Macquarie’s UK build-to-rent debut began just before the pandemic. The Australian investment bank, the world’s largest infrastructure asset manager, had been waiting to make its move, hunting out a developer partner to back for its first investment in the sector.
The bank spied an opportunity following an introduction to industry veterans Darryl Flay and Martin Bellinger (pictured, right). As the country went into lockdown, the team negotiated the new business via countless video calls. This month, Goodstone Living finally launched.
“It was probably, soup to nuts, about a year from meeting,” says Dana Gibson (left), co-head of Macquarie Asset Management’s Real Estate team in Europe. “Macquarie has a long history in the sector, both globally and here in the UK,” he adds. “Residential for-rent real estate matches our global strategy.”
Back in 2012, Macquarie advised the set-up of BTR developer Fizzy Living and provided £40m in debt to the venture. Separately, it advised Grainger and Unibail-Rodamco-Westfield on BTR strategies. In the US, it has two ventures, but had yet to directly invest in the sector in the UK.
“From a principal investing standpoint, this is our first go here in the UK,” adds Gibson. “We spent a lot of time advising a lot of people and we didn’t buy into any other platform. We started our own for a reason – we didn’t see anything that we were totally in love with.”
He adds: “We’ve had a long survey of the market. We had just been looking for the right time to enter and with the right group to back.”
For Bellinger, the new business started its formation a year earlier. That’s when he reunited with long-time partner Flay and began carving out plans for a new platform.
“We were just evaluating how we were going to take this forward, what we were going to do to try and position it and attract capital, and so on,” he says.
The pair have known each other for 35 years and worked on various ventures, the most high-profile being BTR specialist Essential Living. Together with Scott Hammond, Flay and Bellinger were founding partners of Essential Living in 2012. The company was backed by $200m (£145m) in equity from M3 Capital Partners through its investment company Evergreen Real Estate Partners and quickly hoovered up sites around London and the South East.
But Bellinger insists that Goodstone will be very different to Essential. “We want to try and distance it in a positive way from the other alternatives in the marketplace and to do something that is genuinely a bit different and a move on from what everyone else is doing,” he says.
The most obvious difference is Goodstone’s geographical focus on the regions. “We feel the market in those locations is strong and we want to respond to that demand. Absorption rates are low and we feel there is an opportunity for our product in those locations,” says Bellinger. “That is a marked departure from what Darryl and I did before.”
Ten years ago, the BTR sector was just getting started. Over the preceding decade there had been speculation about what a professional rental product might look like in the UK.
“All sorts of people had given us discussions, almost like pub talk, about the possibility of setting up rental platforms,” says Bellinger. “It was one of those things that you’d talk about for 15 minutes, and then you’d move on and not think about it until the next time it was raised.”
We want to cast the widest possible net and don’t want to get caught only doing luxury or affordable. Every market has different needs and wants
– Dana Gibson, Macquarie
As those musings grew, he recalls a realisation around Christmas 2010. “There was this huge latent rental market that was crying out for some quality management and expertise to take over and deliver a structured, managed offer to residents and it just wasn’t there,” he says. “Yet there was this extraordinarily active market and we realised that someone – and it might as well be us – ought to get in amongst it.”
There was no policy or planning recognition of the asset class. Bellinger collaborated with other first movers to get BTR included in the National Planning Policy Framework and into the London Plan. This work enabled local authorities and policymakers to become familiar with BTR, providing greater certainty for investors, in turn helping to grow the sector.
“Back in the early days, this was a pretty barren landscape,” Bellinger adds. “Now, of course, there are a number of groups who’ve entered the space. It’s a much more crowded pitch than when we first jogged out of the changing rooms in 2011.”
Goodstone aims to create a new BTR product. The team will do this primarily through ground-up development. But with a target to scale quickly, buying built and stabilised assets, forward funding consented schemes and M&A are all on the table too.
“The primary focus is develop-to-core with a gear towards long-term hold,” says Gibson. “Our opportunistic real estate business is really about backing best-in-class operators and helping them to scale a business, take their skillset which is development and operation and use Macquarie to build out a broader investment business.”
By way of comparison, when Macquarie formed the Victory Abode Apartments joint venture in 2018 with Texas-based Southern Properties Capital, it already had 10,000 homes. The venture is one of two multi-family ventures in the US, offering a high-end and more affordable housing offering.
With Goodstone, it wants to incorporate both. “We want to cast the widest possible net and don’t want to get caught only doing luxury or affordable. Every market has different needs and wants – our products will be differentiated by the market where they sit and the market they serve,” Gibson adds.
This is still urban development, but edge of urban, with flats that provide additional indoor space for home-working, multi-generational communities and outdoor green space with an emphasis on wellbeing. Bellinger says: “We perceive that there will be a wellbeing premium attached to this and we want a Goodstone building to be more attractive and rent better, because it is healthier and more productive and supports the physical and mental health of our residents.”
Goodstone is closing in on its first schemes, expected to be unveiled in the coming weeks. As Bellinger and Flay double down on regional development, the goal is to raise and deploy £1bn. The business can then tap into Macquarie’s global supply chains and digital and operational tools, supporting the strategy to scale quickly.
Meanwhile, although Gibson and Macquarie are concentrated on Goodstone, they are already pursuing other beds businesses. In April, Macquarie inked a £200m deal with John Laing backing McCarthy Stone’s senior living BTR business through the formation of the joint venture Brigid Investments.
Gibson adds: “Looking at other beds sectors, we are exploring opportunities and have also done some work there.”
So it’s also fair to say that, now, the work is really only beginning.
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