Why the BTR sector is still a banker | Overview

But considering all of this, as a lender, we are still a big fan of Build-To-Rent (BTR) development. So many fundamental measures – even after Brexit, during Covid and a global recession – will be convincing for years to come.

It helps that development loans are in Investec’s DNA. We’ve lived with ups (and some downs) for the past 30 years, and we love to roll up our sleeves to work with a development team to create a finance package that works for everyone involved.

Half of our loan portfolio is now residential, much of it devoted to student housing. Equally appealing is the BTR prospect.

Affordability is a huge issue for young people who would rather rent in a good location than buy in an area they don’t want to live. On top of that, the idea of ​​paying off a house on a 25-year mortgage is counterintuitive for, say, a tech scholar who wants the flexibility to move to New York City in 2025.

Offer these people the option of renting in a traditional multi-occupancy house and they run a mile and a half. Offer them a BTR apartment with services like concierge and gym under one bill and they buy it. It is an obvious choice of life. You get more than just a house, you also have access to a community.

With BTR you get more than a house, you also have access to a community

With rental being the norm across much of mainland Europe and the United States, demand for a professional BTR sector would increase even if it was driven solely by people arriving in the UK. But the growth in demand in Britain runs much deeper. Large private equity fund managers who manage assets worth billions see the imbalance between supply and demand as very attractive. Investors have the advantage of learning from the success of BTR-type assets overseas and benefiting from the nascent nature of the UK BTR market.

Prime London BTR assets are now trading at yields below 4%, with regional prime assets only trading 50 basis points higher.

Additionally, and most notably, in tough times, BTR is resilient, with great defensive characteristics. Rent collection since March 2020 has exceeded 90%, with low churn and vacancy rates.

Investec likes to fund BTR in London and the South East, but is also looking for strong regional locations with compelling fundamentals. Large contracts are also attractive and we are well placed to structure and manage loan clubs. A good example is our partnership with Bank of Ireland, where we arranged an £ 80million loan to a joint venture between Henderson Park and Greystar for a 257 unit project in Walthamstow, London.

We are comfortable entering into these agreements because we understand the development process and the operating model. Our analysis of the rental market in the places where we lend shows that rental income will remain robust. After all, the rent check is every tenant’s first outing each month, while for some commercial tenants it has become another issue among their sea of ​​problems.

With multi-family assets trading at much tighter yields than commercial real estate in mature markets, the BTR is, for a banker, very attractive indeed.

Josh Weinstein is a member of Investec’s home loans team

About Carl Schroeder

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