PRUPIM plots UK private rented resi fund

The real estate investment management arm of UK insurer Prudential is close to buying a £105 million portfolio which would seed a vehicle aimed at amassing private rented housing in the country.

The real estate investment management arm of UK insurer Prudential is putting together a fund aimed at investments in private rented residential property – something of a rarity in the country currently.

PRUPIM has announced it has “exchanged contracts”
 with UK housebuilder The Berkeley Group to acquire  £105.4 million (€124.2 million; $159.1 million) of homes in London and the south east of the UK which would seed the fund.

The deal, expected to complete in June, inherits the firm 534 units across 13 locations.

Alex Jeffrey, chief executive of PRUPIM, said: “The expanding residential rental property market, particularly in London and southern England, is gaining in appeal for institutional investors. We believe that returns from the sector – which have historically outpaced commercial real estate – will continue to be attractive as demand increases. We expect the supply and demand dynamics of the residential property market in London and the South East to remain favourable for investors, with continued strong demand for quality properties.”

While private rented residential property portfolios held in private equity real estate vehicles are relatively commonplace in North America, they have yet to surface at any scale in the UK, a fact not lost on PRUPIM. Jeffrey said: “For institutional investors, the challenge of the residential rental sector has been two-fold: can you acquire property in sufficient scale and how will you ensure the units are managed to a high standard? This deal meets both aspects of that challenge. This is the sort of portfolio that would fit well within a fund dedicated to the rental sector.”

Sensing an opportunity to fill a void, certain North American institutions like Ivanhoe Cambridge, the real estate investment company of Canadian pension Caisse de dépôt et placement du Québec, and the US pension fund Washington State Investment Board, have already made investment plays in the space.

Now it appears that other UK investment managers are looking to follow suit. The FT said both Legal & General and Aviva are also seeking to launch private rented residential real estate initiatives and had “eyed various potential developments and tie-ups with housebuilders”.

A tie-up between PRUPIM and Berkeley would build on an already existing relationship. In 2006, the two companies established a development platform called St Edwards Homes to develop residential and mixed-used properties across the UK. Also focused on the south east of the country, that JV had an original target of building more than 2,500 homes.