It is no surprise that the residential sector is high on most investors’ lists right now. After spending much of the past 18 months inside, we have never been more aware of the importance of our environment and this has made itself known in market activity.
The Avison Young UK Cities Recovery Index shows that the strength of the national housing market recovery in the past nine months has exceeded expectations, while house prices rose at their fastest pace in nearly seven years in May, according to Nationwide. Meanwhile, a fund investing in flats is gearing up for a stock market float to capitalise on the housing boom.
The appeal of such a hot market is clear, but to enter it without risking getting burned takes a more experienced pair of hands. With a growing appetite for the sector both from established investors and new entrants to the market, it is becoming more difficult to sort the wheat from the chaff.
Like many, we are considering opportunities in residential subsectors and Cain’s debt team has recently provided development loans to some interesting products in markets we had not previously explored. However, despite our confidence in this asset class and many of its subsectors, this alone is not going to persuade us to underwrite a loan or an investment and it is crucial to get the fundamentals right through your choice of partner and location.
The crux of any good investment is the ability to look beyond the buzz and smoke screen of the latest trend and dial in on the fundamentals that will stand up to your requirements once the circus has left town.
The strength of a product in this space is in its relevance to the local demographic
I am sure many will remember the initial fanfare that accompanied the acronyms of PRS and BTR into investors’ conversations a few years ago. The reality is that the strength of a product in this space is not in the flashiness of its amenities but in its relevance to the local demographic. To be blunt, not every location has the market to support BTR assets at the scale that is needed for an institutional investor.
This does not mean there is not an investment case for PRS but that you can invest intelligently and lucratively in residential property without going down the popular, headline-grabbing route.
This is why, as a then new firm, we adopted a back-to-basics strategy a few years ago. We focused on markets we knew well, such as private-sale residential, and worked with partners we trusted in cities we believed in.
This approach has proved successful. In the first six weeks of 2021, we completed over $74m (£53.2m) in sales at Missoni Baia and Una Residences, two luxury towers being developed in Miami, with our partner OKO Group.
We always believed in Miami’s potential to be a leading gateway city, but the pandemic fast-tracked our prediction of business and wealth migration to the area. Ultimately, we supplied the right product to the right market with the right partner.
Equally, we recently sold out the luxury penthouse and maisonette collection at Islington Square, with most buyers coming from the local area, and have had strong success in our residential investments in CEE. This is because we identified upcoming areas at an early stage and partnered with local operators who knew how to manage the ins and outs of that specific market.
My advice to anyone looking to enter the red-hot residential market is clear: make sure you like your asset, and your partner, on a rainy day as well.
Daniel Harris is head of European investments at Cain International