The UK housing market is falling fast, but that hasn't prevented a US private equity firm seeking opportunities. Apollo Management, the New York buyout firm, has had an offer to inject capital into highly indebted UK housebuilder Barratt Developments spurned, according to The Times.
Apollo offered to inject up to £400 million (€506 million; $782 million) into the company, which is trying to reduce its debt pile by selling Wilson Bowden Developments, a division of Barratt's that it acquired for £2.2 billion last year. Barratt, which has put a virtual moratorium on new land buying, is believed to have debts of £1.7 billion, some £800 million of which needs refinancing by next April.
Along with its peers, shares in Barratt have languished amid a slowing UK residential sector.
At press time, Barratt's share price had fallen to 241 pence per share – almost 80 percent lower than in 2007, valuing the company at £862 million.
Barratt's plight – and that of other UK house builders – is attracting the attention of property investors in general. During PERE's European Real Estate Roundtable discussion [featured in this month's special supplement], Tony Brown, the UK and European chief executive of Lend Lease Investment Management, said many homebuilders were struggling to find capital for new projects. “I know some examples of major house-builders in the UK that can't source debt to start new developments which are quite good developments in theory,” he said.
Such a scarcity of capital will lead to a lack of building of homes in the UK, Brown added. However Brown did foresee opportunities for a UK rental accommodation fund given the strength of the rental market, political will for increased rental availability and the fact that developers could face having to sell units at a discount owing to the slowdown in the sales market.
Apollo's interest in Barratt isn't the first time the firm has been prepared to venture into the UK residential sector. In May last year, the firm acquired real estate agent group Countrywide, through the investment vehicle Castle Bidco, for around £1 billion.
Countrywide operates a network of about 1,200 residential real estate agency offices including UK high street names such as John D Wood, Faron Sutaria, Bairstow Eves and Mann and Co. However, since May its investment has been called into question. Earlier this year, UK newspaper the Daily Telegraph reported that Apollo might be forced to inject capital into Countrywide, though an unnamed source was quoted as saying the firm was happy with its investment.
With the residential market cooling considerably in the UK, Countrywide has closed 50 branches this year, with Debtwire, a data service which monitors the health of companies, saying 150 branches were closing in the UK every week.