Welcome to the first edition of the UK Build to Rent Q&A series. Over the next 3 months, expect to find insight & opinions regarding all things BTR. We reached out to experts specialising in investment, management & design and received a fantastic response. We’re excited to share these with the wider industry. So, without further ado, please enjoy our first instalment with Freddie Wonnacott.
M&G Real Estate is a leading financial solutions provider for global real estate investors with £33 billion in assets under management. It has a sector leading approach to responsible property management and is committed to continuously improving the sustainability performance of its funds.
About
Freddie Wonnacott, Associate Director at M&G Real Estate. Freddie is an investment manager specialising in residential & student accommodation in the UK.
Q: What kind of investment opportunities are M&G looking for in the current climate?
A: We continue to seek opportunities that meet the requirements of our core investment strategy, which revolves around three key themes: employment, connectivity and education.
We typically invest in locations within close proximity to centres of strong employment such as central London or strong regional hubs such as Manchester and Edinburgh.
In terms of connectivity, opportunities will ideally be within five minutes’ walk to a tube station or other public transport intersections, and with a total travel time of under 30 minutes to a major employment hub.
We also like locations within the catchment of good/outstanding OFSTED rated schools in more suburban locations with ample outside space and good connectivity to appeal to the young family rental market, in addition to the young professionals who make up our primary customer pool.
Although the COVID pandemic has certainly given cause to re-evaluate this strategy, due to the reduced use of public transport and the prevalence of working from home, our belief is in the medium to longer term these themes will continue to be important when identifying investment opportunities.
Q: What are a few things a company should know about M&G before approaching you for an investment opportunity?
A: If any company who wants to work with us isn’t sure about what would suit, we are always very happy to chat over the phone and let them know if it is something that will work for our main UK Residential Fund, but also if it might be appropriate for M&G’s wider business.
We certainly favour simplicity in our deals over any unnecessarily complex structures. We are dynamic and able to progress opportunities quickly, thanks to the discretionary nature of our capital and highly efficient internal processes.
As a long-term investor, partnerships and repeat business are a big focus for us. We prefer to engage initially on a single opportunity with a like-minded partner knowing that there is potential to build a future relationship.
Q: What do you believe is the single biggest threat to the growth of the UK BTR sector in the coming years & why?
A: Ultimately, the BTR sector needs to compete with other uses in the land market in terms of viability whether versus the other residential sub sectors (sale product/student accommodation/affordable housing) or indeed versus wider commercial uses.
Anything that makes BTR less competitive in this regard will be a major threat. Examples of this could be any number of things from an increase in Stamp Duty Land Tax affecting BTR, increased regulation or a more challenging planning environment.
It is therefore vitally important to be united as a sector and continue to extol the virtues of the many benefits for all stakeholders of high quality institutionally-owned residential rental accommodation to central and local government
Q: Other than yield and IRR, what are the key financial metrics you view as vital to the success of a BTR development?
A: Our primary focus is net income, so it is equally important to underwrite the correct rental income position and operational expenditure to create the right balance.
The key to success is thorough analysis of local and comparable markets, as well as the wider considerations of affordability for the customer, especially in the medium term.
At an early stage it is important to understand building efficiencies from an operating perspective and to ask the right questions such as does it have multiple cores and lifts that are expensive to run? Are there multiple entrances that will increase security and management staffing costs? Environmental Social and Governance (ESG) credentials are also crucial for our occupiers, investors and management teams.
Q: Where do you see the UK BTR sector in 2030?
A: We believe the UK BTR sector will become a recognised major contributor to UK housing supply, leading the way from an ESG perspective. In summary, a creator of sustainable, environmentally-friendly communities in energy efficient buildings that our customers love living in.
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: Manchester and increasingly Birmingham are often quoted as being oversupplied. While these locations do cause some short-term concern for rental growth prospects as the supply is absorbed, we are positive on the long term given the economic fundamentals of these cities.
We are more cautious around smaller regional locations where the fundamentals are weaker, and supply will take longer to absorb.
Q: Where are the cities in the UK that you believe have the most exciting investment potential for BTR developments?
A: Our focus is on larger regional centres with strong wage growth and positive economic fundamentals such as Bristol, Edinburgh, Leeds, Birmingham and Manchester, as well as South East locations such as Oxford, Cambridge and Brighton.
Q: Is there anything else you would like to add on a personal note
A: We hope everyone is keeping safe during these unusual times, managing to adapt to the “new normal” and of course, enjoying the lovely British summer weather!
A warm thank you to Freddie & M&G for being our first respondents! We hope that you found the Q&A informative & hope to see you back next Monday for part 2.
UK Build to Rent Team
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