London Co-Living Scheme Sells For £125M In One Of The Sector's First Investor Tests
With 546 beds, The Collective Old Oak Common in North West London claims to be the largest co-living building in the world. So when it was put for sale for £100M in May last year, the sale was seen as a test of investor appetite for the nascent co-living sector.
The building was sold this week in a deal that was not quite what the market was expecting. So what have we learned?
Mainly that deals in this sector might be somewhat unconventional for a while, but there is interest at keen prices.
The building was not sold in a straightforward way to a new investor. It was purchased via a "management buyout" by management company The Collective. Previously, the company, founded by Chief Executive Reza Merchant, had owned a 25% stake in the scheme, with the other 75% owned by a group of Singaporean and U.K. private investors. The Collective now owns 100%.
The owners had agreed to sell the building to the investment vehicle of the London Borough of Newham, Red Door Ventures, but the sale fell through earlier this year. But that was less to do with the scheme itself than a change in the political makeup and strategy of the local government.
While no new buyer was found, the deal shows that lenders are willing to provide debt for large co-living schemes. Deutsche Bank provided senior debt and Catalina Re, which is part-owned by Apollo, provided mezzanine debt, to fund The Collective's buyout.
They provided that debt at a valuation much higher than the original asking price: £125M. That equates to a 4% yield on the co-living element of the scheme, which also has a student accommodation element. The whole scheme has been 99% occupied for the last six months, with rents ranging from £230 to £330 a week.
“Co-living is fast becoming the housing solution of choice for people who want to live in a more convenient and connected way,” Merchant said. “This transaction demonstrates our confidence in, and long-term commitment to, both our business and the co-living sector.
“We are now looking forward to the next phase of the project with our new partners. Deutsche Bank and Catalina Re's ... support in this deal typifies the demand for the co-living asset class from Tier 1 institutional investors and takes us one step closer to realising our ambition of becoming the co-living provider of choice, globally.”
The Collective is also developing schemes in Acton and Stratford and is looking for sites in Germany and the U.S.