Shares in Aim-listed regeneration specialist Sigma Capital (SGM) leapt 60 per cent last week when it announced a partnership with Gatehouse Bank, a sharia-compliant merchant bank backed by the Kuwaiti sovereign wealth fund. The £200m deal, whereby Gatehouse will provide the equity finance for 2,000 new private-rented homes in Liverpool and Salford, looks set to be Britain's first large-scale build-to-rent project outside of London. It also highlights a new adventurousness on the part of global investors, who are more commonly associated with trophy towers.
Sigma has exclusive regeneration agreements with councils in Liverpool, Salford and North Solihull in North West England. These allow it to source ample land for house building. But rather than follow the usual method of developing homes for sale, or flogging plots to house builders to develop for sale - in effect sourcing capital gradually from owner-occupiers - Sigma is tapping institutional equity. The advantage of this method is speed. "We can deliver homes five times as fast as private house builders," says Sigma's chief executive Graham Barnet.
City institutions used to be major residential landlords, but gradually sold off to owner occupiers after the Second World War. As the pendulum has swung back towards the private rented sector - which now shelters 3.8m English households, up 80 per cent over the past decade - politicians and property brokers have tried to tempt them back. The obvious template is the US, where 'multi-family' homes, many of them packaged into real-estate investment trusts, have thrived during the downturn.
Few deals have so far been forthcoming. In 2012 institutional investment in residential property fell to a seven-year low of £495m, according to research by law firm EMW. Some flagship deals have emerged this year. In January, Dutch pension fund APG took a majority stake in a £217m portfolio of London lets managed by Grainger (GRI). Last week the first tenants moved into the former Athletes Village in Olympic Stratford, which is being converted into a 1,500-home private-rented community by private developer Delancey and the Qatari sovereign wealth fund.
But local institutions remain wary. One problem is the portfolio concentration associated with a single development like the Athletes Village. Mr Barnet reckons Sigma's relationships with local councils offer the answer to that: the Gatehouse joint venture will build on 22 separate sites. A more intractable problem is that pension funds are wary of taking on development risk - an essential part of 'build to rent'. It seems the City is still not quite ready to take the housing market seriously.
