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Invesco Makes UK Single-Family Rental Push As Housing Market Slump Helps Sector

One the largest real estate investors in the U.S. is planning a push into the UK single-family rental sector just as the current travails of the housing market could provide the jumping-off point SFR needs to rival BTR and student housing in size and scale.

Womble Bond Dickinson's Tom Willows, Invesco's Stacey Patten, Carter Jonas' Lee Richards, Packaged Living's Jonathon Ivory, Placefirst's David Mawson, Moorfield's Charles Ferguson-Davie and Sigma Capital's Rob Sumner

“We have conviction in the UK, and we’d like to be in this space here,” Invesco Real Estate Director of Investment Management Stacey Patten told the audience at Bisnow’s UK Single-Family Rental Investment Summit, held at the Royal College of Pathologists last week.

Invesco has an SFR portfolio totalling 5,000 units valued at around $5B in the U.S. That portfolio comprises multi-unit, purpose-built SFR homes as well as individual units bought via a “scattered site” strategy. It will take the same approach in the UK. 

“So if anyone has opportunities, let us know," Patten said. "We're very keen to partner whether it's through an op-co/prop-co investment or buying in a broad scale.”

Invesco has already been a significant investor in the UK build-to-rent sector, agreeing last year to provide £600M of funding for the first 800-unit tranche of homes at Argent Related’s Brent Cross Town Centre scheme in north London. 

Oxford Properties is another major North American investor making a big move into UK SFR, Bisnow can reveal. EU Competition Commission documents show that Oxford was one of the investors that backed PineBridge Benson Elliot when it took SFR specialist Sigma Capital private last year. 

As has been the case in the U.S., the recent spike in mortgage rates and the impact on the homes for sale market can be a boost for the SFR sector, Patten said. Interest rates have risen, pushing up borrowing costs for homebuyers and making houses harder to afford. That means more people moving into the rental market, looking for good quality, well-managed, affordable homes.

“In terms of affordability, it gives an option to get into a market that you may not ordinarily be able to, given where mortgage prices are today,” Patten said.

As well as creating increased demand for single-family rental homes, the rate rise helps SFR developers compete against other sectors when it comes to buying sites for new schemes. 

“The housebuilders to date found it much too easy to sell, arguably at inflated prices, to their customers through the Help to Buy and other means of government support,” Moorfield Chief Investment Officer Charles Ferguson-Davie said. “But now, with the different economic landscape, we might see those housebuilders and developers more likely to sell in bulk to investors looking to build rental portfolios.”

Packaged Living Managing Director of Single-Family Housing Jonathon Ivory also identified housebuilders as a source of deals for new schemes, but said that SFR developers needed to find “goldilocks” builders with which to partner — not too big and not too small. 

“There are those housebuilders, which are too big to be interested in what we're selling, and then there are those that are too small that either don't have the right covenant strength or the right level of sophistication to enter into what is ultimately quite a complicated transaction,” Ivory said.

It is the middle tier of developer or housebuilder that has sufficient balance sheet and covenant strength, delivery capacity and sophistication to enter into complicated transactions that you need to find, Ivory said.

“And they're few and far between," he said. "It's difficult.”

Ferguson-Davie said that last year, Moorfield raised £300M of equity for a new fund, around 20% of which will go into UK SFR.

“We were very early into purpose-built student accommodation, very early into retirement living and build-to-rent,” he said. “We see single-family homes for rent maybe as being a bigger market opportunity than all of those. It's got the widest universe of potential customers.”