Royal Bank of Scotland expects to lend £1 billion to the UK private rental scheme (PRS) market in the next 12-18 months, about one sixth of its £6 billion annual lending to real estate.
As part of the drive to lend to PRS developers and operators, the bank has promoted Chiara Zuccon to head of private rented sector, reporting to RBS head of residential development Phil Hooper.
Combined with the circa £2 billion per annum that Hooper’s business provides to residential new build for sale, about half of the bank’s real estate lending will be to the residential sector.
RBS’s move reflects increased demand from developers and operators looking to build and manage PRS schemes, replicating purpose-build models found in the US and Europe.
“PRS is something that we have been considering for some time,” said Zuccon who has worked at the bank since 2007. “Residential investment has always been part of the offering at RBS but what’s new is that we have started looking at purpose build for renting as part of our residential development offering”.
In October 2014 RBS provided half of a £51.6 million development finance loan for Essential Living for 300 PRS units in schemes in Maidenhead and Archway and Bethnal Green in London, with the government’s Homes & Communities providing the other half. Since then the bank has written about £200m of loans to PRS developers.
“Given the type of product, renting, I would expect to initially be lending in major cities and good commuting areas in the UK, where consumers want to live, rather than secondary locations,” she added. “But it’s a national opportunity and we will lend wherever there is demand, using our UK franchise – we have 500 real estate experts facing the market”.
Operators have been debating how the new product should be valued. “We align ourselves to the way the market looks at PRS,” Zuccon said. “Twelve months ago there was still a big divergence between the investment value and the vacant possession value. Now the market has moved on and is focusing more on the investment value rather than the discount to VP.
“The key driver for us is the ultimate income that the asset is forecast to produce and how it’s going to be managed and operated, whether long-term or whether it’s forward funded or going to be forward sold. We start from the back end when calculating the leverage we can offer.”
Scott Hammond, managing director, Essential Living, said RBS was “one of the first major funders to recognise the strategic advantages of developing a dedicated, purpose-built rental market and Chiara’s appointment is a further demonstration of their long term commitment to the PRS market.”
He said the bank’s “sector expertise and flexibility has been invaluable in getting over a number of hurdles as we look forward to these (initial three) schemes coming to market.”