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Massive interest in pension fund home building pilots
10 June 2009The Homes and Communities Agency’s Private Rental Sector Initiative (PRSI) is designed to attract institutional investors, such as UK pension and overseas funds that have not traditionally been involved in residential letting, into the market at scale for the first time. Used to fund the building of new homes specifically for private rent, it could help relieve pressure on the housing market by kickstarting stalled developments, as well as make private rental an option of choice for consumers in the future.
Liz Peace, chief executive of the British Property Federation, said:
“The speed with which this initiative was conducted demonstrates the HCA’s commitment to making the professional rented sector work, while the weight of response clearly shows the desire from all across the industry to make things happen. The challenge now is to get full political support, not just from the Communities department and the fourth housing minister inside 18 months, but from the Treasury who clearly hold the keys to both tax reform and other regulatory measures needed to give investors the confidence they need. We need the professional rented sector to stand on its own two feet, so it’s essential we have a business model that works. With the market operating at such a discount, it really is a case of now or never for the professional rented sector.”
Nick Jopling, executive director at property advisers CB Richard Ellis, said:
“In the USA this sector has seen $340bn of assets traded or refinanced in the last 5 years; CB Richard Ellis traded $86bn of this institutional grade residential stock since 2000 which provides us a forensic understanding of the sector and how it could work in the UK. The HCA initiative has garnered interest from across Europe, America and the Middle East and we’ve been working with numerous parties who’ve all expressed an interest.
“There are now a large number of pieces on the jigsaw board and it is up to all of us to piece them together and combine the raft of experience and innovation we will need to make this work. No one individual or corporate can deliver this on their own and that is why it is a highly positive situation to have funds, property managers and developers all with their hats in the ring. For the first time these interests are all aligned and it is vital now that we align the momentum and turn potential into reality.”
Submissions to the expression of interest process, launched by the HCA last month, have been received from household name UK pension funds and other investors, property developers, fund managers, housing associations and property managers. The HCA and its advisor DTZ are now evaluating the submissions with a view to encouraging organisations to come together to create investment propositions with scale.
Chief executive of the HCA, Sir Bob Kerslake, said: “This response, and the sector’s wider support for our initiative, has validated the early market testing which told us there is an opportunity here to do something different.
“To maintain momentum and make the most of the current favourable market conditions we now intend to move quickly to take these submissions to the next stage, evaluating deliverability and the value for money they offer, and in particular to encouraging parties to come together. We will also step up our work to identify a pipeline of product for investors – homes on HCA schemes and other developments across the country.
“We are still in the early stages of this initiative, but interest has been encouraging and shows the potential it has to ease some of the effects of the market downturn on developers and turn private rental into an option of choice for consumers in the future.”
Andrew Pratt, MD Residential at Grainger plc, who submitted a proposal, commented:
“The number of responses is pleasingly high, it indicates a healthy level of interest in the sector and in this opportunity that bodes well for the chances of creating an economically viable proposition. We look forward to an opportunity to work on this with the HCA and other parties.”
Of the submissions received several strongly meet the HCA core brief, focusing on the capital (investment and fund management) elements of the initiative. The remainder relate to two other relevant components: product – the supply of land and homes; and property management. Several of the submissions received were from consortia, and a number were from overseas institutions.
The HCA and DTZ will now evaluate the submissions based on the outlined approach, including deliverability and value for money, and each organisation's:
• Financial strength and standing, resources and relevant experience;
• Ability to invest and/or raise third party capital;
•Capability and track record in the creation of new investment funds; and
• Willingness to be flexible and innovative.
The HCA and its advisors will continue to work with each of the submitting organisations in coming weeks and it is anticipated that many may need to work together, particularly where their submissions are well aligned, to create a focused number of propositions at scale. Given the scale of the interest, there may be a number of funds and more than one fund partner.
The HCA has also confirmed that it has begun an exercise to indentify a potential pipeline of stalled housing schemes ripe for investment. It is also envisaged that there may be some cross-over in terms of identifying potential product for the PRSI, with the Agency’s related initiative to kickstart developments using £400 million of additional public money announced in the Budget.
The Agency expects to announce details of its expressions of interest for the £400 million kickstart fund later this month.
For more information and all PR and media queries, please contact Andrew Teacher, Head of Media, on 020 7802 0113 or 07968 124545 or ateacher@bpf.org.uk
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