Welcome back to the UK Build to Rent Q&A series. This Monday we return with the second of four Grainger Q&A’s. In case you’ve missed any of our previous interviews, please remember you can access all of them here. Today, we’re sharing this investment focussed Q&A with Andrew Saunderson from Grainger. We hope you enjoy it.
Grainger plc is the UK’s largest listed residential landlord and a leader in UK PRS and build to rent. With c.9000 homes in operation and c.8500 in the development pipeline, Grainger is investing £2bn into the delivery of high quality rental homes across the UK.
About
Andrew Saunderson is Investment Director at Grainger plc. Since joining Grainger in 2001 he has been instrumental in facilitating several large acquisitions of both assets and corporate entities. Under Andrew’s leadership, the Investment team at Grainger helped deliver on the business strategy to invest £850m into the Build to Rent sector by 2020, far surpassing that target.
Q: What kind of investment opportunities are Grainger looking for in the current climate?
A: In line with our investment strategy, which we have developed with our inhouse research function, we have identified a number of target locations in which we see the greatest current demand and the greatest growth potential.
Our focus is on identifying opportunities in our target locations that meet our investment criteria. This criteria can broadly be summarised as developments that will compromise between 150 and 350 homes with an appropriate amount of internal and external amenity space that will enable us to deliver our mid-market, high quality for rent product.
Q: What are a few things a company should know about Grainger before approaching you for an investment opportunity?
A: My general answer to this is if a company has an opportunity that they think might be of interest to us please send it through. We have been investing in BTR assets for a number of years and over that time we have created a very efficient internal system for determining whether an opportunity is of interest or not, that enables us to reply very promptly advising whether something is of interest or not.
Q: What do you believe is the single biggest threat to the growth of the UK BTR sector over the coming years and why?
A: The biggest single threat is access to land. Through BTR we have a real opportunity to help alleviate the housing crisis and deliver quality homes to meet the growing demand, but the valuation of BTR generally gives rise to lower land values making it difficult to compete when on a head for head basis with house builders.
Similarly, to continue to grow and deliver the required homes, legislation needs to support the sector and encourage investment.
Q: Other than yield and IRR what are the key financial metrics you view as vital to the success of a BTR development?
A: Yield and IRR are the two main financial metrics that we consider but ultimately both are driven by our underwriting assumptions. It is therefore of fundamental importance to us that we utilise realistic assumptions.
Q: Where do you see the UK BTR sector in 2030?
A: By 2030 I expect that the BTR sector will be a fully functioning asset class in line with Multi Family market in the US.
According to the BPF there are now c.51,000 operational BTR units in the UK and this increases to c.172,000 when extended to include those assets under construction and in planning.
We are therefore well on our way to creating the asset class but until operational assets are being traded it is difficult to argue that there is a functioning market.
Q: We’ve seen the saturation of a location start to affect a BTR development success due to oversupply – where do you feel are the areas, if any, that will suffer from oversupply in the coming years?
A: Although there has been quite a significant rise in supply in certain markets relative to the overall housing stock and the PRS market more specifically the supply is still small.
It may well be the case that future BTR development slows in certain locations as the operational units are absorbed but if this happens, I would expect further BTR developments to come forward.
Furthermore, as the concept begins to gain traction with our target customers, I would expect any excess supply to be quickly absorbed.
Q: Where are the cities in the UK that you believe have the most exciting investment potential for BTR developments?
A: There are many! The sector is still so new and the potential is enormous.
At Grainger, we have a very strong portfolio and pipeline in London, and this year, we’ve concentrated our investment in our regional portfolio – recent launches in Bristol, Sheffield and Milton Keynes have performed incredibly well and we have schemes in our pipeline in Birmingham, Leeds, Manchester, Nottingham and Cardiff, to name a few.
We see great potential in all of these locations where there is an undersupply of high-quality rental homes. We also see potential for a more suburban offer in line with product that we have already delivered in Hampshire. Any additional suburban product that we bring forward will be focussed on more affluent areas where access to the private for sale housing market is most difficult.
Q: Anything else you would like to add on a personal note?
A: Despite the pandemic and all the hardship that it has brought our portfolio has been very resilient. Now more than ever people are recognising the benefits of well designed, well managed home in a good location and this is something that Grainger is committed to continue delivering.
Once again, thank you to Grainger & Andrew for their time and involvement. And, thank you for reading. We welcome any feedback you have regarding this series.
For now, have a good week & don’t forget to join us next Monday for our next Design Q&A with Jonathan Gains from ResiGains.
UK Build to Rent Team
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