M&G hungry for PRS deals, says fund manager
As the forward funder of Mulbury’s £27m The Astley in Manchester, M&G Real Estate is readying for the completion of its first PRS scheme in the region later this year. While its PRS investments near £700m across the country, M&G remains eager to increase its exposure in the Manchester market, according to head of residential investment Alex Greaves.
The Astley on Port Street topped out in December, and with contractor Bardsley on track to handover the project by the summer, the scheme will be ready to take bookings from tenants in the coming months, Greaves told Place North West.
“We’re now entering the PRS scaling phase”, says Greaves
“The Astley is our first entry into the North West market, and it’s on schedule,” Greaves said. “So now we’re looking at further investments in Manchester, we’re keen to do more deals and increase our regional exposure.”
Greaves manages M&G’s UK residential property fund, established in 2013 to enable M&G to capitalise on the growth potential of the emerging private rented sector. According to Greaves, he has £400m of stock currently, and a further £300m under development.
“But 80% of that portfolio is in London, and exposure in Manchester remains under £40m. I want to increase that exposure, although I won’t sacrifice getting the right returns.”
M&G’s PRS fund is geared towards either buying completed assets, or forward funding new projects, as long as the blocks are specifically designed for the rental market. M&G retains ownership and is responsible for the long-term management of the buildings, and targets an annual net return on its investment of 6-8%. The fund invests on behalf of UK and international investors, including pension funds, insurance companies and local authorities.
“The ideal purchases are sites that are ready to develop or already in planning,” said Greaves. “Areas around stations always has potential, although there is a risk that the responsibility falls on third parties to ‘placemake’ the area, and if that doesn’t happen you end up as a scheme standing on your own.”
Greaves’ work fits within M&G’s wider residential investment team, which in turn forms part of a portfolio which totals nearly £28bn in assets including retail, industrial and offices.
The PRS sector has moved from the hype to the delivery stage over the past few years, with many high-rise schemes coming out of the ground across Manchester and Salford, prompting questions over whether the city risks over-saturation.
“There’s definitely still scope to invest in the city, even considering all of the schemes coming through,” Greaves reassured. “I believe there is depth to the market, but there is a limit to how many people are willing to rent at the premium end, especially with the option to buy a house in the suburbs and pay for parking in the city centre, which would just not be possible in London.”
As cities like London, Manchester and Birmingham draw the majority of the attention, and money, in the PRS market, are institutional investors like M&G ready to look further and invest in places such as Liverpool or Chester?
“Not yet,” says Greaves. “It’s about an investor journey. Taking investors into residential investment was a leap of faith. Then outside of London, an even bigger leap of faith, so to then take it out even further requires an even bigger leap of faith.
“Investors need to think about where they go and when. I absolutely want Liverpool in my portfolio, but not yet.”
Greaves is now looking to the next stage of growth for the fund.
“We’re now in the scaling phase. It will be five years since the PRS fund launch in 2013, and I’m focusing on projects in Manchester, Leeds and Birmingham. We’ve gone from no investments in 2013 to commitments close to £700m across 22 projects in 2018. It’s still early days but we’ve made significant progress.
“As we go into that scale phase, we have to have ambition in the regions.”
