Rental construction is well positioned to weather storm Covid-19, macroeconomic trends boosting investor demand, panel said Property week in the latest RESIcast. The RESIcast series gives you a taste of the topics and issues to be debated during the RESI Congress 2020.
The search for stable, long-term income streams in a low interest rate environment will continue to fuel demand for financing alternative asset classes such as BTR, they said.
Vicky Pryce, board member of the Center for Economics and Business Research (CEBR) think tank, points out that currently, “we have low inflation, very low bond yields and near zero interest rates, therefore housing construction and BTR portfolios will be a very attractive proposition for lenders and institutional investors.
Currently, the yield on 30-year UK government gilts is only 0.74%. By comparison, CBRE – not to be confused with CEBR – estimates blue-chip net returns in the BTR market to range from 3.25% to 4.25%.
According to the global real estate consultancy, UK BTR – or multi-family in American real estate jargon – is expected to be the most resilient asset class.
A report CBRE found that while investments this year are likely to be lower than in 2019, due to challenges posed by Covid-19, levels will return to growth in 2021 and outperform other sectors over the next five years.
Apache Capital Co-Founder and Managing Director Richard Jackson said: âIn the medium to long term, we will see some pretty consistent reallocations among institutional portfolios to residential for rent as an investment class. It is defensive and generates long-term income streams that institutional investors, such as pension funds, badly need to meet their liabilities. “
Together with joint venture partner Moda Living, Apache Capital has secured a Â£ 2.5 billion BTR development pipeline, which will provide 7,500 apartments in key UK cities.
The JV’s flagship BTR program, Angel Gardens, located in Manchester’s NOMA district, has garnered considerable consumer interest despite the pandemic.
âSince the start of Covid-19, we’ve actually ramped up our rentals,â Jackson said. âWhat we experience at Angel Gardens is that people love the ability to work in the privacy of their own home, but also the ability to use an onsite co-working space while still having the ability to work together. ‘use other on-site facilities such as the building’s gym. “
However, this is not to say that the multi-family sector did not have to face its own challenges during the current crisis.
Jason Constable, specialist real estate manager at Barclays, says the structure of development finance is highly customized to fit specific construction programs. For example, different slices of capital will be deployed at different predetermined stages of the construction cycle.
âDuring the lockdown, the sites were closed and the workforce sent home. I have never had to face this kind of situation before. The first thing you think about here is your customers.
Constable says that at Barclays, âthere has been a lot of open and constructive dialogue with our clients and I am very happy to say that we have helped our clients find their way back with the return of their workforce to the site.
In practice, this meant expanding the facilities to accommodate an extended construction program and making various modifications to the debt structures to ensure that the availability of financing for Barclays customers was not hampered.
In 2018, Barclays announced it was partnering with Homes England to provide Â£ 1bn in development finance, with loans between Â£ 5m and Â£ 100m, to help small and medium-sized businesses to develop homes for rent or for sale.
Looking ahead, CEBR’s Pryce believes there is a huge economic case for more BTR housing. âLabor mobility is important, and assets like BTR can help. There is a problem with home ownership because it gets you stuck in places that may decline. The economy is changing and new industries are emerging. We have to make sure that people can get to where the jobs are. “