its money where its mouth is and actually developing itself - rather than snapping up unsold ‘for sale’ stock.
Does this make any difference though?
The real question over whether these fund managers will fulfil the bluster and promise of build-to-rent won’t lie in whether the roof terrace grows mint or lentils; it will be down to whether someone has thought about how many lifts there need to be and what margin they are paying for management.
The typical approach of the big guns is to hire major agents to manage stock, which gets subcontracted down the chain. But the high staff turnover suffered by many larger agents undermines the strong relationships needed for effective management, and causes breakdowns in communication. So having an enduring relationship with a well-established team will do more to bring down your gross-to-net margins than using a big-name agent that may well pass on the work in any event.
Funds must understand that their assets are more than simply numbers on a spreadsheet. They are buildings people live in, where effective management requires detailed knowledge, long-term planning and appropriate service and care levels. A human-centric approach to management is needed, whereby tenants call their property managers, rather than a switchboard.
Build-to-rent investors talk about the need for a service-driven approach to housing - the same is true for property management.
Julian Goddard is a partner and head of residential at Daniel Watney