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Report from Chicago – US Multifamily and Lessons for UK Build to Rent


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Summary: Following his attendance at one of the sector’s biggest annual conferences in Chicago in April, Andrew Yates provides some insights into the Build to Rent sector and the lessons we can learn from the US.

Leading representatives of the US multifamily (apartment rental) industry are affirming that, despite a year-on-year fall in deal volume for the first four months of 2017, the majority are in “buy mode” and the current buoyant cycle could continue. Transaction numbers may be down but many see this simply as a feature of less stock being brought to the market. The opportunities in the UK Build to Rent sector are also being recognised and US expertise and investment have much to offer it.

Attending one of the sector’s biggest annual conferences in Chicago in April has left me in no doubt as to the scale and importance of this industry, particularly its growing potential in the UK.

Key themes having an effect on the American market are globalisation and world uncertainty. In a dangerous environment investors are expected to flock to ‘secure’ currencies – the dollar and, hopefully perhaps for us, sterling. Low and sometimes negative bond returns around the world mean that, in the longer team, considerable amounts of overseas capital are expected to be moved to the US for the certainty offered by US multifamily where returns are comparatively high and stable. New investment interest from Japan and Korea is seen as illustrating this theme.

Brexit is being cited as an example of a growing worldwide trend mirrored in the recent US election. A trend which could ultimately benefit residential investment in both the US and UK.

There are, however, areas of concern: the potential for US interest rates to rise; the possibility that some of President Trump’s policies could deter foreign investment; or that the curbs on immigration could hit rental housing demand. At the same time, Trump is being described by some as a “curve-bender” and “change agent” whose optimism is already driving economic expectations for the US. The risk is that, if his proposed tax reforms are blocked, this optimism could change dramatically.

There is not expected to be a flood of US investment into the UK, but the current “trickle” is likely to grow. Given last year’s US market probably transacted some $150 billion in debt and equity, just a small proportion of that will make a huge difference to the UK.

Devalued sterling is not sufficient, on its own, to make the difference while the strength of the dollar means that an inflow of investment into the US is expected. Nevertheless, the UK is being seen as the most attractive multifamily investment market outside the US because of the particular stage in its development. Key US and Canadian investors are looking to expand here. What may still be holding back investment is some US investor concern about the immaturity of the sector, some lack of understanding of UK tenant security and worries about the possibility of rental control being introduced by future governments.

Being in Chicago left me in no doubt about the potential for our residential investment market. Visiting multifamily buildings there demonstrates that build to rent is not just about people who cannot afford to buy – it is also about lifestyle choice. The multifamily sector offers a range of product targeting different rental price points. Single buildings with in excess of 500 apartments are common. Service quality is at the forefront of the industry. Facilities are key and many of these will translate to the UK market. High standard gyms, communal lounges, concierges and “on site lease up” are important (while cinema rooms may now be an outdated trend). An interesting characteristic, when you consider the British love for their pets, is the ability for customers to bring in a dog and offering them associated facilities, at an extra cost, as standard.

In any event, there is a clear expectation amongst significant US investors that build to rent will grow in the UK and that the sector will prosper as we go through Brexit.

Andrew Yates
Andrew Yates is a Real Estate Partner at international law firm Berwin Leighton Paisner.

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