UK landlord Grainger teams with French development muscle for build-to-let venture

Grainger has been a residential landlord for a century and its £2.4bn portfolio makes it the UK’s biggest private landlord.

Previously it has bought regulated tenancies at below market rents or home reversions at a discount, so its UK business is underpinned by selling properties or redeveloping sites for sale when it gets vacant possession.

Grainger’s executive director, Nick Jopling, sees huge opportunities in the build-to-let part of the private rented sector and wants to convince institutions to join it in a specialist fund.

“We have put our money where our mouth is and partnered with Bouygues, which has also been looking at the sector,” says Jopling.

The giant French contractor/developer has the construction skills and is putting three east London sites into the fund at cost, while Grainger has the design, leasing and management skills – a combination that should reassure investors.

The projects would provide 1,000 homes to be built over three and a half years, with the first completed at the end of 2013.

Grainger won’t spell out its target yields and internal rates of return, but presumably expects to better the slow-and-steady 4-5% net income return IPD shows for rented property outside central London.

“We’ve modelled this purely on a yield-driven exit, not on a break up of individual units to get the return for the fund,” says Jopling.

But other upside options are clearly possible: the homes could be sold for owner occupation, or the portfolios sold to someone else who will do that. “Or we can possibly convert it to a REIT,” notes Jopling.

Last year, Grainger won the contract to manage more than £500m of non-performing buy-to-let portfolios placed into administration by Lloyds.

The joint venture, Grainger Residential Asset Management Platform, or G:RAMP, has a five-year term, but this may be extended. Forming a REIT is also a possible exit for this portfolio.

Grainger also manages G:Res1, the £412m closed-end fund of private market-let housing it launched in 2002. It was extended for two years last summer.