Last week we assessed the “Who is Who of London’s Build to Rent Market”. Looking at London’s top 20 BTR companies ranked by unit holdings. In this article, we delve deeper into the emerging trends and patterns of London’s BTR companies. All of which is based on Molior’s recent 2020 Build to Rent update.
In two broad topics, the data trends of BTR companies can be grouped into the following: the type of developments the Build to Rent companies have and how the Build to Rent companies sourced them.
Molior London is an established residential market research practice with 25 years experience and extensive coverage over all the 33 London local authorities.
The Type of Developments the Top BTR Companies Have
Scheme Size
According to Molior’s report, the top 20 Build to Rent companies have been shown to engage in a wide array of developments. Ranging, from schemes with as little as 20-units to the largest development – 1,224 BTR units. (Owned by Unibail-Rodamco-Westfield at Cherry Park in Stratford).
The average number of units among the top 20 companies stands at around 184 units per BTR scheme. The majority do not favour schemes with less than 50 units. It would seem that only 2 operators (Criterion Capital and Fizzy Living) are interested in schemes with fewer than 50 units. The others – L&Q, Notting Hill and A2Dominion are housing associations that have long been familiar dealing with smaller blocks. Similar, to their traditional affordable housing portfolios scattered across London.
The desired number of units for Build to Rent schemes is at a minimum of 100 units. Where smaller units blocks are already secured, they are usually from the early experimental days of the sector.
TFL Zones
Further, Molior’s report shows that the distribution of schemes across London’s TFL zones, varies considerably. Most of the schemes owned by the top 20 companies are clustered in zones 2 & 3. In particular, zone 2 is reported to have the highest concentration. But, this is mostly due to the inclusion of Get Living’s 13 blocks in the East Village. (Operated as a single BTR development).
Zone 1 has only 7 operators contributing to a total of 13 developments. Zone 2 has the highest with 58 BTR developments held by 15 of the top operators. And, zone 3 is second with a total of 56 BTR developments held by 15 BTR operators. 4, 5, & 6 combined have a sum of 30 BTR developments held by 13 BTR operators.
Unit Mix
Looking at the unit mix, completed developments all feature a mix of studio, 1-bed, 2-bed, 3-bed apartments. According to the report, most BTR operators prioritise having 1-bed and 2-bed apartments within their developments, as they have an overall 37% and 44% capacity.
The table above accurately illustrates the scheme size range and units per-scheme. Also, the distribution of the schemes per zone, status of construction, and percentage of unit mix per operator.
How the Top Build to Rent Companies Source Their Build to Rent Schemes
This section focuses on the ways London’s top 20 companies acquire their BTR developments. The methods used by the companies in the acquisition of schemes are classified into three. Namely, developed in-house or via JV, acquired from a developer or acquired from other BTR companies.
From the data, there is a slight bias towards acquiring projects from developers over the other options. BTR developments taken from developers is 54% – 80 developments out of a total of 157. The second preferred options among BTR companies is the in-house or JV option, with 72 BTR developments accounting for 46%. The 3% left representing the 5 developments acquired from another BTR company.
Acquiring from Developers
It is no surprise that acquisition from developers is a more favoured option. A good number of the BTR companies involved are investment managers. Traditionally, they have no experience in the construction and planning aspect of a BTR project. Also, even companies with a developer’s arm buy BTR blocks from other developers. For example, Notting Hill Genesis, Grainger and L&Q. It happens when acquiring a BTR from a developer is more beneficial to a company’s scope of the development pipeline, and the funds are readily available.
Funding
Another aspect is the predominant source of funding employed by London’s BTR companies in the financing of their projects. From the data, there are predominantly three types of financial models used by these companies, namely; Balance sheet, Funds under management and Mixed.
The balance sheet model is currently used by the 3 housing associations (L&Q, Notting Hill and A2Dominion) and Grainger. Through this arrangement, companies can pool funds from surpluses elsewhere in their bonds and share issues, portfolios and project-specific borrowing.
Funds under management essentially acts as an investment manager, i.e. using funds from others under their control to fund an investment venture like a BTR. 9 BTR companies employ this funding route and the majority are traditional investment management companies.
The mixed funding model is used to represent complicated sources of funding because they usually include a combination of at least 2 of the following: sovereign wealth, family offices, private equity, project-specific loans from banks, and loans form pension boards, insurance funds, etc.
These are just broad terms to capture the general idea of the funding models, as the full details of the funding routes are rarely in the public domain and confidential.
More details on acquisition routes used by London’s top 20 BTR companies in the table below.
Conclusion
Although the Build to Rent sector is an ever-expanding one, there seems to be a reoccurring pattern or trend to the growth of the industry. Knowledge of the data trends in the industry can prove to be resourceful for investors, helping them stay ahead of the curve. We look forward to seeing how these data trends and patterns change over the next year.
Subscribe
Subscribe to receive the latest in Build to Rent.