Sigma signals plans for London’s first PRS fund

In the world of rented family housing there is one provider of note: Sigma Capital. Propelled by a tie-up with Countryside Properties, it has delivered thousands of rental homes in the regions and launched the first real estate investment trust dedicated to the private rented sector. But now it is changing tack, venturing into apartment living in the capital with the acquisition of two schemes in east London. “We want to become the only genuine UK-wide platform for PRS delivery,” says Sigma chief executive Graham Barnet. “London is as big as the regions in terms of capital value and the housing need is more acute than anywhere else.” Sigma has acquired two developments in Havering and Barking from Countryside, picking up 157 homes for £43.8m. The apartments at Havering’s Beam Park will complete late next year, with the Barking scheme set for completion the following spring. The flats will be managed by Sigma’s Simple Life business. The company will work with partners such as Countryside to acquire sites and create a seed portfolio, with the formation of a new investment vehicle to follow. “If you took what we did with the REIT, it would be a fair assumption that what we are doing in London is a similar journey,” Barnet says. No frills The new offering will see Sigma develop apartment blocks and townhouses in the outer boroughs, offering slimmed-down, cheaper rental homes. “Convenience and simplicity are the two things we are focusing on,” Barnet says. “There is a demand for a simpler product in London, which is really more focused around well-connected locations but without a lot of the frills, which frankly put up the rent and use space.” [caption id="attachment_918139" align="aligncenter" width="847"] Beam Park[/caption] The developer has built 4,000 family homes nationwide, with a further 3,000 under construction. Its homes have an average rent of £761 and its tenants have an average household income of £40,000. Barnet says more than half of these homes are rented to families, with several tenants aged over 60 as well. “The demographic in London will be different,” he says, adding that Sigma will be targeting renters in the 25-45 years age bracket – “people who would rather pay £1,350 for a two-bedroom apartment, as opposed to £1,750”. Barnet says rent will depend on the location, but suggests that the first schemes could offer a one-bedroom flat under £1,000 and a two-bedroom at around £1,200-£1,300. He says this more affordable rental offering is achieved by bulk discounts on acquisitions, with a product that excludes unnecessary ancillary space such as gyms and coffee shops. “You live in the capital, you don’t need all those frills,” Barnet says. “You’ve got all that on your doorstep, why would you want it in your apartment block?” London’s dearth of lower-priced yet quality rental homes makes this a sustainable model, Barnet reasons, and he doubts that high demand in the capital will change any time soon: “I think it will get worse, not better in London, in the short to medium term.” First mover advantage A fan of doing things differently, Barnet created the UK’s first PRS REIT in 2017. This started with a £70m seed portfolio and then around £500m of development opportunity in the partnership framework. The PRS REIT launched on the specialist fund segment of the London Stock Exchange with a £250m fundraise, a target dividend yield of at least 6% and net shareholder returns of 10% or more at full gearing. The REIT was backed by £25m from the government’s Homes and Communities Agency and has since grown gross funds to £900m as of the end of June 2019. It is on track to deliver 5,400 homes across 75 sites. In the regions, shortage of supply has seen Sigma link up with the likes of Galliford Try to develop its PRS framework. This year it also expanded into Scotland with a dedicated government-backed fund and a partnership with Springfield Properties. “If you wind the clock forward a few years, we should hopefully have billions of pounds being invested across two or three different financial vehicles,” Barnet says. While funds venture out of the capital and into the regions, and the most progressive seek to dip their toe in family housing, their biggest challenge right now is land. That shouldn’t be a problem for Sigma. This is where the business started, with a few developments in Salford and Liverpool for Countryside. Now, as it makes its way into London and seeks to build a new vehicle for investment, the potential could be enormous. To send feedback, e-mail emma.rosser@egi.co.uk or tweet @EmmaARosser or @estatesgazette