The lender that took over several of the assets of collapsed co-living firm The Collective is planning to spin the portfolio out into a new £300M REIT.

Fund manager Gravis Capital said it intends to float a new company, GCP Co-Living REIT, on the London Stock Exchange and sell £300M of new shares in the REIT.

It will couple the proceeds with debt to buy a portfolio of three co-living assets valued at £425M and formerly owned by The Collective before its administration last autumn.

Another fund managed by Gravis, GCP Asset-Backed Income Fund, was one of the lenders to The Collective before its collapse; it took over a portfolio of The Collective assets following the administration.

The three assets in the new REIT would include The Collective’s two operational co-living assets in Old Oak Common in west London and Canary Wharf, plus another London scheme currently under construction. Gravis said once that third scheme is completed, the business will have a portfolio totalling 1,583 beds. The two operational assets comprise 90% of the existing co-living beds in London.

That last stat highlights just how nascent the co-living sector is in the UK. The IPO will test the appetite of stock market investors for the new asset class.

In a statement, Gravis outlined what it sees as the investment case for the new REIT. It said that the two assets at Old Oak and Canary Wharf had an average occupancy of 95%, and that prior to the pandemic, the expectation was for rents there to rise by 3%-4% a year.

Once the development asset is completed, it is expected the portfolio will have a net initial yield of 4.6%, Gravis said. The yield is about 100 basis points higher than other types of rented residential accommodation in London.

Gravis said the company is targeting an annual dividend yield of 5% once the development asset is completed, with a net total return of 8% a year.

GCP Asset Backed formally took over six assets owned by The Collective. Of the other three, two UK development sites have been sold. A U.S. asset is in the process of being sold.

The Collective had a further 18 assets with which GCP Asset Backed had some sort of financial stake. Just before Christmas, it said one asset has been sold. Three assets were expected to be sold by the year's end; six assets are subject to exclusivity agreements; and eight assets have received offers and are in negotiation with the lending syndicate.