Octopus Plans £400M Rental Senior Living Fund As Sector Takes Off

One of the biggest names in UK senior living is planning a fund that will own properties to rent, rather than build for sale, as the later living model slowly but surely evolves. 

Octopus Capital Investment Director Domas Karsokas outlined the new vehicle at Bisnow’s Later Living Summit, held at the Odeon Luxe West End. 

The Octopus retirement rental strategy has a target size of £400M and will look to raise capital for institutional investors. It is likely to be a closed-ended structure, although an open-ended vehicle is being considered. 

It will target value-add returns, and the geographic focus will primarily be the UK and Spain, with potential expansion into Germany, Italy, France, Denmark, Ireland and Scandinavia.

Octopus has about £1.8B in senior living assets under management. 

“There's so many tailwinds for the sector that are not going away,” Karsokas said. “My personal view: It is just a matter of time when the capital floodgates will open [for senior living in the UK].” 

He added that investors see later living as higher risk because of the operational and regulatory complexity, and for that reason, most investors targeting the sector want value-add returns. 

Players in the senior living sector have typically built homes and apartments for sale in the UK, but panellists said there is a growing shift toward the rental model more common in the mature markets of the U.S., Australia and New Zealand. 

Pegasus Homes, which is owned by private equity firm Oaktree Capital, made the decision earlier this year to shift its model entirely from building for sale to building for rent. 

“Rental was introduced for the reason of building community and reducing the holding cost,” Pegasus CEO Steve Bangs told the audience, referencing a decision to introduce a rental element to its schemes six years ago.

“But over time, we found that customers were preferring that route. They didn't necessarily want to have the burden of having homeownership for the long term, and [they like] the benefit of being able to say, ‘When it's no longer appropriate for me, here's the keys, not my problem.’”

He added that the growing tax burden of homeownership, which could be increased in November’s budget, is also pushing retirees away from owning.