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Legal & General is planning to invest £1 billion in the private rental sector
UK insurer Legal & General is planning to invest as much as £1 billion in the private rented housing sector in the UK and has inked its inaugural deal in the market, acquiring a site in north east London.
He added: “You have to have the capability and confidence to build it and if you spend enough time thinking about that I think the rewards are sufficient to merit any risk that you’re taking.”
In London, Hughes said sourcing deals is more difficult in the central zones, but more affordable in zones three and four.
In another example of institutional investors entering the market, Hermes Real Estate, which is owned by the BT Pension Scheme, last year launched a residential investment fund with property estate agency Countrywide.
Chris Taylor chief executive of Hermes Real Estate, said: “The Achilles heel [for viable investments in the rental sector] is the operator and I firmly believe that with Countrywide we’ve found the operator. There are barriers to entry to do what we’re doing here.”
The firm began investing in the sector earlier this year and has invested about £50 million to date. Taylor says the firm could invest upwards of a £1 billion long term.
Legal & General Capital, which oversees investments for Legal & General’s annuity, protection and savings units, has acquired a site in Walthamstow for £25 million. It plans to build 300 one, two and three-bedroom rental flats on the site, which is among the largest private rented sector projects in the UK.
The firm’s official entry into the sector marks the latest move by institutional investors in the UK to amass portfolios of private rental housing, a market that has traditionally been dominated by private landlords.
In the US, institutional ownership of that market, known as multi-family residential, is far more common. Sales of multi-family properties in the US rental apartment reached a new record of $106 billion in 2014, according to consultancy Jones Lang LaSalle.
Aviva and Prudential are other life insurers that have entered the sector in the UK in recent years. The private rented sector is seen by these institutions as one that offers long-term, stable, inflation-linked cash flows, and has been increasingly attractive as a result of a UK housing shortage.
Business lobbying group the CBI estimated late last year that 240,000 new homes would have to be built each year going forward in the UK to satisfy demand for housing. It said in the last 14 years, there were only four in which more than 200,000 homes were built.
Historically, the private rental residential market has been a challenge for institutional investors for a host of reasons including operational costs and difficulty acquiring sizeable enough portfolios.
Bill Hughes, head of real assets at Legal & General Investment Management, said: “You have to build it. I think the realisation I’ve had is that you cannot buy what you would choose to own long-term as rental residential. It’s not possible to buy, not in the UK, it doesn’t exist.”