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The capital is getting frustrated.
Among all the positivity about the size of the opportunity in the U.K. build-to-rent market, the fact remains that it is very difficult to deploy debt or equity in the sector right now.
David Brickman, head of multifamily at giant U.S. lender Freddie Mac and the closing keynote speaker at Bisnow’s Build-To-Rent Annual Conference, summed up the disparity between the U.K. and the U.S. The U.K. has around 113,000 professionally managed rented residential apartments built, under construction or in planning. The U.S. has 100 million already on the ground.
That is an opportunity, but a panel of major lenders and investors flagged how it is also a problem.
“We are just not seeing enough opportunities to put money into the sector come across our desk,” Lloyds Bank Director Andrew Wheldon said. “We are doing some development lending and we are putting out some longer-term money through Scottish Widows but we would love to be doing more.”
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HFF Senior Managing Director Mike Kavanau said the capital markets for the sector are still immature in comparison to the U.S., and Oxford Properties European Head of Investment Joanne McNamara said investors are having to be innovative to deploy capital in the sector. Oxford recently bought into the Get Living platform established by Delancey and has a target for investing £1B or more in U.K. rented residential.
“We are happy to take planning and development risk just so long as it gets us scale, scale is the key for us,” she said. “At that point it becomes about finding the best development and operating partner so that risk is mitigated.”
The immature nature of the capital markets in the U.K. does have one positive. As Brickman pointed out, it gives the U.K. the opportunity to avoid some of the mistakes made in the U.S. His No. 1 tip? “The U.S. could have used more construction-to-permanent finance earlier in its evolution,” he said, referring to construction loans that become investment loans when the development is completed. Something for the U.K. to bear in mind.
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