UK – M&G has acquired a large residential development close to the site of the London Olympics in a £125m (€158m) sale-and-leaseback deal it claims will pave the way for more institutional investment in the sector.
Housing association Genesis will sell the M&G Secured Property Income Fund the market-rented component of the 43-floor Stratford Halo and will continue to manage the 401 residential units on an inflation-linked lease.
The UK residential sector has proved largely inaccessible to pension funds, because assets are often small and require intensive management, and the deal is the first residential investment for the £1.2bn fund.
Although several housing associations are scouting capital to help reduce London's housing shortage, Genesis is one of the few with experience of market-rent properties.
"The agreement gives both parties what they want,” said M&G fund manager Ben Jones. "It ticks all the boxes for pension funds, because of the potential for long-term capital-value uplift and because they will not be responsible for managing the assets."
He said he favoured the profile of residential assets – one of several sectors characterised by long leases his fund invests in – because of the potential for above-inflation rental income.
"Analysis of the cash flow is a key part, but we’ve also been investing in social housing debt for three decades and we have full origination and analysis capability in that sector," he said.
"It isn’t a new sector from a credit perspective – just a new way of investing in it."
M&G Investments’ social housing debt portfolio, valued at £3bn, includes both corporate bonds and direct loans. The fund’s current pipeline includes ground leases, office and student accommodation.
Jones also sees opportunities in social infrastructure, including hospitals. "Residential offers similar long-term value to supermarkets and budget hotels and we are undertaking attractive transactions in other sectors as well. It isn’t the case that we’re investing in [residential] because we can’t find anything else," he said.
Asked about increased activity in sub-sectors such as student accommodation, and especially its impact on pricing, Jones said: "We’re happy with the increase in activity. When there is an increase in the number of investors, there is often a corresponding increase in the range of issuers.
"From my perspective, that isn’t a bad thing. It comes down to whether you, as a manager, can secure your share of the transaction activity."