Northern and LPPI buy rental property portfolio
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Northern LGPS, in partnership with Local Pensions Partnership Investments, has bought the operating arm of PRS REIT, bringing its entire portfolio of 5,478 single-family homes under joint ownership.
The PRS REIT is “the UK’s first quoted real estate investment trust to focus on high-quality, new-build family homes for the private rental market”, according to the Manchester-based firm’s website.
The homes bought by the LGPS pools span 71 sites across England, Scotland and Wales, according to LPPI, which called the £1.1bn deal “a significant step in delivering long-term, sustainable housing investment for pension fund members”.
The partnership plans to invest a further £1bn to expand the portfolio by more than 15,000 homes over the next 10 years.
The joint venture will set up a dedicated property management platform to directly manage the portfolio.
“This partnership demonstrates what we can achieve when pension funds work together at scale,” said cllr Eleanor Wills, chair of the Northern LGPS.
Louise Warden, investment director at LPPI, said the joint venture, delivered through the LPPI Real Estate Fund, is an example of investing with impact.
“Our plans to scale the portfolio significantly underline our confidence in this strategy and commitment to long-term investment in UK housing,” she added.
The UK struggles with an acute housing shortage, with London and the South East particularly affected.
Projects and politics
The investment by the two asset pools provides something to show for ministers who are in the middle of mandating further LGPS consolidation and asking LGPS funds to invest locally.
It also comes after developers reportedly warned that the government will miss its target of 1.5m new homes in this parliament, which would require an average 300,000 new builds a year. The number of new homes started has fallen amid rising labour costs, a Building Safety Levy being introduced next year and continued high materials costs.
Local government minister Alison McGovern said: “This investment demonstrates the vital role LGPS pools play through investing at scale in national priorities while creating value for the scheme.”
Torsten Bell, pensions minister, said he was delighted to see Northern LGPS and LPPI working together.
“The reforms this government is introducing through the pension schemes bill will help unlock exactly this sort of collaboration between pools and help support investment and growth to all parts of the UK.”
While UK pension funds are starting to add residential to their property portfolios, they are doing so at a time when bond yields are relatively high. Pension funds in other countries invested heavily in residential property after the 2008 financial crisis, when bond yields were low or negative, to replace the lost income stream. Residential tends to be better suited to this because it is less cyclical than commercial property.
While UK pension funds are starting to add residential to their property portfolios, they are doing so at a time when bond yields are relatively high. Pension funds in other countries invested heavily in residential property after the 2008 financial crisis, when bond yields were low or negative, to replace the lost income stream. Residential tends to be better suited to this because it is less cyclical than commercial property.
