The Collective Old Oak is close to being bought by Newham Council’s PRS developer Red Door Ventures.
The arms-length development company, which uses council funding to build rental schemes around London, is understood to be paying close to £120m for the co-living scheme.
The Collective Old Oak is the first large scale co-living scheme to be sold in the UK and has been seen as a litmus test for interest in the sector.
Its hybrid position between the student and PRS markets, which are raising billions in investment, means it attracted interest from a variety of institutional investors.
It was put up for sale in May through JLL and Savills with a price tag of more than £100m for the 546-bedroom, 323-flat scheme. That reflected a yield of 4% and 5% depending on the proportion of student occupiers, who pay lower rents.
It has been operational for over a year and is around 97% occupied. Rents range from £200 to £360 per week.
Red Door Ventures was set up in 2014 as a private yet 100% council-owned company, funded through council-provided loans.
Essentially, the council borrows money from the Public Works Loan Board, then lends it to the PRS company. As this is repaid, the council gets an income stream, while the development vehicle gets cheaper funding than if it went to the private lending market.
It initially intended to build around 3,000 homes over the next 10 years, but recently upped its intentions, intending to double the number over the same period. It also started to invest outside of Newham.
Councils around the country have been investing into commercial property due to cuts to government funding and their ability to access cheap cash through the PWLB.
Some of the most high profile acquisitions include Spelthorne Council buying the BP International Centre in Surrey for £360m last year, and Warrington Council’s £205m acquisition of Birchwood Park in Warrington in 2017.
According to EG data, councils have spent £2.3bn in commercial property since July 2015, of which more than 20% was outside their own jurisdictions.
There were reports and consultations before the budget in November that there could be a clampdown on council investment outside their jurisdictions. However, no such announcement was made.
The Collective, which also has sites in King’s Cross, Kentish Town and Stratford, was set up by Reza Merchant in 2012.
It is not the majority owner of the Old Oak property, though it retains an interest, and is the management company. According to the Land Registry, the scheme is owned by Singapore-incorporated London Properties PTE, which bought it for more than £11m in 2014, and is financed by Singapore-based United Overseas Bank.
In an interview with EG in 2014, Collective chief executive Reza Merchant said that funding for the business came from a number of sources.
While there has been some doubt about how co-living schemes would be classified in planning terms, last week’s London plan had a surprise section that defined student schemes without a university partner as co-living.
Read the full analysis of changes to the London plan and how co-working is classified.
JLL and Savills were advising the vendor, KPMG the buyer.
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