Atlas Residential wants to invest up to £3bn in a portfolio of 10,000 UK private rented sector homes and is considering investing in mainland Europe as it aims to capitalise on consumer demand for flexible rental options and the professionalisation of the industry.
We feel like the UK is 20-plus years behind the US and that the PRS industry is where the US was in the 90s. We are transitioning from a ‘mom-and-pop’, buy-to-let model to a professionalised, institutional PRS model,” UK managing director Jonathan Ivory told Property Investor Europe in an interview.
Atlas Residential is a privately-owned, multi-family housing specialist based in Chicago. Over the past 25 years it has bought, renovated and sold more than 75,000 units in the US with a value of about $7bn (€6bn). Its current portfolio comprises over 20,000 rental homes across US states – including Florida and Texas. It also has a development pipeline in the UK regional cities of Birmingham, Salford in greater Manchester, and Southampton.
The group made its entry into the UK build-to-rent sector in 2015 alongside investment manager Rockspring, when it bought a project in Southampton, where it intends to build 211 homes at an estimated cost of £36m. That acquisition was followed by another deal with Rockspring to create 334 apartments in Birmingham at a cost of £50m in 2016. Then,
at the end of September 2017, it unveiled a £55m deal for 238 apartments at the MediaCityUK project in Salford, a 10-minute commute from Manchester’s city centre, with backing from Singapore group IP Investment Management.
Atlas Residential wants to expand its platform aggressively as the UK residential investment market becomes more institutionalised and consumer demand changes. Ivory said that not only are younger professionals finding it increasingly difficult to raise the capital to buy homes, but that renting also fits with their aspirations for greater work flexibility and the desire to have more experiences than possessions.
“There is a structural shift to renting from owning,” Ivory said. “We feel like we have seen the movie and know how it ends, so that means we can position ourselves to participate in this move.” Atlas Residential wants to assemble a portfolio of 10,000 rental units across the UK, a programme that could cost between £2.5bn and £3bn, depending on the cities it targets. He believes it will take under 10 years and potentially closer to five for Atlas Residential to build a portfolio of that scale.
At the same time, the group is eyeing expansion onto the continent. “We do fully intend to expand into Europe. Currently we see a number of markets suitable for our development product,” Ivory told PIE, although he declined to comment on which countries Atlas Residential is investigating and when it may make its move.
Atlas Residential established itself in the US by creating multi-family residences with plentiful amenities as a high-quality alternative to the private homes owned and let by individual investors. Its developments include the Alexandria Parc Vue – a 682-apartment complex in Orlando, Florida, which features four pools, two hot tubs, two tennis courts and two 24-hour fitness centres. Atlas Residential hopes to introduce the same quality rental product into the UK, with its planned developments set to include gyms and communal residents lounges – although outdoor hot tubs and pools are not on the cards due to the unfavourable UK climate. Branding and décor will vary from site to site, but the group intends to maintain a high level of customer service across its properties. “Customer service is central to our DNA,” Ivory explained.
While Atlas Residential is confident about the changing face of UK residential and wants to play a part in the professionalisation of the sector, the group’s entry into the market has not been without challenges.
“We have been looking at this sector for a very long time. We were looking at it back in 2007. If it were not for the recession, we would have entered the market back then,” Ivory said. While the downturn that followed the financial crisis delayed the group’s plans for the UK, it has not dimmed its ambitions. Nor has Brexit.
Ivory acknowledges that the surprise outcome of the vote did cause investors to pause. However, he is expecting 2017 to be a stronger year for PRS investment than in 2016 as capital flows back into the sector. “The underlying asset class is defensive, robust and counter cyclical,” Ivory said, adding that the UK rental sector will potentially benefit at the cost of home ownership, as caution about house prices and the economy mean people put off the decision to buy. “There has been a definite gear change in UK PRS.”