British Land is in talks to buy residential operator Fizzy Living in an attempt to muscle in to the UK rental market.
The UK’s second largest REIT is set to buy the platform from housing association Thames Valley Housing.
A deal would be the biggest nod yet to the establishment of the private rented sector as a mainstream asset class in the UK, with a blue chip UK REIT buying in a new arm to establish itself in the market.
Along with the management company, TVH is in talks to sell its 16% stake in Fizzy’s existing underlying portfolio to British Land, with joint venture partner Abu Dhabi Investment Authority (ADIA) retaining its ownership of the remainder. Negotiations are in the early stages.
Fizzy has a nearly 1,000-flat portfolio across eight sites in London, seven of which are operational.
A spokesman for TVH said: “We’re delighted with how Fizzy has grown over the last six years and, as it’s a leader in the BTR the sector, other parties are naturally interested in acquiring it.
“TVH has always had an exit strategy for our investment in Fizzy, and we continue to keep that option under review.”
Firepower for expansion
Based in Twickenham, Fizzy employs more than 20 people.
It was set up by former CBRE senior director Harry Downes in 2012 with seed capital of £30m from TVH and £40m of debt from Macquarie Capital, before ADIA committed £400m across 2014 and 2015.
It has focused heavily on the management and operation of its blocks – each of which is run by a “Bob”, or onsite manager – and branding, through its “reinventing renting” campaign.
A deal for the company would give British Land an instant platform and management capability in the private rented sector, and it has the firepower to expand its operations.
British Land already owns a number of sites around London on which it has said it intends to build residential. This deal means the schemes could be brought forward and managed by the rental company.
At its Canada Water campus project, SE16, it is planning 3,000 flats – a substantial portion of which will be for rent – while a number of its shopping centres have the potential for residential development above.
At a Tesco supermarket it owns in Bromley by Bow, E3, it has worked up plans for 670 flats, while at its recently acquired 4.9-acre Woolwich Estate it said PRS would be an option.
PRS interest grows
The PRS has attracted a weight of interest from equity-rich investors in recent years, particularly as falling returns in other sectors make the relatively low-yielding rental market more attractive.
Opportunities to gain exposure on scale have been rare, although this year has seen a step-up in consolidations as the sector matures and early movers look to exit.
Oxford Properties has bought a share of Delancey and Qatari Diar’s £1.5bn Get Living, which owns the Olympic Village, E20, and CPPIB announced a £1.5bn a tie up with Lendlease to establish a rental portfolio.
Lone Star is currently looking for a buyer for £2.5bn Quintain and its 5,000 homes at Wembley, while Greystar is in talks to buy Castleforge’s £1bn, 3,300-home Inhabit platform.
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