The news is also a vote of confidence in the UK Government’s plans to cultivate the country’s “build-to-rent” market.
Algemene Pensioen Groep, better known as APG, is the fund manager for the €325bn Dutch civil service pension scheme ABP. It invests extensively in residential rental properties in the Netherlands, but this is its first foray into a UK housing market that has yet to attract large, professional investors to date.
A spokesman for the Dutch group said: “This is one of the rare portfolios of UK residential property that is institutionally owned.”
The pension-fund manager is investing £158m in a new fund established by Grainger, the UK’s largest listed residential landlord, which will be called GRIP. Grainger is also investing £59m itself, and the fund will be managed day-to-day by its investment team, led by Michael Lamyman.
The commitment from one of the biggest investors in Europe is a vote of confidence in the UK Government’s plans to encourage investment in rental property. In September, Grainger hailed plans to ease planning restrictions, release public-sector land for build-to-rent developments, as well as setting up a government-backed equity fund of £200m and guarantee £10bn in long-term loans to developers.
At the time, Nick Jopling, executive property director at Grainger, said: “With the support announced today, [we] will help lead the way to creating a viable Built-To-Rent sector, attracting institutional investment.” Its new GRIP venture with APG will be targeting this market, it confirmed today.
The APG spokesman said the fund could put its money to work either acquiring rental properties, or becoming involved in the construction of new ones, “or a combination of both”.
In their joint statement this morning, APG and Grainger added that they would be looking for “one or two” additional institutional investors “to grow the fund further”.
The new GRIP fund has been formed to acquire a £350m residential portfolio currently owned by another fund, G:res1, which is also managed by Grainger. The transaction will give G:res1’s existing investors, who voted to liquidate the fund in a “controlled” manner in June 2011, an exit route.
Robert-Jan Foortse, head of European real estate at APG, said in the statement: “APG has a long history of investing in residential real estate, mainly in the Netherlands. We believe prospects for the Greater London rental market are promising and we are enthusiastic about adding this exposure to our portfolio.”
Andrew Cunningham, Grainger’s chief executive, said APG’s commitment was “a clear acknowledgement of UK residential property’s growing appeal as an institutional asset class”. Grainger did not respond to requests for any further comment this morning.
G:res1, a Jersey-domiciled vehicle, was originally launched in November 2006 and grew to be the UK’s largest residential property fund, at its peak comprising 2170 individual units in 56 unbroken blocks/clusters of property, worth £412m in all.
About 90% of the assets were located in London and the South East, with a substantial presence in East London, including developments in Dalston and Bethnal Green. The portfolio performed well last year, returning 18.9% during the 12 months ended September 30, according to Grainger’s most recent annual report.
Grainger said: “Rental increases on renewals amounted to 4.6% for the year ended 30 September 2012 and increases on new lets for the same period were 8.1%. Both results indicate a continued strengthening of the rental market.”
Nevertheless, APG said it is not expecting a big shift toward institutional ownership in UK housing. The spokesman said: “We would not expect that to happen, at least not anytime soon, as this would require substantial amounts of money and imply a major change in the current market situation that has shaped itself over many years.”
–write to mark.cobley@dowjones.com