One of Europe's largest fund managers has signed a £158m vote of confidence in London housing by taking a majority stake in G:res, a portfolio of 1,677 market-rented properties managed by residential landlord Grainger. This is one of the largest institutional deals to date in the UK private-rented sector - an asset class the City has been eyeing enviously for years.
APG, which manages about €325bn (£273bn) of mainly Dutch pension assets, will take a 72.8 per cent stake in the £217m fund, with Grainger owning the balance. APG is effectively buying out Grainger's former equity partners, who voted to wind up G:res in 2011. Under the new name GRIP, it will now be run as a long-term fund focused on Greater London, with five-year renewable terms. It will also seek to expand with equity from "one or two like-minded institutional investors", said Grainger.
The property industry will be very curious to see who comes forward. Rental growth in G:res has been strong, with an average uplift of 4.6 per cent on renewals and 8.1 per cent on new lettings over the year to 30 September - figures otherwise only achievable in the West End office market. The most recent annual valuation uplift was 5.8 per cent.
City institutions used to own substantial residential portfolios, but had sold them all off by 1989 - the year when Margaret Thatcher founded the modern private-rented sector by abolishing rent controls and creating the current system of assured shorthold tenancies. This month, M&G signed a £125m sale-and-leaseback deal on 401 East London flats, arguably becoming the first big UK investor to venture back into private housing. Although the properties were developed and sold by Genesis Housing Association, they are let at market rates.
Equity investors have also become more enthusiastic about residential property after a very strong performance from housebuilders last year. Crest Nicholson - taken private in 2007 - is planning to refloat its stock, and estate agency group Countrywide is also rumoured to be preparing an initial public offering.
