(Bloomberg) -- A UK fund manager is planning to capitalize on the distress in Britain’s housing market by purchasing homes from troubled landlords and renting them out.
Moorfield Group this week started a new real estate investment trust, known as MREIT, aimed at buying new and existing single-family homes and student houses to let out. The private equity firm — which will produce returns for investors such as pension funds and insurers — also aims to buy properties that the nation’s biggest developers are struggling to sell.
“MREIT’s acquisition strategy will offer an attractive exit option for buy-to-let investors looking to sell, as well as housebuilders that are increasingly considering bulk sales in the face of a weakening for-sale market,” said Charles Ferguson Davie, chief investment officer at Moorfield. “The success of US single-family REITs demonstrates a way forward for institutional investment into UK residential-for-rent.”
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UK households are facing a stream of pressures triggered by high interest rates and the worst cost-of-living crisis in a generation. Meanwhile, tenants are bearing the brunt of the turmoil as landlords — whose interest-only mortgages are particularly exposed to rate hikes — either sell or increase rents to deal with extra costs.
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Moorfield — which has already raised about a fifth of its roughly £500 million ($610 million) investment capacity of the trust — is the latest money manager to target the supply of desperate customers in the rental market. The share of pensioners renting in England is set to double within a decade, presenting an opportunity for investors to capitalize on an aging population spending billions of extra pounds on rent each year.
The FTSE 350 Real Estate Investment Trusts Index has declined about 12% this year, according to data compiled by Bloomberg.
The REIT also aims to purchase properties from housebuilders looking to reduce their stock through bulk deals — a strategy often used by developers to boost revenue in a period of weak sales. Barratt Developments Plc said over the summer that it was “responding to market conditions by driving revenue through the use of private rental sector sales.”
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Still, some respite came last week for mortgage holders after inflation retreated and the Bank of England paused a series of interest rate hikes, which could slightly ease the impact of financing costs. But with 43% fewer homes available to let across Britain in July compared with the same month in 2019, buy-to-let investors have the power to haggle for higher rents with less risk of losing tenants.
“UK residential has been one of our longest - and strongest - conviction themes, with demographic tailwinds and a stark demand-supply imbalance continuing to underpin values and support resilient rental growth over the long-term,” said Marc Gilbard, chief executive officer at Moorfield.
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