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Financing blossoms to meet UK PRS’ 40% growth in next decade

Over the last two years, the likes of Venn, M3 Capital Partners, Prudential Financial, M&G and Legal & General have been allocating large sums to the build-to-let market.

Bolstered by strong financing from institutional investors, the UK Private Rental Sector (PRS) has doubled over the last 25 years to account for almost 20 percent of the total housing stock, according to a new report from Standard & Poor’s (S&P).

The report cites a prediction from the Centre for Economics and Business Research that private rented accommodation will grow a further 40 percent over the next 10 years. Over the last decade, home ownership in the UK has fallen from 70 percent to 64 percent and the number of PRS dwellings now stands at 4.5 million.

To meet the financing demand, institutional investors are stepping up to the plate. Over the last two years, the report notes, the likes of Venn, M3 Capital Partners, Prudential Financial, M&G and Legal & General have been allocating large sums to the build-to-let market.

According to the Department for Communities and Local Government, the amount of private sector financing available for new PRS development now stands at approximately £10 billion, of which £3.5 billion is already allocated.

Giving specific examples, the report – entitled “Generation Rent Spurs Institutional Investment In The UK Private Rental Sector” – cites a £20 million debt facility agreed by alternative lender Venn Partners in December 2014 with PRS developer Essential Living to develop 500 apartments in Acton, west London.

Other examples included: £150 million in 2014, also for Essential Living, from M3 Capital Partners, in the form of repayable loans; a £32.4 million 10-year fixed-rate debt package from Pricoa Mortgage Capital in February 2015 for PRS firm Fizzy Living and the Abu Dhabi Investment Authority’s Silver Arrow investment arm for 1,000 new rental homes in Canning Town; and a recent announcement from Legal & General Capital that it would invest around £1 billion in UK PRS equity and debt.

Estate agency Knight Frank estimates that the total number of PRS households will increase by 16 percent in London between 2001 and 2021, with an increase of 18 percent over the same period in Birmingham and 30 percent in Manchester.

The report notes that, since 2004, PRS has outperformed the commercial sector for institutional investors, delivering annual returns of around 10 percent.

S&P also speculates that project financing could become a popular tool for accessing UK PRS, with returns sufficient to offset long-term market risk exposure and because the risk of construction can be passed on to third parties – normally building contractors.

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